Election of Judge to Illinois Supreme Court Bodes Well for Judicial Reform

This past election day, voters in the southern portion of Illinois (the Fifth Appellate District) cast ballots for a new Illinois Supreme Court justice to represent that District. The bitterly contested election between Lloyd Karmeier (R), a circuit court judge from Washington County, and Gordon Maag, an appellate court justice from well-known Madison County was the single most expensive judicial election in the history of the United States. Maag is a well-known promoter of plaintiffs' rights, frequently issuing opinions that benefit plaintiffs’ class action attorneys, which have led to Madison County gaining national prominence as the class action capital of the country. Karmeier, on the other hand, is a conservative judge who strongly favors restrictions on the ability to bring far reaching national class actions. The Plaintiffs' bar donated millions to Maag and justice reform groups donated millions to Karmeier. In he end, Karmeier defeated Maag and will soon join the Court representing the Fifth District.

Notably, Maag was the author of the opinion upholding the $1.2B nationwide class action judgment in Avery v. State Farm, which is now on appeal to the Illinois Supreme Court. The oral argument was in May of 2003 but there is no decision yet. One of the crucial issues in that case was whether Illinois courts can apply the Illinois Consumer Fraud Act universally to parties from other states in nationwide class actions, so called extra-territorial application. This issue was previously before the Court in Oliveira v. Amoco Oil Co., 776 N.E.2d 151 (Ill. 2002), but the Court avoided the issue by deciding that case on other grounds. Because consumer fraud laws vary quite materially from state to state, unless Illinois courts can apply the Illinois act uniformly to parties from all 50 states, it becomes very difficult to certify a nationwide class for consumer fraud claims. One of our attorneys, Kevin Clancy, drafted an amicus curiae brief to the Court arguing against the nationwide application of the Act on behalf of a major insurance carrier. Though it remains to be seen how the Court will rule in the Avery decision, the addition of Justice Karmeier to the Court bodes well for some expectation of reform and limits on widespread litigation not just in Southern Illinois but also throughout the State.

If you have any questions or concerns about claims under the Illinois Consumer Fraud Act, or how those claims may affect your business, please feel free to contact either Gerald Haberkorn (312) 456-2701, Kevin J. Clancy (312) 628-7855, or Joan M. Kubalanza (312) 628-7194. We would be happy to discuss those matters with you.

PHYSICIAN SELF REFERRAL REGULATIONS

PHYSICIAN SELF REFERRAL REGULATIONS: STARK II, PHASE II
IS THAT ALL THERE IS?


Shellie Karno,
Law Firm of Lowis & Gellen

SUMMARY

On July 26, 2004, Phase II of the interim final regulations of Stark II became effective.1 The regulations are the second of two phases of the final Stark regulations.2 The Center for Medicare and Medicaid Services (“CMS”) has clarified that the original regulations issued in 1995 are now superceded by these interim final rules.3 The Phase II regulations continue the trend of liberalizing interpretations and adding exceptions. This article provides a short overview of the federal physician self-referral statute and explores the recent significant changes.

CONCLUSION

The intent of the Phase II regulations is “to reduce the burden and prescriptive nature of the Stark law”. However, the physician self-referral regulations have been 15 years in the making and embody hundreds of pages of statute. Don’t try to sort this out yourself at home. The sanctions associated with a violation can be devastating to a provider. The public and private enforcement initiatives will continue their upward spiral. For questions about the Stark II Phase II regulations, or about self-referral issues in general, please contact Shellie Karno or Jerry Clousson at the law offices of Lowis & Gellen.

BACKGROUND

The physician self-referral rules prohibit a physician from referring patients to an entity for the furnishing of designated health services covered by Medicare, when the physician, or an immediate family member, has a financial relationship with the entity. 4 The regulations defined “designated health services” to include:

• Clinical laboratory services
  
  
• Physical therapy services
  
  
• Occupational therapy services
  
  
• Radiology services
  
  
• Durable medical equipment
  
  
• Prosthetics
  
  
• Outpatient prescription medication
  
  
• Home health services
  
  
• Outpatient hospital services.
  

This means that a physician cannot refer a patient covered by Medicare for any of the above services to an entity wherein the physician has a financial interest. The law has carved out many exceptions to the self-referral prohibition. However, even when the transaction does fall within an exception, it is imperative that the amount of payment reflects fair market value and is not based on the volume or value of the referrals.

EXCEPTIONS TO THE SELF-REFERRAL PROHIBITION

While the statute sets out a general prohibition against self-referral, the heart of the statute is the list of arrangements and relationships where the prohibition does not apply. Exceptions are generally categorized into three types: the ownership interest exception, the compensation arrangement exception, and the all purpose exception.

