In recent years, businesses of all types have experienced an uptick in lawsuits filed under Title III of the Americans with Disabilities Act (“ADA”), which prohibits discrimination against disabled persons regarding access to and enjoyment of places of public accommodation. With a ruling from the Western District of Louisiana in August 2015, the reach of Title III has now been extended to casino vessels.

In Schlesinger v. Belle of Orleans LLC, the plaintiff, Andrew Schlesinger, filed suit against the owner of the Amelia Belle casino alleging violations of Title III of the ADA. The Amelia Belle is a Class H passenger vessel and riverboat gaming vessel located in Amelia, Louisiana. The casino has a custom parking facility and sidewalks located on dry land adjacent to the vessel. The inside of the Amelia Belle contains ATMs, vending machines, cashier counters, four restrooms, video poker machines, a sports bar, a buffet restaurant, and a hotdog stand.

Mr. Schlesinger is afflicted with spina bifida and is wheelchair-bound. He claims that he visited the Amelia Belle casino but experienced serious difficulty accessing the goods and utilizing the services at the casino due to architectural barriers that he claimed were violations of the ADA.

Title III of the ADA and its implementing regulations, which include Accessibility Guidelines, contain various design and construction standards to make public accommodations accessible to disabled persons. Title III also requires the removal of existing architectural and structural barriers that prevent access to public accommodations where such removal is readily achievable. The ADA’s Accessibility Guidelines are divided in to multiple subparts. Subpart C of the Guidelines governs the removal of barriers in existing facilities, and Subpart D contains standards applicable to new construction and alterations.

The language of the ADA itself is express that a restaurant, bar, or other establishment serving food or drink is a place of public accommodation and is subject to Title III of the ADA. But, the Department of Justice (“DOJ”), which promulgated the ADA’s Accessibility Guidelines, has taken the position that the standards specifically related to new construction and alterations) do not currently apply to vessels. The Amelia Belle used the DOJ’s position to argue that the entirety of Title III is inapplicable to vessels. This left the Court with the question of whether an existing vessel that contains a restaurant and a bar was subject to Title III of the ADA.

The court held that while the new construction and alteration standards in Subpart D of the Guidelines are not applicable to vessels, the architectural removal standards from Subpart C of the Guidelines do apply existing vessels.[1] Accordingly, Belle of Orleans provides a clear path for disabled persons to challenge alleged accessibility barriers on existing vessels if such vessels are or contain places of public accommodation. If the vessel does not contain any public accommodation, such as a restaurant, bar, hotel, theater, etc., Title III of the ADA will not be applicable.

[1] This is in keeping with a ruling from the U.S. Supreme Court that cruise ships fall within the definition of a “public accommodation.”

Contrary to courts across the pond, rare is the case in American courts where attorneys’ fees are awarded to the prevailing party. This notion is often referred to as “the American rule” of each party bearing its own costs. But in Dr. George T. Moench, et al. v. M/V Salvation, et al., no. 12-1536 the United States District Court for the Western District of Louisiana, recently decided to buck the trend and awarded the prevailing party attorneys’ fees and costs in an amount equal to 90% of the underlying judgment. The facts of the case are simple and all too common. At the time of the allision, the M/V SALVATION was standing by awaiting further instructions from Berwick Traffic Control. The SES EKWATA was moored nearby at the facilities of Basin Fleeting, Inc. While standing by, the captain of the M/V Salvation lost control of the vessel, and before he could regain control, the M/V SALVATION and its tow struck and severely damaged the SES EKWATA. The owner of the SES EKWATA brought suit against the owner of the M/V SALVATION.

Unable to settle their differences amicably, the owners of the two vessels proceeded to trial where liability and damages were contested. At the conclusion of trial, the court found the M/V SALVATION to be solely at fault, and because the SES EKWATA was determined to be a constructive total loss, the court awarded its owners what the court determined to be the market value of the vessel and its appurtenances, approximately $322,000.  But in a remarkable move, the court then awarded the owner of the SES EKWATA approximately $295,000 in attorneys’ fees and costs.

In support of its ruling, the court noted that it had the authority to award reasonable attorneys’ fees and costs where the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. And as representative of this behavior, the court cited what it deemed insufficient expert testimony and unrealistic defenses to liability offered by the owner of the M/V SALVATION. Specifically, the court concluded that the owners of the M/V SALVATION “knew the extent of its liability based on the circumstances of the case and the actions of its captain.” The court also chastised the party for the presentation of expert witnesses to testify to the value of the SES EKWATA that were less than qualified in the court’s eyes. Taken together, the court found the defenses presented and expert testimony offered by the owner of the M/V SALVATION to be “disingenuous and abusive to the legal process.”

Whether the district court’s decision stands remains to be seen as it has been appealed to the United States Fifth Circuit. But regardless of the outcome on appeal, the opinion serves as a reminder of the inherent powers of district court. And as part of that power, a district court may grant the successful party attorneys’ fees and costs regardless of the prevailing American rule. While this power is infrequently exercised, it should not be forgotten.

A typical oilfield personal injury case in (or off the coast of) Louisiana involves a review of the relevant contracts and an analysis of whether demands for defense and indemnity can be made (and enforced) against other contracting parties. And, typically, the party on the receiving end of such a demand – usually the plaintiff’s employer – evaluates the demand under the Louisiana Oilfield [Anti-]Indemnity Act (“LOIA”), which may entitle the employer to reject the demand.

The LOIA was passed in 1981 as a way to protect contractors from being forced, often for business reasons, by bigger oil companies to pick up their defense in a personal injury lawsuit brought by the contractor’s employee. If the circumstances fit, the LOIA voids the indemnity provisions of the applicable contract. Thus, the LOIA can be a powerful ally to shield an employer from having to defend other parties in a lawsuit in which it is typically itself immune in tort.

