Maple-Gate Affirmed: Fourth Department Rules Employee-Policyholder is Entitled to MLMIC Demutualization Payment

By Seth A. Nadel, Esq.

In March 2019, the Erie County Supreme Court issued the first substantive decision in a lawsuit regarding whether the employees who were the named policyholders or the employers who paid the insurance premiums were entitled to the proceeds of the MLMIC demutualization. In Maple-Gate Anesthesiologists v. Nasrin, 63 Misc.3d 703, (Sup. Ct., Erie County 2019), the defendant-employees moved to dismiss the lawsuit brought by their former employers,  arguing that they were the lawful policyholders of their respective MLMIC policies and thus possessed an actual and exclusive ownership interest in the cash consideration under the New York Insurance Law. The plaintiff-medical group’s arguments in opposition mirrored those of other employers in most other MLMIC disputes; that it was entitled to the demutualization proceeds,   because the employer had served as  policy administrator and paid the employees’ MLMIC premiums.

The Supreme Court rejected the medical group’s claims and dismissed the lawsuit, reasoning  that no party other than the policyholder was recognized under the law as being entitled to the MLMIC cash consideration. The Supreme Court similarly disagreed with the employer’s argument that its status as policy administrator, or the fact that it paid the MLMIC premiums for the applicable policies, granted it any right to the funds at issue.

On April 24, 2020, the Fourth Department unanimously affirmed the Supreme  Court’s ruling in Maple-Gate that the employer’s complaint should be dismissed in its entirety. As stated by the appellate court: “Contrary to [the employer’s] contention, the [lower] court properly granted the motion because the documentary evidence established as a matter of law that [the employer] had no legal right to the demutualization payments.”

The court likewise confirmed that under the plain terms of Insurance Law § 7307 and MLMIC’s Plan of Conversion, demutualization proceeds were payable to a lawful policyholder unless the policyholder had affirmatively designated another party to receive the funds. Although certain rights had, in fact, been assigned to the employer by the policyholders under their respective policy administrator designations, the appellate court concluded that the right to demutualization proceeds was not among them. Finally, the appellate court noted the contrary decision by the First Department in Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465 (1st Dep’t 2019), but rejected its holding, stating that “the mere fact that [the employer] paid the annual premiums on the policies on [the policyholders’] behalf does not entitle it to the demutualization proceeds.”

A copy of the Fourth Department’s decision may be found here.

Weiss Zarett represents numerous physician-policyholders in MLMIC disputes. If you have any questions about the MLMIC demutualization, please reach out to Seth A. Nadel, Esq. at snadel@weisszarett.com or 516-627-7000.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.


Understanding Private Equity Transactions in Healthcare

By Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.

Introduction

When healthcare providers consider their options with respect to selling their practices, many providers are entertaining the idea of selling their practices to a private equity firm. While this may seem very enticing to many providers as the purchase price is often higher than that offered by another buyer (usually a multiple of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)), it is important to understand how these deals are structured in order to comply with applicable law, as well as evaluate the risks and benefits associated with entering into such transactions.

How Private Equity Works

Private equity firms raise money from investors and pool that money together in order to buy privately owned businesses. The goal is to increase the value of the business beyond the purchase price by generating greater earnings and then sell the business to a third party for a larger multiple while returning a portion of the profits to the investors. Private equity often looks for a three to five times return on investment over a three to five-year period. With respect to healthcare transactions, many private equity firms attempt to either combine multiple practices in the same specialty or create a large multispecialty practice in order to control a region, compete for contracts and drive rates.

New York Limitations

It is well-established that New York law includes a prohibition on the “corporate practice of medicine.” This prohibition reinforces the basic principle, reflected in New York law, that only persons licensed to provide medical services is permitted to engage in the practice of medicine.[i]Thus, a physician may practice medicine only in his/her individual capacity, or as a member of a solo or group practice (either in the form of a professional corporation (PC) or limited liability company (PLLC) where all members or shareholders are licensed physicians themselves). Limited exceptions to this rule apply only to hospitals, clinics, and certain other entities licensed under the New York Public Health Law. In any circumstance not prescribed by New York law, a physician is prohibited from being employed by a non-physician and partnering with a non-physician in a medical capacity. Note that while New York has a rote prohibition on the corporate practice of medicine, this does not hold true across all states. States such as Delaware, Hawaii and Montana, for instance, have no laws or other guidance barring physicians from being employed by non-physicians.[ii] 

New York law also has a prohibition on fee-splitting whereby it is deemed to be professional misconduct to permit “any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee. This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice, except as otherwise provided by law…”[iii]

Based upon these limitations, private equity is unable to invest directly in professional practices in New York State. However, private equity can invest in management companies that manage the non-professional aspects of healthcare practices. These management companies can own the non-professional assets of a healthcare practice, including for instance equipment, furniture, fixtures and supplies. Management companies can also hold the lease for space, as well as employ the non-professional staff. The professional practice would have to be owned by a healthcare professional licensed to practice that profession in New York State. The private equity firm can designate a professional who would be the owner of a professional practice.  A management arrangement would then be established between the management company and professional entity whereby the management company would be paid a fair market value flat fee for managing the entity.

