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Healthcare Reform Law Turns One

Where Are We Now?

 On March 23rd, 2011 the Patient Protection Affordable Care Act (“Act”) celebrated its first birthday. As a reminder, the Act provides a host of new legal requirements for health insurance reforms, and expansion of Federal and State healthcare authority.  Its intent is to improve the quality of care for and provide access to health insurance coverage to millions of Americans. 

Current Impact

 Since becoming law, the Act has done the following:  It fixed a “doughnut hole” for Medicare Part D; it added a high risk pool for those who couldn’t afford certain insurance; it allowed dependents to stay on their parents plan until the age of 26; and it provided for a small business tax credit. It also added language prohibiting insurers from blocking children from joining their parent’s plans if the child had a pre-existing condition. Finally, it added the first healthcare tax known as the “cosmetic tax.” This tax currently only taxes tanning services.

 In addition, beginning in 2011 the Medicare advantage rates are frozen at 2010 levels until the rates catchup to the current Medicare levels.  The Act has redefined medical expenses for FSA’s, HSA’s and HRA’s. Essentially, you can no longer purchase over-the-counter medicines and drugs without a prescription with these types of savings accounts.  Also added was the first market share tax on pharmaceutical companies. 

1099 Issue

The original act provided that starting in 2011, employers would need to start tracking any vendors that may purchase $600 or more of services and goods.  These vendors would receive a 1099 in 2012.  This provision has caused massive issues as it relates to how it would be implemented and whether or not there would be any exceptions to it.  The IRS moved implementation from 2011 to 2012. 

On March 3rd, the House passed a bill which aims to revoke and repeal the 1099 provision.  On April 5th, the Senate passed a measure repealing the 1099 provision.  The White House recently admitted “…that they were pleased that Congress has acted to correct the flaw that placed the unnecessary bookkeeping burden on small businesses….eliminating the 1099 reporting requirement as a right thing to do.”  As such, all parties agree that the repealed 1099 provision is best for the country as it would create a burden on small businesses that otherwise would not have been required.   However, the key sticking point is that Congress now needs to figure out how to offset the estimated $19-22 billion dollars in lost revenue the government would have received by requiring small businesses to file these new 1099 forms had it not been repealed.  This piece is still being worked out.

Accounting Care Organizations

It is also important to know that in 2012 certain primary care services will be treated and billed as accountable care organizations (“ACOs”).  In anticipation of the start date for the ACO’s, on March 31st, 2011, the government, through multiple entities, released guidelines for the ACO’s.  These proposed rules provide legal structures on how to develop ACO’s without violating fraud and abuse, anti-trust, tax and other legal implications.  The guidance issued also clarifies eligibility to participate, quality and privacy required. 

Congressional and Legal Challenges

 Clearly a lot has occurred since the signing of the Act.  However, uncertainty remains high as to the future of the Act, because multiple lawsuits have been filed in different venues ranging from Michigan to Florida, which challenge the constitutionality of the Act.  In some cases the courts have ruled in favor of the government while in other cases, like Virginia and Florida, the courts have ruled in favor of the plaintiffs. 

One such ruling was a ruling out of Florida which multiple states participated in, including Texas.  The Florida judge ruled the entire Act unconstitutional.  The government is appealing this decision to the local Circuit court.  In light of the different courts having different rules, the constitutionally issue will most likely be decided by the Supreme Court. 

In addition, with the Republicans in control of the House and the Democrats no longer a super majority in the Senate, other modifications to the Act are being negotiated.  With the Act just reaching its first birthday, many additional changes may occur this year.

Conclusion

Over the next 18 months there is a good chance the Act will continue to change as the 2012 elections approach.  Regardless of one’s political view regarding this healthcare reform, the Act a year later is still extremely controversial.  Most hope that the Act will not start showing signs of the “terrible twos” over the next 12 months.  Stay tuned…

By Bradford E. Adatto and Michael S. Byrd

 

 

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Business Counsel Services

Personal Liability Pitfalls in Maintaining Corporate Filings, Books and Records

It is widely recognized among large and small business owners alike that running a business through an incorporated business entity can provide officers and directors invaluable protection against personal liability for acts of the business.  Whether formed as a corporation or other form of limited liability entity, such as a limited liability company (“LLC”), limited partnership (“LP”), or limited liability partnership (“LP”), utilizing an entity structure can shield personal assets from those collecting judgments or other debts against the business.  