The U.S. Fifth Circuit has adopted a two-part test to determine if LOIA applies: (1) “First, there must be an agreement that ‘pertains to’ an oil, gas or water well.” If the contract does not pertain to a well, the inquiry ends.” Transco v. Transp. Ins. Co., 953 F.2d 985, 991 (5th Cir. 1992). This factor is guided by the “functional nexus between an agreement and a well or wells.” Verdine v. Ensco Offshore Co., 255 F.3d 246, 252 (5th Cir. 2001). If the agreement has the required nexus to a well, then the second factor is to examine “the contract’s involvement with operations related to the exploration, development, production, or transportation of oil, gas, or water.” Transco, 953 F.2d at 991. This inquiry is usually fact intensive.

There have been many cases since its inception examining whether their circumstances fell under the LOIA. Other cases have established exceptions to the rule. Recently, the U.S. 5th Circuit addressed whether “salvaging a decommissioned platform has a sufficient nexus to a well” for LOIA to apply. This is the first time the 5th Circuit had officially weighed in on the expanse of Verdine, which involved an incident on a platform while it was still in the fabrication yard. There, the Court found the requisite nexus to a well because the services “were performed on a structure intended for use in the exploration and production of oil and gas.” Verdine, 255 F.3d at 254. After Verdine, the law was established that cases involving structures that were to be used in future oil exploration could fall under the LOIA. In Tetra Technologies, Inc. v. Continental Ins. Co., No. 15-30446 (5th Cir. 2/24/16), the 5th Circuit now recognized that oil and gas production facilities that would have no future production could also fall under the LOIA.

In Tetra Technologies, the plaintiff was injured while working to salvage the decommissioned Eugene Island 129 platform. Apparently, the wells had already been plugged and abandoned, and all that remained was to permanently remove the structure from the Gulf of Mexico. Since Verdine, the Eastern District of Louisiana has released three cases that the 5th Circuit found helpful and correct in their LOIA interpretations. In Teaver v. Seatrax of La., 2012 WL 5866042 (E.D. La. Nov. 19, 2012), the Court held that a contract to dismantle a platform crane that had been used to plug the well, “pertained to a well” under LOIA despite the fact that the well itself had been dry for several years. Next, in Howell v. Avante Servs., LLC, 2013 WL 1681436 (E.D. La. Apr. 17, 2013), the Court found that an agreement to plug and abandon an oil well pertained to a well, even though the well was not functioning at the time of the contract performance. Finally, in Wilcox v. Max Welders, LLC, 969 F.Supp.2d 668, 682-4 (E.D. La. 2013), the Court found that an agreement to “provide welding services in connection with the decommissioning of oil and gas platforms” pertained to a well because it was an “agreement to perform an act that is collateral to plugging the well.”

These decisions may have seemed obvious, since “plugging” is expressly enumerated in LOIA as a covered activity, and each of these cases certainly addressed activities at least collateral to plugging a well. In Tetra Tech., Tetra argued that its case was farther removed from “plugging” and thus, distinguishable from Verdine and the line of cases reviewed by the 5th Circuit. The Circuit Court rejected that argument “because it ignores the fact that regulations generally require the removal of an oil platform in connection with a decommissioning operation.” See 30 C.F.R. § 250.1703. Consequently, the 5th Circuit concluded that “a contract for salvaging a platform from a decommissioned oil well has a sufficient nexus to a well under LOIA.” Thus, if Louisiana law applied to the applicable contract and work, then indemnity was prohibited under the LOIA. The Court then remanded the case back to the district court for a determination of the applicable law.

The Environmental Protection Agency (“EPA”) published a Request for Information (“RFI”) on July 31, 2014 relating to possible changes to the Risk Management Program (“RMP”) rules codified at 40 C.F.R. Part 68. See 79 Fed. Reg. 44604 (July 31, 2014). On June 19, 2015, OSHA, the EPA, and the Department of Homeland Security held a webinar to provide an update to agency actions in response to Executive Order 13650 titled “Improving Chemical Facility Safety and Security.” In that webinar, the agencies announced that they were planning to divide up the common issues, with OSHA and EPA addressing concerns separately. On February 25, 2016, EPA disclosed its proposed changes via a Pre-Publication Copy.

One of the most significant proposed changes is the requirement for certain facilities to conduct a safer technology and alternatives analysis (“STAA”) as part of a Process Hazard Analysis (“PHA”) to evaluate the feasibility of any inherently safer technology (“IST”) identified. Under the proposal, facilities must comply with this requirement within four years from the publication of the final rule and is limited to processes in NAICS 322 (e.g. paper manufacturer), 324 (e.g. petroleum refining), and 325 (e.g. chemicals manufacturer).

The EPA is also proposing to require mandatory third-party audits following an accident meeting the five-year accident history criteria. Further, under the proposed rule, the EPA can also require a third-party audit based on non-compliance with the compliance audit requirements. The owner or operator may appeal this decision to the EPA Regional Administrator. Where a third-party audit is required, the proposal includes detailed independence requirements and the necessity to add a Professional Engineer to the team. Responses to audit findings are required with 90 days along with a schedule for implementation. The responses and schedule must be submitted to the owners’ audit committee of the Board of Directors. This proposed change is also effective four years after publication of the final rule.