The ownership interest exception allows for physician ownership of investment securities that can be purchased on terms generally available to the public.6 For example, a physician does not violate the self-referral prohibition by ordering medications manufactured by a publicly owned pharmaceutical company that he or she owns stock in. The ownership interest exception also applies to providers in rural areas, and to hospitals located in Puerto Rico.7 The ownership interest exception extends to ownership interests in hospitals when the physician is on staff at the hospital and is authorized to perform services.8

Compensation arrangement exceptions include the rental of office space and equipment, provided that the physician does not share the space or equipment with the landlord.9 Bona fide employment agreements are excepted,10 as are personal services arrangements such as a medical director.11 Physician incentive and physician recruitment plans that meet certain criteria are excepted from the self–referral prohibition.12 The exception that allowed for a one time or isolated transaction has been expanded under the new regulations to permit multiple payments that are integrally related.13 Payments made by a physician to a laboratory for the provision of clinical lab services, or to an entity for other items or services, are allowed provided the items and services are furnished at fair market value. 14

The regulations carve out an exception for certain group practice arrangements between a hospital and a group practice if the arrangement is commercially reasonable, and otherwise qualifies for the exception.15 The group practice exception allows for referrals to physician services provided by another physician in the same group practice. In-office ancillary services, excluding durable medical equipment, that are furnished by the referring physician, or by a member of the group, or by individuals who are supervised by the referring physician or group member, fall within the in-office ancillary services exception. 16 Designated health services may be furnished in one of two places - a centralized building used by the group practice to provide designated health services, or in the same building that the referring physician or the group practice provided services unrelated to designated health services.

PHASE II EXCEPTIONS

The regulations create several new exceptions covering charitable donations by physicians,17 hospital referral services,18 obstetric malpractice insurance,19 professional courtesy discounts,20 payments made to retain physicians in underserved areas,21 and intra-family referrals in rural areas.22 The new regulations also provide a 90 day grace period for arrangements that have fallen out of compliance with an exception.23 The physician recruitment exception now allows for remuneration from a hospital in return for relocating to the geographic area served by a federally qualified health center.24 The employment relationship exception now permits the physician to be paid a productivity bonus based on personally furnished designated health services.25 Compensation arrangements based upon a percentage of the professional services provided can qualify for an exception, as long as the percentage itself is set in advance. The office and equipment exception has been liberalized to apply to any lease arrangement, including capital leases.26 This exception also allows for many sublease arrangements, provided that the tenant does not share the space or equipment with the lessor.

The earlier academic medical center exception was fraught with various conditions for the medical center and the physician. In Phase II, the CMS accommodated the many requests for a relaxation of several key definitions including expansion of the definition of a qualifying academic medical center.27

REPORTING AND SANCTIONS

The regulations require that each entity furnishing Medicare covered items or services provide the Department of Health and Human Services (“HHS”) with information regarding the entity’s ownership, investment and compensation arrangements.28 However, CMS is still developing a procedure for implementing the reporting requirements and does not currently require any reporting until such procedures are put in place.29 In the reporting requirements described in the Phase II regulations, an entity “may be required” to submit information upon request of the HHS or CMS. 30 Entities are given 30 days from the date of the request to provide the information.

Stark provides for two types of sanctions: 1) non-payment of improper claims for designated health services and recoupment of amounts already paid, and 2) civil monetary penalties of $15,000 for knowing violations. 31 In addition, violations of the self-referral prohibition may also be prosecuted by the Department of Justice under the False Claims Act.32 Violations under the False Claims Act can be pursued by whistleblower actions, and the monetary incentives of such lawsuits may obviate the need for government enforcement.

1. 69 Fed. Reg. 16053
2. 42 U.S.C. 1395 nn
3. www.cms.hhs.gov/media/press/release.asp. Accessed 3/29/04
4. Id at (a) (1)
5. Id at (a) (6) (A-K)
6. Id at (6) (1) (a) and (b)
7. Id at (d) (1) and (2)
8. Id at (d) (3)
9. Id at (e) (1) (A) and (B)
10. Id at (e) (2)
11. Id at (e) (3) (A)
12. Id at (e) (3) (B)
13. 69 Fed. Reg. 16098
14. 42 U.S.C. 1395 nn (e) (8)
15. Id at (e) (7)
16. Id at (b) (2)
17. 42 C.F.R. 411.357 (j)
18. Id at 411.357 (q)
19. Id at 411.357 (r)
20. Id at 411.357 (s)
21. Id at 411.357 (t)
22. Id at 411.355 (j)
23. 69 Fed. Reg. 16057
24. Id at 16139
25. Id at 16138
26. Id at 16086
27. Id at 16137
28. 42 U.S.C. 1395 nn (f)
29. 63 Fed. Reg. at 1703
30. 69 Fed. Reg. at 16142
31. Id at 16056
32. Id at 16126

LOWIS & GELLEN WINS TWO MAJOR LABOR ARBITRATIONS

June 30, 2004

Lowis & Gellen's team of Robert Smeltzer and Patrick Moran recently delivered major victories for two clients in consecutive labor arbitrations.