While careful entity planning is the first step in personal liability protection, it is not the only step.  In order to enjoy the liability limitations afforded by business entity structures, it is critical to maintain the entity in good standing by filing with various offices of the State of Texas all required statutory reports, including in particular those arising under Chapter 171 of the Texas Tax Code.  It is equally important to maintain corporate formalities and keep corporate books and records up to date. 

State Filings

Business entities in Texas are subject to a number of requirements for annual and periodic filings with the Texas Comptroller and Texas Secretary of State.  These include, among others, annual Texas franchise tax reports, annual information reports, and other periodic information reports to update corporate information, such as registered agent, registered office, and various shareholder or partnership interests.  

The specific reports required for each entity vary based upon entity type and ownership, as well as revenues and margins.  Business entities in Texas also may be subject to payment of franchise taxes, or may be required to allow the Texas Comptroller to examine the company’s books and records to verify tax obligations. 

Failing to timely file required reports, to pay taxes due, or to allow inspection by the Comptroller can have significant consequences.  For example, such failures may lead to the forfeiture of an entity’s corporate privileges, including but not limited to the right to transact business in Texas and the right to sue or defend virtually all lawsuits in Texas.  Similarly, under certain circumstances an LLP can be converted to a general partnership for failing to file its annual certificate.  When corporate privileges are forfeited or an LLP becomes a general partnership by operation of statute, the directors, officers, or partners may become personally liable for all debts created or incurred in Texas after the date of forfeiture. 

While an entity with forfeited or converted status may later be reinstated, the reinstatement generally does not absolve the directors, officers, or partners of any personal liability accruing by statutory operation.  In other words, even if the entity’s status is later reinstated, the owners’ and operators’ personal assets may remain exposed to substantial claims based on contracts made, debts incurred, or torts committed during the forfeiture period.  

Corporate Books and Records

            In addition to filings with the State, it is crucial that Texas business entities keep their books and records updated to maintain personal liability limitations.  Whether a corporation, LLC, LP, LLP, or other type, a limited liability business entity is considered a “legal fiction”—an entity which exists by operation of law as separate and distinct from its owners and operators.  Generally this legal fiction protects the owners and operators from personal liability for acts of the business entity.  

Under certain circumstances, however, the entity may be disregarded—known as “piercing the corporate veil.”  When the veil is pierced, the owners or operators become personally liable for the acts and obligations of the business, just as when an entity’s right to do business is forfeited as discussed above.  Failing to maintain the entity’s books and records can support a claim for veil piercing. 

For example, a business entity may be disregarded where it becomes a mere “alter ego” for the owners or operators.  This occurs when the personal assets or affairs of the owners or operators become so comingled with those of the business that the two become indistinguishable.  While failing to maintain the business books and records may not alone be enough to pierce the veil, it can be evidence supporting an alter ego finding.  If the entity has not held regular meetings (e.g., shareholder, director, or member meetings), elected entity officials (e.g., directors, officers, or managers), issued shares, or maintained ownership allocation tables, among other things, the veil may be pierced and the owners or operators of the business may be held personally liable for what would otherwise have been corporate acts or obligations. 

Similarly, the veil may be pierced where two or more businesses are operated as a single business enterprise.  Under this theory, one entity may be held liable for the acts or obligations of another related entity where the operations of the two are so comingled that they become indistinguishable.  As with alter ego, failure to maintain each entity’s books and records can support piercing the veil.  Under certain circumstances, a single business enterprise analysis could be combined with an alter ego analysis to pierce through both corporate entities and hold the owners or operators personally liable. 

Accordingly, even the best laid business entity plans can go awry when corporate filings and corporate books and records are not properly maintained.  In both contexts, personal liability can be created where it otherwise would not have existed.  While this can, of course, pose a significant risk for business owners and operators defending a lawsuit, it can also provide substantial leverage in prosecuting a lawsuit against an entity and its individual owners and operators relating to actions during a time of forfeited corporate privileges. 

By: Michael R. Steinmark.