Other proposed changes include:

  • Mandatory root cause as part of an incident investigation after a catastrophic or near-miss (catastrophic) release;
  • Mandatory annual coordination with local emergency response agencies;
  • Annual notification exercises;
  • “Responding facilities” that have an RMP reportable accident would have to conduct a full field exercise within a year of the incident;
  • Enhanced availability of chemical hazard information (such as a facility website);
  • The Risk Management Plan and other information including compliance audits, investigation reports, and where required, a summary of IST shall be available to the LEPC; and
  • Public meetings after an RMP reportable accident.

Comments are due within 60 days after the date of publication in the Federal Register.

The Department of Health and Human Services, Centers for Medicare and Medicaid (“CMS”) issued a final rule on February 2, 2016 regarding the requirements for a face-to-face encounter for patients receiving home health services payable by Medicaid.  In order to ensure that states and providers appropriately implement the provisions in the final rule, CMS revised the effective date of the rule to be July 1, 2016 and stated it would delay compliance with the rule for up to one year if the state’s legislature met in 2016 or two years if not.

The rules pertaining to this requirement under the Medicaid program differ somewhat from the requirements under the Medicare program and incorporates revisions to address rulings in Supreme Court and federal appellate court cases.  CMS stated the face-to-face requirement does not apply to Medicaid managed care.  However, the benefits offered in the Medicaid managed care plans must be the same as those offered in the state plan.

CMS revised the regulations to ensure that individuals with an “illness, injury, or disability”, including congenital conditions and developmental disabilities, would be eligible for Medicaid home health services. Coverage of Medicaid home health services cannot be contingent upon the beneficiary needing nursing or therapy services. Home health services must be provided to the beneficiary based on his or her physician’s orders as part of a written plan of care that the physician reviews every 60 days; however, a beneficiary’s need for medical supplies, equipment or appliances need only be reviewed by the physician on an annual basis, with more frequent reviews as determined on a case-by-case basis based on the nature of the item prescribed (e.g., items needed only on a short term basis).   States are not required to cover medically unnecessary services and may set medical necessity criteria based on accepted medical practices and standards.  States have considerable flexibility in designing payment methodologies for covered services and could cover the physician certification for home health care as a physician service or as a component part of the home health services.  The face-to-face encounter could be identified through existing evaluation and management (“E&M”) CPT codes.

One important difference between home health services under the Medicare and Medicaid programs is whether the patient must be home bound to qualify for services.  Under Medicare, the patient must be homebound.  However, under Medicaid, the home health services cannot be restricted to patients who are home bound and cannot be restricted to services furnished in the home itself.  Home health services do not include services for individuals receiving inpatient services in a hospital, nursing facility, intermediate care facility for individuals with developmental disabilities, or other setting in which payment is or could be made under Medicaid for inpatient services that include room and board.  However, home health services would be covered for individuals residing in other types of facilities.  In addition, home health services apply to all beneficiaries, including those eligible for state plan services based on enrollment in a home and community based waiver program.

The term “normal life activities” refers to activities that could occur in or out of the individual’s home.  CMS’ revised language “suitable for use in a non-institutional setting in which normal life activities take place” demonstrates that states cannot deny requests for items on the basis that the items are for use outside the home.  However, states may establish medical necessity criteria and may continue to use activities of daily living as medical necessity criteria.  This expanded definition does not include environmental or structural housing modifications or equipment designed to have a general use and to serve more people than the Medicaid beneficiary. Additionally, vehicular modifications do not fall under the definition of medical equipment.  States may preclude coverage for duplicative items or could provide coverage for rental rather than purchase of the items, if cost effective.

A physician must order the individual’s services under the Medicaid home health benefit.  CMS interprets the term “order” to be synonymous with Medicare’s term “certify”.  Because the term “DME” is used differently under the Medicare and Medicaid programs, CMS uses the term “medical supplies, equipment, and appliances” or, alternatively, “medical equipment” in the final rule.

All beneficiaries needing home health services are subject to the face-to-face encounter without exception. The face-to-face encounter is required only for the initial ordering of home health services and for all episodes initiated with the Start-of-Care OASIS assessment.  There is no recertification face-to-face requirement. The physician must review the plan of care every 60 days.

The face-to-face encounter for Medicaid home health services must occur not more than 90 days before or 30 days after the start of services.  For medical equipment, the face-to-face encounter must occur not more than 6 months prior to the start of services.   These time frames are aligned with the time frames required under Medicare. The expectation is that the face-to-face encounter will occur within the 90 days before the start of services but the 30-day post start of care deadline is provided to accommodate extenuating circumstances where immediate commencement of home health services is required before a physician encounter can be scheduled.

The ordering physician must document at the time of the face-to-face encounter how the health status of the Medicaid beneficiary is related to the primary reason the beneficiary requires home health services, including medical equipment.  States may also require the face-to-face encounter to include instruction on how to properly use and care for the medical equipment at issue.  Although the proposed rule would have required the documentation to be in a separate and distinct area on the written order or an addendum to the order that is easily identifiable and clearly documented or a separate document easily identifiable and clearly titled in the beneficiary’s medical record, those requirements were eliminated in the final rule.  Instead, CMS will defer to the states as to the documentation requirements.

For the Medicaid home health services, the face-to-face encounter may be conducted by the physician or by a Non-Physician Practitioner (“NPP”), including a nurse practitioner or certified nurse specialist working in collaboration with the physician and in accord with state law, or a certified nurse midwife or a physician assistant under the supervision of the physician. If state law recognizes resident physicians as physicians, the resident physician may conduct the face-to-face encounter. Although the face-to-face encounter may be conducted by a NPP, the physician must document that the face-to-face encounter occurred and must issue the order for home health services.  Certified nurse midwives are not authorized to conduct face-to-face encounters required for medical supplies, equipment, and appliances; nor are they included in the list of NPPs for purposes of DME orders.

