Health Law Update

This is a review of cases, primarily appellate decisions, recently decided by the Massachusetts courts and Federal court in the 1st Circuit and not contained in the citations of my colleague Steven Rosenfeld. In addition, one case pending before the United States Supreme Court is discussed. You will see that the area covered by "health law" is wide indeed, for which there is no single theme. But there are some themes which can be described as prominent: look for example, at the recent cases involving subpoenas by the U. S. Department of Justice to review the medical records of patients who have undergone procedures prohibited by the recent partial birth abortion law passed by Congress and signed by President Bush. Look also at the tensions between states seeking to protect patients against malpractice and the preemption provisions of ERISA now before the U. S. Supreme Court. Hot topics are these, raising important and interesting issues. At the same time, consider the more mundane, such as the Massachusetts case looking at the issue of vicarious liability of a corporation for the actions of its employees.

In keeping with the discussion of hot issues first, here goes:

A. FEDERAL COURTS

Aetna Health, Inc. v. Davila (02-1845) and Cigna Healthcare Of Texas, Inc. v. Calad (03-83)

Pending in the U.S. Supreme Court, and set down for argument in late March, are the consolidated cases of Aetna Health, Inc. v. Davila and Cigna Healthcare of Texas, Inc. v. Calad. In these cases, (referred to as the "world series" of ongoing litigation over patients rights) the issue is whether the Texas law giving patients the right to sue insurers and HMOs for malpractice is preempted by ERISA, a position rejected by a number of circuits, including the 1st. (See Hotz v. Blue Cross and Blue Shield of Massachusetts, Inc. 292 F.3d 57, 2002). In Hotz, the First Circuit held that a claim under 93A for the insurance company's alleged failure to approve payment for a course of therapy recommended by her physician was preempted by ERISA. Citing the then Supreme Court authority, Judge Boudin concluded that the case was preempted by ERISA and that 93A could not apply, but the brief for the plaintiff-patients in the cases before the Supreme Court rely on a Texas statute that requires insurers and HMOs to exercise "ordinary care" in making health care decisions and because such decisions are increasingly made before the treatment, the due care required by the Texas law may not be preempted by ERISA.

It should come as no surprise that plaintiffs and their lawyers generally chose to bring their suits in state courts with the potential for high punitive and compensatory damage awards from sympathetic juries. Because both Davila and Cigna HealthCare will determine potentially premium increasing liabilities, these cases are important to all HMOs, managed care plans, and businesses that seek to provide health care benefits to their employees at manageable costs. In addition, this reader thinks the Hotz decision may have been different had the Supreme Court already ruled on the Fifth Circuit decision.

Reproductive and Health Privacy Rights

In several actions around the country (not yet here in the Commonwealth) physicians are in a battle with the US government over the law banning partial birth abortions, on the ground, inter alia, that the law makes no provision for the health of the mother and is therefore unconstitutional. The Department of Justice has since responded with the issuance of subpoenas seeking the medical records of patients, allowing, for now, the removal of identifiers under the precept that Federal law "does not recognize a physician-patient privilege." For a good discussion of the issues, see the decision in the U.S.D.C. for Eastern Illinois in National Abortion Federation, et al v. John Ashcroft, (No. 04 C 55), a 2004 case, in which Judge Kocoras ruled that HIPPA does not preempt state laws that are more protective of medical records, and that the law of Illinois effectively fulfills that function.

Note: To illustrate how healthcare lawyers face changing events, newspapers have recently reported that the Department of Justice had withdrawn its subpoenas above described, with an accompanying caveat that they might renew them later. However, official court orders concerning these subpoenas continues to flip-flop in New York, where in the past week a judge ordered the release of records only to have that order temporarily enjoined by a federal appeals court in Manhattan.

Alves v. Harvard Pilgrim Health Care, Inc. et al., 316 F.3d 290 (1st Cir. 2003) (No. 02-1817)

Former beneficiaries of various Employee Retirement Income Security Act ("ERISA") health care plans brought a proposed class action against sponsors of the plans and related medical services providers. Their complaint alleged that the sponsors' decision to charge co-payments in excess of prescription drug costs, their failure to disclose material information pertaining to such costs, and their disclosure of misleading information violated terms of plans and thus constituted a breach of fiduciary duty under ERISA and federal common law. The United States District Court for the District of Massachusetts granted summary judgment for defendants and the former beneficiaries appealed.