Benefits and Risks

In addition to a higher purchase price, healthcare provides often reap tax benefits as the sale of assets results in capital gains tax rates which are lower than ordinary income taxes. Additionally, healthcare providers are often given equity in the management company as part of the purchase price, which allows healthcare providers to participate in the growth of the business and partake in the profits when the entity is sold to a third party. While there can certainly be a benefit to having an equity interest, there are often limitations with respect to how the equity can be converted to actual cash.

In addition to an equity interest, healthcare providers are also generally offered an employment agreement with the professional practice in order to continue to render professional services. Although the initial purchase price for the assets may be high, the compensation offered is generally significantly less than what the provider was making beforehand. Therefore, at the end of the day the healthcare provider is often just getting funds upfront with a potential tax benefit, in addition to the potential to profit when the entity is further sold to a third party.  Providers need to study the numbers in order to make sure the deal works for them in the long term.  

Providers also need to be cognizant of the employment terms. For instance, employment is often not guaranteed and can be terminated pursuant to the terms of the employment agreement at any time. Healthcare providers also need to be mindful of the type of malpractice insurance to be maintained, as well as potential restrictive covenants.

Although it can certainly be a huge benefit to no longer have to deal with the administrative burdens of running a practice and making investments in technology platforms, providers need to understand that they will be losing autonomy and decision making and must be comfortable with the private equity leadership team and the culture of the private equity firm. Providers should do their due diligence with respect to looking at the private equity firm’s track record with similar practices.

Conclusion

While a transaction with a private equity firm can be very exciting and lucrative for healthcare providers, these arrangements must be evaluated in order to ensure that they make sense for the provider and are compliant. To that end, it is in the best interest of the provider to retain a team of professionals specializing in health care – attorneys and accountants– to ensure that the details of the private equity transaction are appropriate and in the best interest of the provider. Although an offer may be appropriate for some providers, it may not be as desirable for others.  Providers also need to recognize that if an offer seems too good to be true, it generally is.

Should you have any questions regarding private equity transactions please contact Mathew Levy at 516-926-3320 or MLevy@weisszarett.com or Stacey Marder at 516-926-3319 or SMarder@weisszarett.com.

About the Authors:

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has extensive experience in, defending healthcare professionals in actions brought by State licensing authorities and the Federal agencies (OIG, Medicare, OMIG, Medicaid, DEA, OSHA, OCR OSHA, Hospital Review Boards, Office of Professional Medical Conduct and Office of Professional Discipline.) Mr. Levy has successfully defended numerous healthcare providers in actions involving the US Attorney’s Office investigations, Medicare Fraud Waste and Abuse investigations, Medicaid Fraud Control Unit investigations, OPMC, OPD, Medicare, Medicaid as well as commercial insurance audits including Prepayment Review, Post Payment Review, Medicare Hearings and Hospital Discipline Investigations.

Mr. Levy has successfully structured and negotiated joint venture agreements, private equity transactions, venture capital transactions, stock purchase agreements, asset sale agreements, shareholders agreements, partnership agreements, employment contracts, managed care agreements and commercial leases. Among the areas in which he focuses are coordinating mergers and acquisitions, compliance programs, ambulatory surgery centers, the establishment of diagnostic and treatment centers, HIPAA privacy regulations, fee-splitting issues, Stark law issues, fraud and abuse rules and regulations and Medicare/ Medicaid, Oxford, Americhoice, Fidelis, Healthfirst and other third-party payor settlements.

Stacey Lipitz Marder is senior counsel at Weiss Zarett Brofman Sonnenklar & Levy, PC with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling. Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.


[i] N.Y. Educ. Law § 6522, See People v. John H. Woodbury Dermatological Inst., 85 N.E. 697 (N.Y. 1908).

[ii] Corporate Practice of Medicine Doctrine: 50 State Summary

[iii] N.Y. Educ. Law § 6530(19)

Appropriation Of Medical Equipment Under New York State Executive Order 202.14

By Jessica Woodrow, Esq.

As the COVID-19 pandemic persists and New Yorkers continue to abide by mandatory social distancing measures, many healthcare facilities across the state face severe shortages of essential medical equipment including ventilators and personal protective equipment. In response to the ongoing emergency, on April 7, 2020 Governor Andrew Cuomo signed Executive Order 202.14 related to the appropriation of essential medical equipment by the New York State Department of Health.