When a beneficiary is admitted to home health upon discharge from a hospital or post-acute care setting, the physician who attended the patient in the hospital or post-acute care setting can inform the ordering physician regarding his encounters with the beneficiary to satisfy the face-to-face encounter requirement, much as a NPP would do. Or, the attending physician may serve as the ordering physician for home health services, provided that the ordering physician also completes the written plan of care.  Similarly, the ordering physician who completes the plan of care can rely upon the in-person assessment of an emergency department physician or of a physician working on behalf of an inpatient rehab or skilled nursing facility prior to the beneficiary’s discharge.  An urgent care physician may be able to attest to the completion of the face-to-face encounter if he can develop the written plan of care and review the plan of care every 60 days.  Otherwise, an additional physician performing the functions must meet the requirements.  If a state has a reciprocity agreement with neighboring states to allow Medicaid beneficiaries in one state to receive services in another state, a physician in the neighboring state could conduct the face-to-face encounter.

If an attending acute or post-acute care physician or allowed NPP conducts the face-to face encounter, the attending acute or post-acute care physician or NPP must communicate the clinical findings of the face-to-face encounter to the ordering physician so that he can document the face-to-face encounter and so that he has sufficient information to determine the need for home health services, in the absence of conducting the face-to-face encounter himself. The clinical findings must be reflected in a written or electronic document included in the beneficiary’s medical record by the physician or the NPP and can be included in clinical and progress notes and discharge summaries.  For example, the ordering physician could attach the discharge summary by an attending physician who performed the face-to-face encounter in an acute or post-acute care facility to the order for home health services as an addendum and would simply need to sign and date the discharge order. The ordering physician must ensure that appropriate medical records are kept, and the home health agency should also maintain a copy of the face-to-face documentation.

Additionally, the face-to-face encounter may be conducted through the use of telehealth.  The Medicaid term “telemedicine” was modeled on the Medicare term “telehealth services” but allows states flexibility in keeping with their general authority to regulate medical professions.  The face-to-face encounter could be met by a telehealth delivery model that is recognized by the state as a physician or NPP encounter under its approved state plan.  CMS would not proscribe the locations and/or technologies the states may use to meet the face-to-face requirement through telehealth and left that to the states to regulate.  However, telephone calls or emails will not replace the face-to-face encounter.

CMS provided a framework for the term “medical supplies, equipment, and appliances” under which states could adopt a reasonable definition of the term.  Medical supplies, equipment, and appliances should be suitable for use in the home, but that does not prohibit use of covered items outside the home. States may not deny requests for items on the basis that they are for use outside the home.  The covered items must be necessary for everyday activities, and there is no limitation on the location in which the items may be used. The items must be suitable for use in a non-institutional setting in which normal life activities take place.  In order to better align the definitions of home health equipment and appliances under Medicaid and DME under Medicare, CMS defined home health supplies, equipment, and appliances to mean:  a) items that are primarily and customarily used to serve a medical purpose; b) generally not useful to the individual in the absence of an illness or injury; c) can withstand repeated use; and d) can be reusable or removable.  However, unlike the Medicare provisions, CMS did not define the expected life of the equipment and did not limit the use of the equipment to the individual’s home.  CMS also defined supplies as health care related items that are consumable or disposable or cannot withstand repeated use by more than one individual.  CMS did not require the supplies to be incidental to other covered services.

If Medicare does not require a face-to-face encounter for a DME item, neither would Medicaid require a face-to-face encounter for the same item of medical supplies, equipment and appliances.  States are not restricted to the items covered under DME in the Medicare program in determining those items that would be covered under the Medicaid program. States could expand the list of items under Medicare for which a face-to-face encounter is required under Medicaid but cannot eliminate items from the list.  A face-to-face encounter would not be required for refills, repairs, or service of equipment.

States may have a list of pre-approved medical equipment, supplies, and appliances but cannot use the list as an absolute limit.  States must provide and make available to individuals a reasonable and meaningful procedure to request items not on the pre-approved list, and individuals must be informed of their right to a fair hearing related to a denial by the State of a request and to whether the item is medically necessary under the circumstances. Additionally, states may implement a prior authorization process to review claims for medical equipment, subject to a beneficiary’s appeal rights.

As to dual eligible beneficiaries who receive both Medicare and Medicaid, those beneficiaries would benefit from the regulations, particularly those who are not homebound and would not, therefore, qualify for home health services under Medicare.  If a face-to-face encounter is performed in conjunction with the start of home health services or to support the order for medical equipment under Medicare, and the dual eligible individual subsequently transitions to a Medicaid benefit, the face-to-face encounter does not have to be repeated. However, the physician should review the plan of care for home health services every 60 days. Additionally, if a new face-to-face encounter is required for home health services under Medicaid, the physician must be Medicaid-enrolled.  For dual eligible beneficiaries, the Medicare program will likely reimburse for the face-to-face encounter, whether conducted by a physician or a NPP; therefore, the practitioners would need to adhere to Medicare provider qualifications.

In the event an individual receiving home health services has a change in medical condition that requires additional home health services, the expectation is that the home health agency would communicate that need to the ordering physician, who would then need to revise the plan of care and orders accordingly.  An additional face-to-face encounter would not be required.

To the extent there may be an overlap in coverage with another benefit, states must provide the coverage for the home health supplies, equipment and appliances under the mandatory home health benefit. Additionally, individuals who only require medical equipment and appliances, but no other components of the home health benefit, may receive services directly from DME providers authorized by the state, without the need to establish a relationship with a home health agency.  Supplies incident to another mandatory benefit, such as hospital or nursing facility or clinic benefits categories, may be covered under that benefit category.

