Proposed “Exempt” Status Risks for Health Care Employers

Health care providers need to be aware of significant anticipated changes to federal laws governing which employees may be treated as exempt from eligibility for overtime. Failing to account for the changes if and when they go into effect will expose health care employers to significant potential liability. Successful claims for improperly paid or unpaid wages carry the potential for both a doubled damage and an award of attorneys fees to a successful claimant. When multiple employees are affected, an employer may be faced with defending a class action.

The proposed regulatory changes are primarily focused on the threshold level of salary an employee must receive in order to potentially be ineligible for overtime. If the proposed changes are implemented, minimum salary for exempt employees would more than double. The changes may become effective as early as 2016.

The changes were posted by the United States Department of Labor’s Wage and Hour Division on July 6, 2015 and set forth proposed modifications to 29 CFR Part 541, the regulations addressing which employees will qualify as “exempt” for purposes of eligibility for overtime pay. The changes will apply to any employer covered by the Fair Labor Standards Act (FLSA), which includes hospitals, businesses providing medical or nursing care for residents, and public agencies. While doctors are not subject to the new regulations, the changes would apply to other health care providers and employees.

The current minimum salary threshold for most exempt employees was set in 2004 and requires at least $23,660 annually with at least $455 received per week. If effective in 2016, the regulatory changes would increase the minimum threshold to $50,440 annually with at least $970 received per week. The modifications anticipate setting the minimum salary level at the 40th percentile of weekly earnings for all full-time salaried workers. The proposed changes also anticipate incorporating a system for continuing adjustments to the necessary minimum salary in order to keep pace with living costs, either through linking increases to earnings percentile of all full-time salaried workers or through linking to changes in inflation as measured through the Consumer Price Index for all Urban Consumers (CPI-U).

The proposed revisions additionally anticipate modifying the exemption for highly paid employees. Currently, employees making at least $100,000 annually and receiving at least $455 weekly will be considered exempt if the employee customarily and regularly performs at least one of the primary duties or responsibilities of an executive, administrative, or professional employee as identified in the FLSA standard tests for exemption. Under the changes, the minimum salary for highly paid employees would be increased to $122,148 annually which corresponds to the 90th percentile of weekly earnings of all full-time salaried employees.

Employers have a window to voice positions on the proposed regulatory changes. Written comments will be accepted until September 4, 2015 and will need to reference Regulatory Information Number (RIN) 1235-AA11. Comments may be submitted online and additional information for how to submit a comment can be found here.

Health care employers should carefully evaluate the wages paid to all employees currently classed as exempt to identify which employees may be affected. Employers may wish to consult with counsel to most effectively plan for any necessary changes and identify potential pitfalls. Employers may also wish to submit comment prior to the September 4th deadline expressing positions and opinion on the proposed changes.

For questions regarding the anticipated changes, their impact, and potential options, please contact the author, Patrick Pearce.

Certificate of Need New Rule Invalidated by Supreme Court

The Washington Supreme Court unanimously agreed with the Washington State Hospital Association that the new expanded Certificate of Need rule defining the “sale, purchase or lease” of a hospital exceeded the Department of Health’s authority.  WSHA successfully argued that the new definition, promulgated by the Department of Health’s Certificate of Need Program, which expanded its jurisdiction to include “any transaction in which the control, either directly or indirectly, of part or all of any existing hospital changes to a different person, including, but not limited to, by contract, affiliation, corporate membership restructuring, or any other transaction,” was overly expansive.

The Supreme Court agreed that pursuant to the wording of the new rule, Certificate of Need approval would be required for any change in control of a hospital, including those changes that commonly occur, for example a change in the composition of the board of directors of a hospital.  The Supreme Court held that the new rule interprets “sale, purchase, or lease” in RCW 70.38.105(4)(b) too broadly and “departs too far from the plain meaning of those terms.”

For more information regarding the Certificate of Need rules please contact Elana Zana.

2014 OIG Work Plan Contains New Priorities Specific to Hospitals

The Department of Health and Human Services, Office of the Inspector General (OIG) recently released its Fiscal Year (FY) 2014 Work Plan.  The Plan contains new priorities specific to Hospitals in areas related to Policies and Practices, Billing and Payments, and Quality of Care and Safety.  For a complete copy of the OIG 2014 Work Plan, please click here.