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Business Counsel Services

Health Care Reform – A Brief Look at Two Arising Issues

 

Introduction

            As you no doubt recall, in late March of this year President Obama signed sweeping legislation overhauling the health care system.  This legislation is commonly referred to as the “Health Care Reform,” or more formally “The Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010.”  The intent behind the legislation is to improve the quality of care in America and provide millions of Americans with access to health insurance coverage.  The law presents a host of new legal requirements, health insurance reforms, and the massive expansion of the federal and states’ health care authority.  While it is still much too early to determine the legislation’s success in achieving its purported intent, we can begin examining some of the effects that have become apparent since the legislation was signed into law. 

Beginning with this article and continuing with future articles, we will attempt to focus on a few key issues that have arisen or been clarified through the issuance of interpretative regulations.  In this article we will (1) examine the effect on the Federal self-referral law (more commonly know as the Stark laws), and (2) review the constitutional challenges that have been launched against the legislation.

Federal Self-Referral Law (“Stark”)

 

One of the effects of the Health Care Reform that is approaching is an expansion of physician disclosure requirements under the In-Office Ancillary Services exception to Stark.[1]

Stark prohibits physicians (or their family members) from referring certain designated health services to any entity where a financial relationship exists between the referring physician and such entity.  This prohibition only applies if services are provided to Medicare, Medicaid, TRICARE, or other federally funded patients (“Program Patients”).  In addition to the prohibitions, exceptions have been created allowing arrangements that are prohibited under Stark to avoid violating Stark by meeting each and every requirement of the exception.  One such exception is the “In-Office Ancillary Services” exception, which allows physicians to provide designated health services within the office of the physician or group practice.  There are limitations on who can furnish the service, where the service can be performed, and who can bill for the service. 

The Health Care Reform expands the In-Office Ancillary Services exception to include an additional requirement that physicians must make certain disclosures to patients.  This additional disclosure requirement is only applicable to the designated health services magnetic resonance imaging (“MRI”), computed tomography (“CT”), and positron emission tomography (“PET”).  Simply, referring physicians must inform patients that they may obtain the services (MRI, CT, PET) from someone other than the referring physician or someone in the physician’s group and must also provide the patient with a list of suppliers who furnish such service.[2]  

In implementing this expansion, Centers for Medicare and Medicaid Services (“CMS”) has issued Calendar Year 2011 Physician Fee Schedule Proposed Rule in an attempt to clarify what is required to comply with the disclosure requirement.  In the proposed rule, CMS has stated that the following will be required to meet the disclosure requirement:

  • The disclosure notice must be given to the patient at the time of the referral;
  • A record of the patient’s signature on the disclosure notice must be maintained as an element of the patient’s medical record;
  • The disclosure notice must indicate to the patient that the services may be obtained from a person other than the referring physician or his or her group practice;
  • The disclosure notice must provide patient a list of at least 10 suppliers within a 25 mile radius of the physician’s office location;[3]
  • The disclosure notice must include the supplier’s name, address, phone number, and distance from the physician’s office location at the time of referral; and
  • Nothing on the notice or supplier list may indicate to the patient that they must receive the services from a supplier on the list if not receiving it from the referring physician. 

It is important to note that the above requirements have only been proposed by CMS and may change when the Final Rule is published on or about November 1.  CMS has received comments through August regarding the proposed rules and should be analyzing them in an effort to draft the Final Rule.  CMS is anticipating a January 1, 2011, effective date for these disclosure requirements to apply so the Final Rule should be closely monitored so proper notices can be prepared accordingly. 

Constitutional Challenges

            As many had previously predicted, since its enactment constitutional challenges have commenced against the Health Care Reform.  The challenges focus on the application of the mandate that requires individuals to obtain health insurance or otherwise be penalized. 

            State of Virginia Challenge

The first challenge came from the Commonwealth of Virginia, who argues that the provision in the Health Care Reform requiring individuals to obtain health insurance or be penalized exceeds the Government’s power under the Constitution.  Specifically, Virginia argues that the Constitution’s Commerce Clause, which gives the Government the right to regulate interstate commerce, does not extend to an individual’s choice not to participate in economic activity.  Virginia also argues that the provision exceeds the Government’s authority to tax for the general welfare.  In response, the Government filed a motion asking the Court to dismiss the case on the basis that Virginia’s complaint failed to include viable claims. After review of extensively researched briefs and oral arguments in support of both sides position, the Court denied the motion, stating:

While this case raises a host of complex constitutional issues, all seem to distill to the single question of whether or not Congress has the power to regulate — and tax — a citizen’s decision not to participate in interstate commerce.  Neither the U.S. Supreme Court nor any circuit court of appeals has squarely addressed this issue.  No reported case from any federal appellate court has extended the Commerce Clause or Tax Clause to include the regulation of a person’s decision not to purchase a product, notwithstanding its effect on interstate commerce.  Given the presence of some authority arguably supporting the theory underlying each side’s position, this Court cannot conclude at this stage that the Complaint fails to state a cause of action.  Commonwealth ex rel. Cuccinelli v. Sebelius, 702 F. Supp. 2d 598, 615 (E.D. Va. 2010).

As a result, the lawsuit will move forward and we must await the Court’s decision after thorough examination of the issues.  For more detailed analysis of the issues raised in the motion and the Court’s review of the issues, the Memorandum Opinion is Document 84 of Case 3:10CV188-HEH in the United States District Court for the Eastern District of Virginia—Richmond Division.

            State of Florida Challenge and 19 other States       

The next challenge occurred in Florida where twenty states (including Texas) similarly argued that the requirement on individuals to purchase health insurance is beyond the scope of the Commerce Clause, along with other claims.  Once again the Government responded to the lawsuit by filing a motion to dismiss the case.  As was the case in Virginia, the Court denied the Government’s motion as to the claim involving the Commerce Clause, finding that there was a plausible claim to allow the lawsuit to proceed.  Once again, we will have to wait for a thorough examination of the issues before we get a final decision by the Court.  For more detailed analysis of the issues raised in the motion and the Court’s review of the issues, the Memorandum Opinion is Document 79 of Case 3:10-cv-00091-RV-EMT in the United States District Court for the Northern District of Florida—Pensacola Division.

            State of Michigan Challenge

           Finally, in Michigan, the Thomas More Law Center and four individuals filed a complaint and an injunction against the Government to prevent the application of the mandate requiring individuals to obtain health insurance.  After a thorough analysis of the Commerce Clause and the power to tax for the general welfare, the Court denied the injunction and dismissed the claims against the Government relating to these two clauses. The Court found that the Government’s regulation of individuals requiring the purchase of health insurance falls within the purview of both the Commerce Clause and the power to tax for the general welfare.  For more detailed analysis of the issues and the Court’s review of the issues, the Order Denying Plaintiffs’ Motion for Injunction and Dismissing Plaintiffs’ First and Second Claims for Relief is Document 28 of Case 2:10-cv-11156-GCS-RSW in the United States District Court for the Eastern District of Michigan—Southern Division

It is important to understand the implications of these constitutional challenges.  These challenges are narrowly focused on a single issue within the much larger legislation.  Even if all challenges are successful, it would not necessarily mean that the entire legislation would be unconstitutional.  It could be that the single provision mandating individuals to have health insurance would be struck down while the rest of the Health Care Reform is left in place.  Of course, this provision is so integral to the overall reform that it may indirectly result in the legislation collapsing.  Given the differing opinions in the Courts as described above, it will be some time before we have any resolution to these issues.  It is likely the Supreme Court will be required to review the issues in order to make a final determination.

By Michael S. Byrd and Bradford E. Adatto with significant contribution to this article by Jay D. Reyero

 


 


[1]It should be noted that this does not relate to the requirement under Section 102.006 of the Texas Occupation Code that a person commits an offense if the person accepts remuneration to secure or solicit a patient or patronage for a person licensed, certified, or registered by a state health care regulatory agency and does not, at the time of initial contact and at the time of referral, disclose to the patient: (A)  the person's affiliation, if any, with the person for whom the patient is secured or solicited; and (B) that the person will receive, directly or indirectly, remuneration for securing or soliciting the patient.

[2]Suppliers are defined as physicians or other practitioners, facilities, or other entities (other than a hospital, critical access hospital, skilled nursing facility, comprehensive outpatient rehabilitation facility, home health agency, or hospice program) that furnish MRI, CT, or PET services.

[3]It should be noted that the Health Care Reform provides that the list of suppliers should be created based on a radius extending from where the patient resides.  However, CMS acknowledged the administrative burden this could cause and the fact that patients may travel outside their residing area to seek medical care.  Therefore, CMS proposed a radius from the physician’s office location.