CMS acknowledged the concerns expressed by many commenters about the increased costs to state Medicaid programs and a shifting of costs for dual eligible beneficiaries from Medicare to Medicaid for home health services but stated the costs arose from the inherent differences between the Medicare and Medicaid statutes.  CMS estimated the rule would impose an economically significantly financial impact of greater than $100 million.

Providers and suppliers enrolled in Medicaid should be familiar with the face-to-face requirements for home health services under Medicaid and be cognizant of the differences for home health services under Medicare.

Think Americans with Disabilities Act (“ADA”) access litigation is limited to sidewalks, restrooms and physical barriers to the disabled in “brick and mortar” establishments? Think again.

A growing number of lawsuits are being filed against businesses under Title III of the ADA alleging that that the business’s website does not provide adequate accessibility to the visually and/or hearing impaired persons. Typically, the lawsuits involve an individual and a disability advocacy group as plaintiffs who allege and demand that the websites of the defendant companies must comply with certain levels of Web Content Accessibility Guidelines (“WCAG”), model guidelines compiled by the World Wide Web Consortium.

Meanwhile, the Department of Justice has since 2010 delayed issuing specific regulatory guidance directly addressing commercial website accessibility standards. In July 2010, the DOJ issued an “Advanced Notice of Proposed Rulemaking” seeking public input and comments on 19 questions related to potential standards, compliance deadlines, implementation costs and more.  In September 2010, the U.S. Department of Justice, Civil Rights Division issued updated ADA regulations entitled “Nondiscrimination on the Basis of Disability by Public Accommodations and in Commercial Facilities,” but also specifically noted — in introductory information not made part of the regulation — that “[t]he Department intends to engage in additional rulemaking in the near future addressing . . . accessibility of Web sites operated by covered public entities and public accommodations.” 75 FR 56236-01, 56240. More recently, the DOJ has indicated that it plans to issue website accessibility regulations for state and local governments in 2016, but that the Title III regulations would be delayed until 2018. DOJ Statement of Regulatory Priorities, Fall 2015 available here.

Don’t be fooled by the DOJ’s delays, however. Despite the absence of clear regulatory guidance as to what standards may be required, the current enforcement position of the DOJ and of the “gotcha” plaintiffs is to rely on general regulations requirements under the ADA that goods and services be available and delivered to the public in a non-discriminatory manner.

On February 12, 2016, the Department of Health and Human Services, Centers for Medicare and Medicaid Services (“CMS”) promulgated the final rule on the requirement that providers and suppliers receiving funds under the Medicare program report and return overpayments by the later of sixty (60) days after the date on which the overpayment was identified or the date any corresponding cost report is due, if applicable. The report and return provisions in this final rule apply only to Medicare Part A and Part B providers and suppliers. CMS will address Medicare Part C managed care plans, Medicare Part D plan sponsors, and Medicaid under separate rule making. Even so, CMS pointed out that the Affordable Care Act (the “Act”), Section 1129J(d) already requires providers and suppliers who identify overpayments received from Medicare and/or Medicaid to report and return those overpayments to the appropriate payor. The failure to report and return an overpayment can give rise to False Claims Act liability.

CMS’s examples of overpayments include Medicare payments for non-covered services, payments in excess of the allowable amount for the services, errors and non-reimbursable expenditures in costs reports, duplicate payments, and payments made when another payor had the primary responsibility for the payment. The overpayments must be reported and returned, regardless of whether there was human or system error, fraudulent behavior, or any other reason for the overpayment. CMS clarified that in circumstances where the amount paid exceeds the appropriate payment amount to which the provider or supplier is entitled, only the difference between the amount paid and the appropriate payment amount must be returned. However, where payment is made for an item or service that is not payable (e.g., claims resulting from violations of the Anti-Kickback Statute, Stark laws or claims generated for items or services provided by an excluded person or where payment is secured through fraud), the overpayment would be the entire amount paid. CMS would not adopt a minimum monetary threshold for reporting and returning overpayments. Any overpayment, no matter how small, must be reported and returned. However, CMS stated it was considering adopting a minimum threshold amount for cost-report related overpayments.

In response to questions about underpayments of claims that providers and suppliers may uncover through their monitoring for overpayment, CMS said this final rule did not address underpayments and refused to adopt suggestions that the look back period for re-billing underpaid claims be modified to match the look back period for reporting and returning overpayments.

The final rule provides that a person has identified an overpayment when the person has or should have, through the exercise of reasonable diligence, determined that the person has received an overpayment and has quantified the amount of the overpayment. CMS stated that reasonable diligence includes both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments and reactive compliance through investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment. Credible information of a potential overpayment is a factual determination. Illustrative examples that would prompt a provider or supplier of the need to exercise reasonable diligence to investigate whether there has been an overpayment include: 1) compliance hotline complaints about overpayments (even if anonymous if the information is credible); 2) incorrectly coding services resulting in increased reimbursement; 3) claims submitted for payment where a patient death occurred after the service date; 4) services provided by an unlicensed or excluded individual; 5) internal audit by provider or supplier that reveals overpayments exist; 6) a provider or supplier experiences a significant increase in Medicare revenue with no apparent reason; and 7) a provider or supplier is notified by a government agency that an audit revealed a potential overpayment.

CMS also encouraged providers and suppliers to review additional resources, such as the OIG’s annual work plan and CMS notices to structure their proactive compliance monitoring activities and retroactive reviews. CMS would not provide compliance guidance to small providers and suppliers regarding resources or measures to ensure compliance with the rule but referred to the Medicare Learning Network and OIG compliance materials.