The 1st Circuit Court of Appeals held that: (1) the plans clearly described in writing what beneficiaries had to pay negating any breach of fiduciary duty or any affirmative misrepresentation, and (2) it that would not address the complicated question of what remedies might be appropriate for various alleged violations where there was no violation at all.

In so holding, the Court added that the providers did not violate any provision of ERISA because the term "co-payment" referred to the fees the participants were paying for drug benefits and not what the participants were contributing toward the cost of the drug.

Bryson v. Shumway, 308 F.3d 79 (1st Cir. 2002) (No. 02-1059)

Persons with "acquired brain disorders" or "ABDs" (defined as a severe and life-long disabling condition which significantly impairs a person's ability to function in society) brought a 1983 action for declaratory and injunctive relief, claiming that the failure of state human services officials to expeditiously provide home and community-based care violated their rights under Medicaid Act, Americans with Disabilities Act (ADA), and Rehabilitation Act, as well as their due process rights.

The United States District Court for the District of New Hampshire entered injunctive relief in favor of plaintiffs, and an appeal was taken.

In 1993, New Hampshire requested federal approval to provide home and community-based services for individuals with ABDs under the Medicaid waiver provisions. Section 1915(c) of the Social Security Act, 42 U.S.C. 1396n(c), permits states to include in their Medicaid plans non-medical services, such as case management, habilitation services, and respite care. States must apply for a waiver and be approved in order to include such services in their Medicaid plans. Programs approved under this subsection are waived from many Medicaid strictures, such as the requirements that programs be in place statewide, and that medical assistance be made available to all individuals equally. Waivers are initially approved for three years and may be re-approved for five-year periods. The waiver program is designed to allow states to experiment with methods of care, or to provide care on a targeted basis, without adhering to the strict mandates of the Medicaid system.

In practice, the waiver programs may be costly to the states, because even though the individuals served by the waiver plan are no longer being served by nursing homes or other care facilities, other patients may take those nursing home spots. Many patients not currently being served under Medicaid may also apply for the waiver program. The states thus have a financial incentive to keep their waiver programs small, or at least, to begin with small programs and grow them incrementally.

The patients sued, on behalf of a class, relying on Medicaid statutory language, 1396n(c)(10), and arguing that if New Hampshire set up a model program at all, Congress required that the waiver program have at least as many slots as the number of applicants, up to a limit of 200. New Hampshire's model waiver request, however, proposed to serve a far smaller number of individuals than the 200 person maximum.

The Court held that neither the language nor the structure of 1396n(c)(10) supports the plaintiffs' reading; the statute does not require applications for state waiver programs to serve at least 200 individuals. Rather, this statute, is most plausibly read as limiting only the ability of the Secretary to impose such restrictions, and not the ability of the states to propose or the Secretary to approve waiver plans serving fewer than 200 individuals.

The policy reasons are obvious: states, and particularly small states, may be discouraged from applying for model waiver programs at all if the choices are a program serving 200 individuals at the partial expense of the state, or not creating a model program at all and providing only the standard Medicaid services. Rather, Congress wished to encourage the states to pursue waiver programs, so that the states would create the types of model programs contemplated.

In sum, the 1st Circuit Court of Appeals held that: (1) the State was not required by statute to accommodate at least 200 individuals; (2) the statute requiring services to be provided with reasonable promptness conferred federal right enforceable under 1983; and (3) remand was required to determine whether State was reasonably prompt in filling empty slots.

Masucci v. Chiu, 2003 WL 192165 (D. Mass)(No. 02-10949-RWZ)

Plaintiff alleged that her Blue Cross primary care physician inappropriately touched and sexually assaulted her and sued the physician and insurer in Massachusetts state court.

