Healthcare Litigation Trends to Watch in 2020…and Beyond

COVID-19 Update

Editor’s Note: Given its significant impact on the healthcare system, the COVID-19 crisis is likely to present both unique challenges and increased litigation for healthcare entities. In an article for Law360, summarized below, Manatt examines how COVID-19 is impacting litigation across key areas and explores other key trends that will affect litigation even after COVID-19 falls out of the headlines. Click here to read the full article.

If you missed Manatt’s recent webinar examining how today’s healthcare environment is impacting litigation or want to view it again, click here to access the program free on demand and download a free copy of the presentation.


COVID-19: Immediate Challenges

In the immediate term, we face the realities of working and litigating remotely. Courts are estimated to be working at about 25% of their capacity and many cases have been continued.

A workforce that is mostly remote poses additional challenges for standard document preservation and collection processes. Litigants must be mindful that documents created or stored off premises are still subject to any litigation holds.

A host of data security issues also follow various changes stemming from COVID-19. Given the wide use of remote communications, questions about security are causing concern. It is important for litigants to recognize that although government agencies have announced a number of temporary changes to the Health Insurance Portability and Accountability Act (HIPAA), those are generally not designed to address challenges arising from litigation-related disclosures.1

COVID-19: Potential Provider Liability Areas

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

  • The Provider Relief Fund, involving the distribution of billions of dollars in aid to healthcare providers, can present risks for False Claims Act (FCA) actions.  
  • The potential for data breaches resulting from cyberattacks targeting providers may eventually give rise to class actions.
  • Providers’ employees may allege claims regarding employment protections.2 Providers may face claims related to the Emergency Medical Treatment and Labor Act (EMTALA).
  • Standard-of-care issues will remain a key risk area for providers as COVID-19 continues.

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 of disputes and potential litigation 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.

COVID-19: Immunity and Waivers

Many states have begun providing varying levels of immunity. 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 Law (the Stark Law), EMTALA and HIPAA requirements.

Litigation Trends Involving Providers—Focus on the FCA

FCA liability in the healthcare space is not going away during or after the COVID-19 crisis. In 2019, the Department of Justice’s (DOJ’s) FCA recoveries exceeded $3 billion, $2.6 billion of which came from the healthcare industry.3

In Escobar, the 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.”4 The Supreme Court also made clear that the materiality standard is “rigorous”5 and “demanding.”6 No materiality is established “where noncompliance is minor or insubstantial.”7

Since Escobar, many lower courts have struggled to consistently apply the materiality test. Despite current circuit splits on the application of Escobar, the Supreme Court has repeatedly passed on the opportunity for further clarification.

Local Coverage Determinations

Local coverage determinations on FCA liability will likely continue to be contested. After the Supreme Court’s ruling in Azar v. Allina Health Services,8 the Department of Health & Human Services (HHS) issued a memorandum in October 2019 regarding Allina’s impact (known as the Cleary Memorandum),9 asserting that local coverage determinations alone cannot form the basis of an FCA claim. However, local coverage determinations have come into play in analyzing FCA claims.10

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 U.S. Court of Appeals, Ninth Circuit, in Winter v. Gardens Regional Hosp. determined that false certification of medical necessity can give rise to FCA liability.11 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.12

Stark Law and Anti-Kickback Statute

Stark Law and Anti-Kickback Statute violations continue to be an essential part of government enforcement and civil actions. In Bookwalter v. U. Pittsburgh Med. Center, 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.”13 This remains the law in the Third Circuit, as the petition for Supreme Court review was recently denied.14

On the regulatory front, in October 2019, HHS proposed rule changes to the regulations that interpret the Stark Law and the federal Anti-Kickback Statute.15 The proposed changes include creating value-based exceptions under the Stark Law and clarifying 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’s Director of Commercial Litigation Branch, Fraud Section, Michael D. Granston (known as the Granston Memo) laid out the factors for evaluating dismissal of qui tam actions, including curbing meritless suits, preventing interference with agency policy and safeguarding classified information and national interests.16

Meanwhile, appellate courts have split over the DOJ’s power to dismiss FCA suits filed by whistleblowers. Despite the long-standing confusion, the Supreme Court has continued to decline to resolve the discrepancy, as recently as April 2020.17

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 District Court 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.

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 (MHPAEA). Most of the cases concern coverage for residential treatment and other facilities, and the claims focus on MHPAEA’s requirements for Non-Quantitative Treatment Limitations (NQTLs).

Notable Recent Decisions

Recent cases of note include:

  • Julie L. v. Excellus Health Plan, Inc.18 The Western District of New York granted the defendant’s motion for summary judgment, including on an 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.”19
  • Christine S. v. Blue Cross Blue Shield of N.M.20 The District Court of Utah concluded that the plaintiff may proceed simultaneously under ERISA sections 1132(a)(1)(b) and 1132(a)(3) as long as there is no double recovery.

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 the MHPAEA, as well as a separate claim under ERISA Section 1132(c) seeking statutory penalties for failure 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 District Court of Utah granted the defendant’s motion to dismiss, but with leave to amend. The judge also invited the plaintiff to list all documents that the plaintiff contended had been wrongly withheld in the appeals process.21

Shortly after Kurt W., another judge in the District Court of Utah 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 to include more specific allegations.22 The court granted the defendant’s motion to dismiss the MHPAEA claim as insufficiently detailed.23

Finally, in Emch v. Community Insurance Company d/b/a Anthem Blue Cross and Blue Shield,24 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 ....”25

Cases to Watch

We are closely watching two pending MHPAEA cases that are potentially significant:

In the Northern District of California, an action filed in October 2018, Smith v. UBH, challenges UBH’s payment rates for out-of-network psychotherapists.26 The plaintiffs allege that a plan provision reducing certain rates for certain out-of-network therapists is a “Discriminatory Reimbursement Penalty” under ERISA and the 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 NQTL or a discriminatory financial requirement.27 The parties have stipulated to a stay to explore settlement.28

In the Northern District of Illinois, an action was filed against Health Care Service Corporation (HCSC) in October 2019—Smith v. HCSC and MCG Health, LLC.29 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 (MCGs). This claim is significant because many payers use the MCGs to administer claims.30

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 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.

3 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.

4 Id. at 1994.

5 Id. at 1996.

6 Id. at 2003.

7 Id. at 2003.

8 139 S. Ct. 1804 (2019).

9 Available at https://www.law360.com/articles/1222453/attachments/0.

10 See Godecke, 937 F.3d 1201 (9th Cir. 2019).

11 953 F.3d 1108 (9th Cir. 2020).

12 938 F.3d 1278 (2019).

13 946 F.3d at 166.

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

15 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.

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

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

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

19 Id. at *16.

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

21 2019 WL 6790823 (D. Utah Dec. 12, 2019).

22 2020 WL 570257 (D. Utah Feb. 5, 2020).

23 Id.

24 2019 WL 5538196 (S.D. Ohio Oct. 25, 2019).

25 Ohio Rev. Code § 3923.281(B).

26 No. 4:18-cv-06336-HSG (N.D. Cal.).

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

28 No. 4:18-cv-06336-HSG, Dkt 93 Order Granting Stipulation.

29 No. 1:19-cv-07162 (N.D. Ill.).

30 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 defendants to respond to plaintiff’s motion to alter briefing schedule].

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