Providers and suppliers who fail to investigate whether an overpayment occurred when there is a duty to make a reasonable inquiry, including the failure to conduct such inquiry with all deliberate speed after obtaining the information, could result in the provider or supplier knowingly retaining an overpayment because it acted in deliberate ignorance or careless disregard of whether it received the overpayment. The final rule makes it clear that the 60 days to report and return the overpayment begins to run when the reasonable diligence inquiry is completed or on the day the person received the credible information of a potential overpayment but failed to conduct reasonable diligence to investigate and, in fact, received an overpayment (as receipt and retention of an actual overpayment is required). Identification of an overpayment includes quantifying the amount of the overpayment.

The final rule significantly shortened the ten-year look back period in the proposed rule. The final rule now provides that overpayments must be reported and returned only if a person identifies the overpayment within six (6) years of the date the overpayment was received.

CMS clarified that where the contractor identifies a payment error by the contractor and notifies the provider or supplier that it will adjust the claims to correct the error, there is no need for the provider or supplier to report and return the overpayment separately. Providers and suppliers will be able to use an applicable claims adjustment, credit balance, self-reported refund, or another appropriate process to return the overpayment. Providers would be able to request a voluntary offset from the contractor to return the overpayment or may submit a check in payment. CMS acknowledged the variances in reporting of overpayments currently required by contractors and stated it planned to develop a uniform reporting form that would enable all payments to be reported and returned in a consistent manner across all Medicare contractors.

Providers and suppliers may also use the OIG Self-Disclosure Protocol or the CMS Self-Referral Disclosure Protocol to report and return overpayments. Using either protocol would satisfy the duty to report the overpayment and would suspend the repayment deadline. The sixty-day time period is suspended on the date CMS or OIG acknowledges receiving the protocol submission and remains suspended until a settlement is reached in the protocol process. If a settlement ultimately is not reached, providers and suppliers have whatever balance of the time in the sixty-day period remains after the time period was suspended to report and return the overpayment.

CMS also amended the reopening rules to provide for a reopening period consistent with the six year look back period to report and return overpayments. CMS also clarified that providers and suppliers could use scanned or electronic records to validate claims for purposes of identifying overpayments, in response to commenters’ complaints that it was burdensome and expensive to maintain paper records for six to ten years.

In the situation where a government audit reveals an overpayment, CMS agreed that the scope of the reasonable diligence in investigating is defined by the issues that the contractor or government audited. However, the government audit may be for a limited time period. If the provider or supplier confirms the government audit findings, he may have credible information of receiving a potential overpayment that extends beyond the audited timeframe.   In that case, the provider or supplier should conduct due diligence within the six year look back period set forth in the final rule. In the situation where the provider or supplier appeals the determinations of the government audit, CMS agreed that it would be premature for the provider or supplier to initiate a reasonably diligent investigation into the same issues in an additional time period, until such time that government audit claims had worked their way through the administrative appeals process. In response to concerns by commenters that they may repay money that is later determined to not be an overpayment, CMS said there is no appeal process for repayment of self-identified overpayments, unless the return results in a revised initial determination of specific claim(s), which would then trigger appeal rights. Thus, providers and suppliers will be held to their determination regarding the existence of an overpayment and their reporting and returning the money. Additionally, it is important that providers and suppliers maintain documentation regarding claims for which overpayments were reported and returned, in case those refunded claims become the subject of an audit by a Medicare contractor or the OIG.

The final rule adopts a standard of at most six months from receipt of the credible information for reasonable diligence to conduct the timely, good faith investigation of credible information, unless there are extraordinary circumstances. Therefore CMS has determined that a total of eight months (six months for timely investigation and two months for reporting and returning) is a reasonable amount of time, absent extraordinary circumstances. Extraordinary circumstances that may increase the due diligence time allowance would include unusually complex investigations, physician self-referral laws violations that are referred to the CMS Voluntary Self-Referral Disclosure Protocol, natural disasters, or states of emergency. Providers and suppliers are advised to maintain records that accurately demonstrate their reasonable diligence efforts to demonstrate timely compliance with the rule.

In quantifying the amount of an overpayment, CMS stated that statistical sampling and extrapolation are an appropriate component of exercising reasonable diligence in investigating an overpayment. Providers and suppliers are required to conduct an appropriate audit to determine whether an overpayment exists and to quantify the overpayment. If a single overpaid claim is identified, CMS stated it was appropriate for the provider or supplier to inquire further to determine whether there were more overpayments on the same issue before reporting and returning the single overpayment. CMS recognized that a common way to conduct an audit is to use a probe sample and incorporate the results into a larger full sample as the basis for determining an extrapolated overpayment amount. If that methodology is employed, the provider or supplier should not report and return overpayments on single or probe sample claims until the full overpayment has been identified. CMS cautioned that statistical sampling should be conducted in a manner that conforms to sound and accepted principles. Providers and suppliers must be able to explain how the overpayment amount was calculated.

The final rule stresses the importance of both proactive compliance and reactive measures to assure that all overpayments are identified and returned within sixty days of identification. Although this final rule applies only to Medicare Part A and Part B payments, healthcare providers and suppliers who receive payments from Medicare and Medicaid are advised to implement due diligence practices to detect and investigate possible overpayments to avoid potential False Claims Act liability.

Kean Miller partner Linda S. Akchin represented Graphic Packaging International in its initial trial and appeal.