In the first case, decided June 16, 2004, Mr. Smeltzer and Mr. Moran successfully defended their manufacturing client's right to train and assign employees to specific work, regardless of seniority. The Paper Allied Industrial Chemical and Energy Workers Union initiated the dispute against the company, a metal stamping manufacturer, alleging the company had violated the collective bargaining agreement by laying-off a tool and die maker with 36 years of seniority. The company had retained two other tool and die makers with much less seniority, because they were the only employees in the tool and die maker classification qualified to operate and maintain four specific machines on which the laid-off employee had not been trained. The company argued that the collective bargaining agreement recognized an exception to lay-offs by seniority to ensure that employees remaining in the affected classification possessed the qualifications to perform all of the work involved in that classification. The union argued that the employer's decisions about whom to train was a pretext to avoid the seniority provisions.

Mr. Smeltzer and Mr. Moran persuaded the arbitrator to uphold the company's right to exercise its discretion under the collective bargaining agreement to manage its workforce. The arbitrator also found that whether other workers who were not tool and die makers could operate the machines was irrelevant, because the collective bargaining agreement specifically permitted the employer to lay-off by classification.

On June 30, 2004, Mr. Smeltzer and Mr. Moran prevailed again in a labor arbitration involving a wage dispute. In this case, the union, Laborers' Local 309, claimed that the company, a supplier of traffic control devices for construction projects, violated the collective bargaining agreement by not paying its employees prevailing wages for "public works projects," covered by the Illinois Prevailing Wage Act. The Illinois Prevailing Wage Act requires construction employers to pay their employees prevailing wages, which are usually several dollars per hour more than normal, for work on "public works." The union claimed that state law required the company to pay prevailing rates for every single project on which the company supplied equipment. The company argued that the union failed to meet its burden of proving that all of the company's work invovled "public works" per the statutory definition. In finding for the company, the arbitrator noted that there was simply no evidence that the company had violated either the Illinois Prevailing Wage Act or the collective bargaining agreement.

Robert Smeltzer is a 13-year veteran of labor and employment arbitrations and federal and state court trials. Patrick Moran is a trial and arbitration attorney with significant experience in labor and employment claims.

For more information, please contact:
Robert Smeltzer(312) 456-7952
rsmeltzer@lowis-gellen.com

Lowis & Gellen Client acquires Aluminum Clad Steel Wire Manufacturing Business.

March 1, 2004

Lowis & Gellen represented the buyer, ("Buyer") in its purchase of the assets of a California based aluminum-clad steel wire manufacturing company (the "Business"), a subsidiary of a large multinational company. The all cash acquisition successfully closed today.

Founded in 1912, and operating out of its plant in Illinois, Buyer is a leading manufacturer and marketer of bare and insulated copper and aluminum wire, ACSR, aluminum-clad steel, copper-clad steel, building wire, underground power cables, welding cables, ground rods, and medium voltage cables for the utility, telecommunication, electrical distribution, and OEM markets nationwide. The addition of the Business, which will operate as a division of Buyer, represents a strategic expansion of Buyer' product offering and customer base.

The Lowis & Gellen team consisted of Jerry Haberkorn, Bob Leavitt and Julie Herlien, and exclusively handled all legal aspects of the transaction for Buyer including negotiating and drafting the purchase and financing documentation.

For more information, please contact:
Jerry Haberkorn(312) 456-2701
geraldh@lowis-gellen.com

Lowis & Gellen Client sells its All Natural Food Businesses to National Food Conglomerate.

August 15, 2003, Chicago - Lowis & Gellen represented the sellers (the "Sellers") in the sale of their all natural food businesses (the "Business") to a national food conglomerate (the "Buyer"). The transaction entailed a combination of cash, preferred equity and junior subordinated debt, and successfully closed today.

Headquartered in Chicago, Illinois, the Business offers a broad line of distinctive natural fresh and cooked sausages and other value added food products to customers nationwide under a nationally recognized brand name. The Buyer, a leading natural and organic meats company, owns interests in companies throughout the country producing organic and natural chicken and beef products. The addition of the Business greatly expands the depth and breadth of the Buyer's already extensive offerings of sausage products.

The Lowis & Gellen team consisted of Jerry Haberkorn, Bob Leavitt and Jim Lechowicz, and exclusively handled all legal aspects of the transaction for the Sellers including negotiating and drafting the purchase, debt and equity structures and documentation.

For more information, please contact:
Jerry Haberkorn(312) 456-2701
geraldh@lowis-gellen.com