Under Gov. Cuomo’s Executive Order 202.14, the state may take and redeploy ventilators from locations where they are not being used to contribute to the coronavirus relief effort. Under the Order, “[a]ny medical equipment (personal protective equipment (PPE), ventilators, respirators, bi-pap, anesthesia, or other necessary equipment or supplies as determined by the Commissioner of Health) […] held in inventory by any entity in the state […] shall be reported to DOH.  DOH may shift any such items not currently needed […], to be transferred to a facility in urgent need of such inventory […] and distribute them where there is an immediate need. The DOH shall either return the inventory […] and/or […] ensure compensation is paid[.]”

Any institution, office, or person in possession of such equipment is instructed to fill out a form indicating the year, make, and model of the equipment and will be contacted to arrange pick up of such devices if they are needed.

If you are a healthcare provider with questions regarding evolving emergency practice concerns, please contact David Zarett or Jessica Woodrow at 516-627-7000 or by email to DZarett@weisszarett.com or JWoodrow@weisszarett.com

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

New Paid Leave Laws and Regulations Effective April 1

By Toni-Ann M. Buono, Esq. & Carla Hogan, Esq.

Recently, the U.S. Department of Labor Wage and Hour Division (“DOL”) issued temporary regulations implementing the Families First Coronavirus Response Act (“FFCRA”)[1] (“Temporary Rule”).  This 124-page searchable document provides employers and employees further clarification on the protections and obligat ions afforded under FFCRA’s new paid leave laws and builds on the four earlier guidance documents issued by the DOL in March 2020.

Under FFCRA, tax credits are available to assist covered employers who pay their eligible workers for sick leave (“EPSLA”) and/or expanded family and medical leave (“EFMLEA”) taken for six COVID-19 related circumstances.  Specifically, a covered employee is entitled to two weeks of paid sick leave under EPSLA, at the employee’s regular rate of pay, if the employee is unable to work because he or she is either quarantined or having COVID-19 symptoms and seeking a diagnosis.  A covered employee is also entitled to two weeks paid sick leave, at two-thirds of the employee’s regular rate of pay, if the employee is unable to work because he or she is either caring for someone subject to quarantine, or caring for a child under the age of 18. 

Under EFMLEA, an eligible employee is entitled to twelve weeks of leave, where the employee is unable to work due to his or her need to care for a child for reasons related to COVID-19 (including lack of child care or school closures).  While the first two weeks are unpaid, an employee can utilize their paid leave through their employer policy or request paid sick leave under EPSLA during this time period.  Thereafter, for the remaining ten weeks, an employee will be paid at two-thirds the employee’s regular rate of pay. 

Requesting paid time off due to fear of contracting the COVID-19 virus at work does not fall within any of the six FFCRA paid sick leave categories.  But for certain workers, particularly health care workers, such fear could be heightened due to an underlying serious mental health condition such as PTSD, in which case the regular FMLA leave benefits may apply.

“Covered” employers under FFCRA employ fewer than 500 employees, defined as “full-time and part-time employees, employees on leave, temporary employees who are jointly employed by the employer and another employer, and day laborers supplied by a temporary placement agency.  Independent contractors are not counted towards the 500-employee threshold.”  The Temporary Rule provides an extensive summary on the rights and relief afforded to eligible employees and covered employers, details which employees and/or employers may be exempt under FFCRA, provides procedural instructions for those requesting leave and provides new notices which are required to be posted by covered employers.

There are two major exemptions to FFCRA coverage.  The first states that covered employers may exclude those employees who are health care providers or emergency responders from paid sick leave and/or expanded family and medical leave.  As defined by the Temporary Rule: “a health care provider is anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution, employer, or entity.”  This definition is broader than the existing FMLA definition.  An emergency responder is defined as “an employee who is necessary for the provision of transport, care, health care, comfort, and nutrition of such patients, or whose services are otherwise needed to limit the spread of COVID-19.”  Employers have the option to utilize this exemption, at their discretion, which the DOL guidance notes will hopefully be exercised judiciously, especially given the high infection rate for health care workers and documented burnout.

The second exemption is for small businesses (defined as fewer than 50 employees), if an authorized officer of the business has determined that FFCRA compliance would jeopardize the financial viability of the company.  Such determinations must be based on an evaluation of business expenses and revenues, the number of available employees to perform essential operations and whether the absence of employees with specialized skills or knowledge would pose a risk to the company’s sustainability. 

In order to obtain FFCRA benefits, the employee requesting leave must submit paperwork to their employer, indicating the requested leave dates, the reason for leave and a statement that the employee is unable to report to work or telecommute due to COVID-19 reasons.  Additionally, if relevant, the employee must identify the health care provider who suggested quarantine for COVID-19 and further, if a child is involved, the name of the child and any school or child care center that is closed due to COVID-19.  In turn, an employer must retain submitted documents for four years.  If leave is denied, the employer must sufficiently document the reasons for the denial.