Since 1948, Louisiana’s General Sales Tax Law has provided an incentive to the manufacturing industry in the form of an exclusion from tax for materials purchased for further processing into tangible personal property for sale at retail. Undoubtedly, this exclusion has contributed to the influx of manufacturing into the state, thus creating more jobs and more state and local taxes.   A recent decision of the Second Circuit Court of Appeal, Graphic Packaging International, Inc. v. Lewis, No. 50,371-CA (La. App. 2 Cir. 2/3/16) (the “GPI case”), reveals that despite the state and local taxing authorities’ attempts to narrow the scope of the exclusion, the courts are giving the provision the full breadth originally intended by the Legislature.

After 1948, over time, a three-prong test for determination of whether a purchase qualified for the further processing exclusion was derived from the administrative regulation interpreting the statute, and Supreme Court jurisprudence. It was established that the material must be (1) a recognizable and identifiable component of the end product; (2) of benefit to the end product; and (3) purchased for the purpose of reprocessing into the end product.[1] For decades, the state and local taxing authorities have attempted to narrow the application of the exclusion by imposing a “primary purpose” test, requiring that the material be purchased for the primary purpose of reprocessing into the end product. Those attempts have been universally unsuccessful, however, when applied to “dual purpose” materials, i.e. materials that are purchased for more than one purpose – for aiding in the manufacturing process, and also for reprocessing into the end product.[2]

In International Paper, Inc. v. Bridges, 2007-1151 (La. 1/16/08), 972 So.2d 1121 (“IP”), the Louisiana Supreme Court finally had an opportunity to address the application of the further processing exclusion to dual purpose materials. In IP the Court reaffirmed and clarified the three prong test, and flatly rejected the notion that the law even suggests a “primary purpose” requirement for application of the exclusion. Id. at 1133. Under IP, the three prong test, correctly stated is that the further processing exclusion applies if the purchased material: (1) is a recognizable and identifiable component of the end product; however the chemical or physical composition of the material need not remain the same after its incorporation into the final product; (2) is of some benefit to the end product; and (3) is purchased for the purpose, but not necessarily the primary purpose, of inclusion in the end product (clarifying language in bold) (the “IP test”).

In the GPI case, the Second Circuit upheld a trial court finding that GPI’s purchases of sodium hydroxide (caustic soda), sodium hydrosulfide and emulsified sulfur (“Makeup Chemicals”) were excluded from tax under the further processing exclusion. The Makeup Chemicals were used to process wood chips into “pulp” that was further processed on machines into GPI’s paper products, but the sulfur and sodium components of the Makeup Chemicals were also further processed into the end products. The sodium and sulfur components of the materials were recognizable and identifiable in GPI’s end products and provided benefits such as mass, conductivity, strength and sizing (water repellence). The taxing authority argued that the trial court erred because the makeup chemicals were not purchased for the purpose of imparting those benefits into the end product, but rather for processing purposes – an argument that GPI maintained was a disguised “primary purpose” test.   The Second Circuit rejected the taxing authority’s argument, reasoning that the “benefit” and “purpose” prongs of the test are separate inquiries, and that under the “benefit prong” of test, “the pertinent inquiry is whether the chemicals were purchased for the purpose of incorporation or inclusion into the end product, not whether they were purchased for the purpose of achieving some specific benefit in the end product.” The Court found that “the [taxing authority] is improperly conflating the benefit and purpose prongs, perhaps in an effort to circumvent the rejection of the “primary purpose” test” by the Supreme Court in IP.

The GPI case serves as an example of the proper approach to determining applicability of the further processing exclusion. It instructs that courts should follow the straightforward three-prong test of IP unerringly, and should reject arguments that serve to morph the “purpose” prong of the test into anything other than a straightforward “purpose of inclusion” inquiry, without regard to whether that purpose is the “primary purpose” for purchasing the material.

[1] See LAC 61:I.4301(10); Traigle v. PPG Industries, Inc., 332 So.2d 777 (La.1976); and Vulcan Foundry, Inc. v. McNamara, 414 So.2d 1193 (La. 1983).

[2] See See e.g. Tarver v. Ormet, 597 So.2d 1174, 1175-1176 (La. App. 1 Cir. 1992) (purchases of caustic soda (processing aid), not taxable where oxygen atoms from caustic soda were a critical component of the dimensional crystal lattices that make up the aluminum and aluminum hydroxide end products); Exxon Corp. v. Schofield, 583 So.2d 1195, 1198 (La. App. 1 Cir. 1991) (purchases of initiators and chain transfer agents (processing aids) not taxable where they were chemically linked to, and essential components of, the complex polymer chains that comprised the polyethylene end product); Falco Lime, Inc. v. Kennedy, 1999-189 (La. App. 5 Cir. 7/27/99), 739 So.2d 953, 955-956 (purchases of quicklime (“a processing chemical”) not taxable where oxygen atoms supplied by the quicklime were necessary for the conversion of trichloropropane (“TCP”) and dichlorohydrin (“DCH”) to epichlorohydrin (“ECH”), and were an essential component of the ECH); and L.A. Frey & Sons v. Lafayette Parish School Board, 262 So.2d 132, 137 (La. App. 3 Cir. 1972) (sawdust burned to produce heat to cure meat not taxable because it also provided beneficial smoke flavor to meat).

The Louisiana Business Corporation Act (“LBCA”) became effective on January 1, 2015.  The changes to Louisiana corporation law embodied in the LBCA are extensive, especially in the areas of dissolution and termination of a corporation.

Simplified Termination

The LBCA allows corporations to terminate by simplified articles of termination if the corporation:  (1) does not owe any debts; (2) does not own any immovable property; and (3) has not issued shares or is not doing business.  Under the old law, “dissolution by affidavit” provided a similar option, but after dissolution, the shareholders became personally liable for any debts or claims against the corporation.   Under the LBCA’s simplified termination procedure, no such liability attaches to the shareholders.  Corporations which undergo a simplified termination may take advantage of reinstatement, but they are not entitled to the claim peremption benefits that arise from formal dissolution.