Against the defendant physician, the plaintiff asserted claims of assault and battery, and intentional and negligent infliction of emotional distress. As for defendant Blue Cross, plaintiff contended that it breached implied and express warranties of quality by designating the defendant physician as a primary care physician in its provider network.

Defendant Blue Cross removed the case to federal court and then filed a Motion to Dismiss or, in the Alternative, for Summary Judgment, on two grounds: (1) the Employment Retirement Income Security Act of 1974 ("ERISA") preempts the alleged breach claims, and (2) the breach claims cannot be sustained under Massachusetts law. Plaintiff then moved to remand to state court for lack of federal jurisdiction.

Civil enforcement claims under section 502(a) of ERISA, which seek to recover benefits, enforce rights, or clarify rights to future benefits under a benefit plan are completely preempted. Therefore, when a cause of action falls within the scope of Section 502(a), it is removable. Claims concerning the quality of benefits, on the other hand, do not fall under Section 502(a) and are not completely preempted.

Contrary to defendant Blue Cross' contentions, plaintiff was not contending that she was denied benefits. Rather plaintiff's sexual assault claims concern the quality of benefits received. Because plaintiff's claims do not pertain to the civil enforcement provisions under Section 502(a), they are not completely preempted by ERISA. Therefore, since preemption did not apply federal jurisdiction did not exist

Phillip Morris v. Reilly, 312 F.3d 24 (1st Cir. 2002) (No. 00-2425)

Tobacco companies challenged the validity of a Massachusetts statute requiring them to disclose constituent ingredients of their products. The United States District Court for the District of Massachusetts held that the statute was a facially unconstitutional taking and deprived companies of property without procedural due process. Initially, the 1st Circuit Court of Appeals reversed the decision. However, after granting a rehearing en banc, the Court held that the Disclosure Act did in fact constitute a regulatory taking.

The Massachusetts Disclosure Act, Mass. Gen. Laws ch. 94, 307B ("Disclosure Act"), adopted by the legislature in 1996 required that manufacturers of cigarettes, snuff or chewing tobacco sold within the Commonwealth to file an annual report listing, in greater detail than its federal counterpart, disclosing added ingredients as well as the product's nicotine rating.

This information, the Legislature believed, would help consumers make more informed choices about the tobacco products they choose to consume hence increasing public awareness about the potential health effects of tobacco additives.

The final opinion reasoned that (1) the Disclosure Act caused tobacco companies to lose their ability to control valuable trade secrets and (2) the purpose of the law, "reduce risks to public health", advanced no convincing public policy to justify a violation of the Takings Clause.

Rolland v. Romney, 318 F.3d 42 (1st Cir. 2003) (No. 02-1697)

Class of developmentally disabled and mentally retarded residents of Massachusetts nursing homes, who had entered into settlement agreement with state defendants obligating the state to provide specialized services under Nursing Home Reform Amendments (NHRA) to the Medicaid law, filed a motion for further relief concerning specialized services.

The United States District Court for the District of Massachusetts ordered the State to provide specialized services and implement a policy of active treatment and the state appealed. The Court of Appeals held that (1) states are required to provide specialized services to persons found to require both nursing facility care and specialized services for mental illness or mental retardation; (2) residents requiring screening and treatment had a private right of action to enforce that entitlement; and (3) the Commonwealth was properly required to implement a policy of "active treatment" for mentally retarded residents needing specialized services.

In regards to the issue of providing services for "dual need" residents, or those categorized as needing both nursing facility care and specialized services, the 1st Circuit interpreted the purpose of the statute. In doing so, the Court found that statutory language, legislative history, and the rationale enunciated by the Secretary of the United States Department of Health and Human Services ("HHS") in its rulemaking all supported the conclusion that a state is obligated to provide such residents with specialized services if screening deems them necessary.

Additionally, since these residents were denied the right to these services, and since the statute unambiguously binds the states, a private right of action under 1983 (which allows individuals to bring claims in federal court based on alleged deprivations of rights, privileges, or immunities secured by the Constitution and laws) was endowed.