The OIG Work Plan provides a description of what the OIG will be focusing on in the coming year, giving providers insight into identifying corporate compliance risk areas and providing focus for ongoing efforts relating to compliance program activities, audits, and policy development.  Some of the hospital-specific priority areas identified as ‘New’ include the following:

A.      Policies and Practices

  1.  2 Midnight Rule: As of FY 2014, physicians should admit inpatients where they expect the patient’s care to last at least 2 nights in the hospital.  This modification is due to the OIG’s previous findings of over payments for inpatient stays, inappropriate billings and inconsistent billing practices.  OIG plans to review the impact of this new admission criteria and how billing varies among hospitals.
  2. Defective Medical Devices: OIG will review the increased costs to Medicare resulting from additional services necessitated by the use of defective medical devices.
  3. Comparison of Provider-Based and Free-Standing Clinics:  OIG will compare the payments made in provider-based settings and free-standing clinics with respect to similar procedures to determine the potential impact to the Medicare program for hospitals claiming provider-based status, and presumably, whether providers claiming provider-based status meet the criteria in 42 CFR § 413.65(d).

B.      Billing and Payments

  1.  Outpatient Evaluation and Management Services:  OIG will review payments made for outpatient E/M services to determine if they were appropriately billed as “new” or “established.”  Patients are generally considered “new” unless they were seen as a registered inpatient or outpatient within the past 3 years.
  2. Cardiac Catheterization and Heart Biopsies:  Billings for right heart catheterizations will be reviewed to determine if they were appropriately billed separate and apart from billings for heart biopsies.
  3. Payments for Patients Diagnosed with Kwashiorkor:  Due to the high level of reimbursement, billings for Kwashiorkor will be reviewed to determine whether diagnoses are supported by the medical record.
  4. Bone Marrow or Stem Cell Transplants: OIG will review procedure and diagnosis codes to determine the appropriateness of bone marrow and stem cell transplantation.

C.      Quality of Care and Safety

  1. Pharmaceutical Compounding:  In light of a recent meningitis outbreak resulting from contaminated injections of compounded drugs, OIG will review the oversight and accreditation assessment of pharmaceutical compounding in Medicare-participating acute care hospitals.
  2. Review of Hospital Privileging:  OIG will review how hospitals consider medical staff candidates prior to granting initial privileges, verification of credentials, and review of the National Practitioner Databank.

For additional information regarding the 2014 OIG Workplan or hospital/corporate compliance please contact Adam Snyder.

 

 

Hospital Medical Staff Lacks Capacity To Sue – Medical Staff Bylaws Are Not a Contract

The Minnesota Court of Appeals recently issued a decision that, in Minnesota, hospital medical staffs do not have capacity to sue as unincorporated associations.  In addition, the Court concluded that, at least in this case, medical staff bylaws do not constitute a contract between members of the medical staff and the hospital.

With respect to the issue of whether the medical staff bylaws create a contract between members of the medical staff and the hospital, the court focused on two points: (1) repeated reference in the medical staff bylaws to the right of the hospital board to approve, amend, and/or repeal the medical staff bylaws, and; (2) Minnesota rules that require hospitals to have medical staff bylaws approved by the governing body.  On this second point, the decision relies on a series of decisions from other jurisdiction holding medical staff bylaws not to create a contract for lack of consideration due to the existence of state laws requiring such bylaws.

The court relied on prior Minnesota court decisions for its conclusion that the medical staff could not sue as an unincorporated association.

These two issues are regularly litigated in courts around the country and there is hardly unanimity in the decisions.  This decision contains a very useful collection of cases going both ways on the issues and the legal theories relied on for the differing conclusions.  For questions concerning this case or related hospital medical staff issues please contact Greg Montgomery.

New Requirements for Provider-Based Clinics

A reminder to all licensed hospitals operating “provider-based clinics,” “off campus,”: the Washington State legislature during its 2012 session enacted HB 2582 requiring provider-based clinics to comply with certain new and additional requirements.  This bill goes into effect January 1, 2013.  This bill was intended to ensure that patients were informed about the cost of receiving services in a provider-based setting.  Among other things, the bill contains new signage requirements, patient notification requirements (including on the provider’s website) and reporting requirements.  Note, not all Medicare provider-based departments meet the definition of a “provider-based clinic” under this law.  A copy of the bill can be located here.

Please contact Don Black or Lee Kuo if you have additional questions.