Regardless of whether an employee has an employment contract, is subject to a collective bargaining agreement or is at will, the employer cannot deduct the FFCRA paid sick leave from the employee’s accrued paid leave.  The employee can elect whether to use the FFCRA paid sick leave under FFCRA prior to using any other type of leave to which they are already entitled.

However, while an employer cannot force an employee to first take other available leave prior to taking paid sick leave, an employer may require or the employee can elect to take other sources of available paid leave concurrently with EFMLEA, to care for a child.  If EFMLEA is used concurrently with another source of leave, the employer is required to pay the employee the full amount he or she is entitled to under their employer’s paid leave policy.  

In addition to the FCCRA four-year record keeping requirement, covered employers must now post a notice of the new FFCRA requirements.  The poster also boldly displays the “no-retaliation” FFCRA provisions advising employees that employers who take adverse action against them will be subject to sanctions and enforcement proceedings by the DOL. 

Since many employees are now telecommuting, employers can satisfy the posting requirement by sending the notice via email, regular mail or posting the notice on an employee portal or website.  The DOL will stay enforcement actions for failure to comply with the new posting requirements until April 17, 2020 – provided the employer made a good faith effort to comply with the FFCRA. 

Finally, covered employers should update their Employee Handbook or leave policies to include the new FFCRA leave provisions, even though they are currently set to expire December 31, 2020.  A note that statutory leave benefits are evolving and subject to change would probably also be a prudent inclusion.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including employment, corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.


[1] An upcoming Blast will discuss the interplay between the New York State Emergency Paid Sick Leave Law, effective May 5, 2020, New York City’s Paid Safe and Sick Leave Law, effective May 5, 2018, and FCCRA.

CMS Announced Expansion of Accelerated and Advance Payments Program for Providers and Suppliers During COVID-19 Public Health Emergency

By Mathew J. Levy, Esq. & Zoila Sanchez, MPH (Legal Intern)

On March 28, 2020, the Centers for Medicare & Medicaid Services (CMS) announced an expansion of the Accelerated and Advance Payments Program (AAPP) to all eligible Medicare- Medicare providers and suppliers during the period of the COVID-19 public health emergency.

CMS describes the impact of the coronavirus pandemic as a “significant disruption to the healthcare industry, with providers being asked to delay non-essential surgeries and procedures, other healthcare staff unable to work due to childcare demands, and disruption to billing” causing a “significant financial burden on providers.” While the expedited payments are normally offered during a national emergency or natural disaster, CMS is authorizing the AAPP expansion during this public health emergency to all qualifying Medicare providers throughout the U.S. through a provision in the $2.2 trillion CARES Act package. Increasing the cash flow to impacted health care providers will provide them with the necessary resources to combat the COVID-19 pandemic and focus on patient care.

Eligibility:

Providers and suppliers must meet the following eligibility requirements:

  1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider’s/supplier’s request form;
  2. Not be in bankruptcy;
  3. Not be under active medical review or program integrity investigation; and
  4. Not have any outstanding delinquent Medicare overpayments.

Applicants submit an application form through their designated MAC website. Qualifying hospitals, doctors and durable medical equipment suppliers can expect approved requests to be processed within seven (7) days.   

Payment Amount:

Accelerated and advanced payments are based on historical payments and vary according to provider-type.

Critical Access Hospitals (CAH) may request a maximum of 125% of the payment amount for a six-month period. Inpatient acute care hospitals, children’s hospitals, and certain cancer hospitals may request up to 100% of the payment amount for a six-month period. Other providers may request up to 100% of the Medicare payment amount for a three-month period.

Repayment:

Providers/supplies begin repayment 120 days from the date the payment is issued. With respect to repaying the balance, Medicare Part A providers and Part B suppliers have 210 days (or 7 months) from date payment was issued. This timeline is extended for inpatient acute care hospitals, children’s hospitals, certain cancer hospitals, and CAHs, given a maximum of one (1) year from the accelerated payment issuance date. 

Recoupment and Reconciliation:

After receiving the accelerated/advance payment, providers and suppliers can continue to submit claims and receive full payment. Recoupment begins 120 days from issuance of the payment.

The American Medical Association created a visual example of an advanced payment timeline including repayment and recoupment.

For details on AAPP application steps, see the CMS Factsheet. Additionally, on April 3, 2020, the American Hospital Association (AHA) published a CMS update and clarification addressing the specifics of payment amount determinations, repayment, recoupment and reconciliation, which CMS will publish in a FAQ.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, Medicare payment issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.