Rosie D. v. Swift, 310 F.3d 230 (1st Cir. 2002) (No. 02-1604)

Medicaid-eligible children brought putative class action against state officials pursuant to 1983, seeking prospective injunctive relief requiring the Commonwealth to provide class members with home-based mental health services as allegedly required under federal Medicaid laws. Officials moved to dismiss on several grounds, including Eleventh Amendment immunity. The United States District Court for the District of Massachusetts their denied motion and officials brought an interlocutory appeal.

The 1st Circuit Court of Appeals held that the Eleventh Amendment, based on congressional intent and lack of available and comprehensive remedies under the Medicaid statute, did not prevent Medicaid beneficiaries from seeking prospective injunctive relief against state officials in federal court.

This holding aligns the 1st Circuit with a broad coalition of other courts (4th, 5th, 6th, 8th, and 10th Cir.) which, have rejected similar arguments aimed at barring suits for prospective injunctive relief commenced by Medicaid beneficiaries against state actors.

A decision on the merits of this case is scheduled for this year.

B. MASSACHUSETTS COURTS

Allen's Pharmacy Cape Ann v. Ferguson
2003 WL 21500552 (Mass. Super.) (No. 03-1913-BLS)

On June 2, 2003, a Superior Court judge struck down a recently enacted $1.30 tax on prescriptions and ordered the Commonwealth to refund $18 million that it collected thus far.

Pursuant to Mass. Gen. Laws ch. 118G, 26, a tax seeking to raise nearly $36 million per year in revenue was adopted as an outside section on the legislation for the Massachusetts budget for fiscal year 2003. From its inception, consumer groups and pharmacies alike heavily disputed the tax.

The Court, despite evidence of political pronouncements to the contrary at the time of the enactment of G.L. c. 118G, Sec. 26, found the statute to be nothing more than an excise tax wrongfully imposed on those operators of any retail pharmacy registered by the board of registration in pharmacy and authorized to dispense controlled substances, including, retail drug businesses.

Flaws in enacting the law were evaluated and exposed where the Department of Medical Assistance failed to certify, as required by the language of the statute, that "it has obtained federal approval of any related state plan amendments and of the availability of federal financial participation for MassHealth expenditures funded in part or in whole by revenues collected from said assessments."

Since the Legislature commanded that the tax shall not be collected until an effective Federal approval of the statute or, in connection therewith, Federal financial participation for expenditures funded by the tax, the assessment was unenforceable.

Finally, as applied to the plaintiffs in this case, the DHCFP's regulations which expanded the definition of pharmacy to include long term care retail pharmacies, community health center pharmacies, hospital outpatient pharmacies and university/college infirmary pharmacies was also held to be invalid since it was in clear contradiction with the previous statute limiting the definition of pharmacy to retail pharmacies or pharmacies registered by a state board. "An administrative agency has no authority to promulgate rules or regulations that conflict with statutes or exceed the authority conferred by statutes" Judge van Gestel stated, adding "the power to levy and establish specific taxes rests exclusively with the legislature. For this reason and the [ ] power cannot be delegated."

Atlanticare Medical Center v. Commissioner Of The Division Of Medical Assistance, 439 Mass. 1 (2003) (No. SJC-08792)

Six medical service providers sought review of decisions by Division of Medical Assistance ("Division") ordering providers to return monies to Division pursuant to its Medicaid reimbursement regulation. The Superior Court Department entered declaratory judgment that reimbursement regulation was unlawful. The Division appealed.

The Supreme Judicial Court held that: (1) the Division's reimbursement regulation was inconsistent with federal statute requiring the Division to seek reimbursement from liable third party, as opposed to provider, thus finding the regulation unlawful, and that (2) the lower court did not improperly rely on Health Care Financing Administration manual in reaching its holding.

In holding for the hospitals, the SJC hesitated to assign the burden of recovery to the hospitals, particularly where the hospitals have exercised diligent efforts to identify third-party liability in the first instance and, through no fault of their own, liability was discovered after they were properly paid.

Conners v. Northeast Hospital Corporation, et al., 439 Mass. 469 (2003) (No. SJC-08802)

Pedestrian brought negligence action against hospital, an employee, and two subcontractors, alleging slip and fall on accumulation of ice and snow in parking lot. The Superior Court Department, Essex County, entered judgment on a jury verdict finding the hospital liable for $183,000, but granted hospital's motion to reduce damages award under Mass. Gen. Laws. Ch. 231, 85k which effectively caps damages against charities at $20,000.

On appeal by the pedestrian, the Supreme Judicial Court held that: (1) hospital was a "charity," and that (2) snow removal directly accomplished its charitable purposes.

In so holding, the SJC ruled that in order to enjoy the statutory cap, a hospital must prove first and foremost that that it is a charitable organization which functions to benefit the community at large. In addition, plaintiff's argument that evidence tending to show that Northeast was a sizeable enterprise, integrated into a corporate structure with several for-profit businesses; generated much of its substantial revenue from paying or fully insured patients; received only a "trivial amount" of its income from charitable sources; and provided minimal amounts of free care was unavailing as well.

Rather, the Court reiterated its long standing policy that, "An institution will be classed as charitable if the dominant purpose of its work is for the public good and the work done for its members is but the means adopted for this purpose. But if the dominant purpose of its work is to benefit its members or a limited class of persons it will not be so classed, even though the public will derive an incidental benefit from such work."

Dias v. Brigham Medical Associates, Inc., 438 Mass. 317 (2002) (No. SJC-08739)

Patient and her husband, as administrators of deceased child's estate, brought medical malpractice action against a Brigham Medical Associates, Inc. ("BMA") on theory of respondent superior.

The Superior Court Department granted summary judgment and entered final judgment for the defendant concluding that to hold BMA vicariously liable for the treating doctor's negligence it must be shown that BMA exercised, or had the right to exercise direction and control over his treatment decisions. Plaintiffs appealed.

After a transfer on its own initiative, the Supreme Judicial Court held that: (1) vicarious liability could be imposed on medical group without proof of ability to control physician's actions, and (2) genuine issue of material fact, whether physician was acting as employee of group at the time he treated patient, precluded summary judgment.

In so holding, the Court stated that to prevail against BMA, the plaintiffs need only establish that (1) at the time of the alleged negligence the doctor was an employee of BMA, and (2) the alleged negligent treatment of the plaintiff occurred within the scope of the doctor's employment by BMA.

Since some dispute remained over whether the physician was acting as an employee of BMA when treating the plaintiff or instead independently providing coverage for some other group, the Court ruled that a judgment on the merits of the case could not be made.

Keene v. Brigham And Women's Hospital, Inc., 439 Mass. 223 (2003) (No. SJC-08894)

Minor brought medical malpractice action against hospital, seeking nearly $6.5 million in recovery for neonatal sepsis and meningitis that minor contracted as a newborn. Plaintiff alleged the infection was a direct result of hospital's failure to administer antibiotics sooner than it did. Following the pretrial hearing, the Superior Court Department, Norfolk County, granted a motion for default sanctions against the hospital for failure to produce requested hospital records and struck its defense of Mass. Gen. Laws. Ch. 231, 85k charitable immunity.

Subsequently, the Superior Court Department held a hearing on the assessment of damages and entered a $4.1 million damage award for minor. Both hospital the and minor appealed and the Appeals Court affirmed the decision.

The Supreme Judicial Court granted leave for further appellate review and held that: (1) the fact that hospital did not at the time of the order for production have records relating to newborn infant's care its possession, custody, or control, did not justify an imposition of a default sanction under doctrine of spoliation for failure to produce such records, and that (2) the trial judge lacked authority to strike the $20,000 dollar statutory cap on damages recoverable against charitable organizations as a sanction for hospital's failure to produce records of care received by the injured plaintiff.

While it was undisputed that the defendant is a charitable corporation and that it was acting in the performance of its charitable purposes when the harm occurred the SJC could not agree with the dissent in the Appellate decision that allowing the statutory cap would "condone the poor record-keeping practices of the hospital" or "send a message to charitable hospitals that losing medial records will shield their employee physicians from liability." Rather, the Court held that "in the absence of an expression of legislative intent that there be exception from the charitable cap in circumstances such as these, we cannot create one."