Formal Dissolution

Initially, it should be noted that the LBCA has made an important change in terminology.  Unlike the old law, dissolution under the LBCA does not terminate the existence of the corporation, nor does it change who has authority to act on behalf of the corporation.  Rather, the effect of dissolution is to change the official purpose of the corporation from the carrying on of business to the winding up of its affairs.  Formal dissolution under the new law begins by filing articles of dissolution with the Secretary of State.  After the corporation has been liquidated, the existence of the corporation is terminated by filing articles of termination with the Secretary of State.

An important tool now available to a dissolved corporation is the ability to dispose of both known and unknown claims.  When a dissolved corporation knows of possible claims against it, the corporation may send a written notice of its dissolution to the claimants stating that they have 120 days by which to submit a claim to the corporation. Claims that are not submitted to the corporation before the deadline are extinguished by peremption.  Timely but rejected claims are perempted unless the claimant commences a proceeding to enforce the claim by the deadline in the rejection notice, which may not be fewer than 90 days.  With respect to unknown claims, a dissolved corporation may establish a three-year (3) peremptive period by publishing a notification of its dissolution in a newspaper in the parish of its principal office or, if none, its registered office.  Through this method, a claim is perempted unless the claimant commences a proceeding to enforce the claim within three years of the publication. Corporations which are likely to have outstanding claims at the time of dissolution should take advantage of these claim peremption mechanisms under the new law.

Another newly-added feature allows a corporation to satisfy any claims that are contingent, unknown to the corporation, or are otherwise expected to arise after the effective date of dissolution by posting security in the amount and form ordered by a court after a hearing. As a result, these claims may not be enforced against shareholders who received assets in liquidation.

Claims that are not perempted or otherwise disposed of by any of the methods above are enforceable against the undistributed assets of the corporation and shareholders who received assets in liquidation. Importantly, a shareholder’s total liability for all claims may not exceed the total amount of assets distributed to the shareholder.

After the articles of termination have been filed, a corporation is deemed to no longer exist except for the limited purpose of dealing with any unresolved corporate assets or debts. Of course, placing an otherwise non-existent corporation in control of unresolved assets or debts presents the problem of finding a person with authority to act on behalf of the terminated corporation. The new law addresses this issue in two ways. First, the former shareholders of the terminated corporation can elect to have the corporation retroactively reinstated within a period of 3 years from its termination. Second, if reinstatement is not an option, then any interested party can apply to have a liquidator appointed on behalf of the corporation.

Administrative Termination

Finally, a corporation may also be terminated through an “administrative termination” by the Secretary of State. This form of termination replaces charter revocation under the old law, but corporate officers should be aware of the new filing deadlines. Whereas the old law effectively gave corporations three years to file annual reports, administrative termination now takes place after only 90 days from the annual report filing deadline.  The Secretary of State must provide at least 30 days’ written notice before termination.  Corporations that are administratively terminated have the option of retroactive reinstatement, which is available for 3 years.

The LBCA’s changes in the areas of dissolution and termination provide corporations with different options, each carrying different benefits.  Consider your options before you terminate your corporate life.

The recent downturn in energy prices has given consumers a welcomed break at the gasoline pump. The people producing the energy, however, from landowners, to oil companies, to oil field service providers, have felt the full negative effects of the steep price decline. Those producers are seeing price pressure at every turn, reducing their net incomes and eroding their enterprise valuations. Things aren’t always as bad as they seem though. Today’s mix of low energy prices, low interest rates, and the recent rise in the federal estate tax rate make estate freeze transactions particularly attractive to those people in the oil and gas industry.

While this significant price drop is painful for those in the oil and gas industry, it presents a significant estate planning opportunity. For people lucky enough to be concerned about federal estate taxes (those with a net worth in excess of $5.45 million dollars individually or $10.9 million for a married couple) the 40% tax rate presents a significant threat to their family wealth. Therefore, these taxpayers try to minimize the value of their taxable estate, thereby minimizing their exposure to the federal estate tax. Taxpayers often use discount entities and other tax strategies to reduce the taxable value of their estates.

The recent energy price dip, however, has done much of the work of minimizing asset values already. The taxpayer’s current goal is freezing the current low values of their oil and gas assets in anticipation of a recovery in energy prices later. Several estate planning strategies can effectively freeze the current value of assets in a taxpayer’s estate. When energy prices eventually recover, the value of the taxpayer’s taxable estate is frozen at today’s values, being a function of today’s lower prices. The value of the assets grows with the subsequent increase in energy prices, but outside of the taxpayer’s taxable estate.

An example will illustrate the point. Assume Martin, a single man, has oil and gas holdings currently worth $10 million when the price of crude is $30 a barrel. Martin engages in an estate freeze transaction at current prices. Two years later, Martin dies. At that time, oil prices are at $60 a barrel and Martin’s former holdings are worth $20 million. The $10 million increase in value from the price jump is excluded from Martin’s taxable estate because Martin engaged in an estate freeze transaction when oil was at $30 a barrel. For federal estate tax purposes, Martin only has his $10 million frozen estate. The freeze transaction has avoided inclusion of the additional $10 million in Martin’s taxable estate and saved Martin’s estate $4 million in additional federal estate taxes!

Freeze transactions take a variety of forms. They include grantor retained annuity trusts or unitrusts in which the taxpayer transfers assets to a trust in return for a stream of payments that the trust promises to pay the taxpayer over time. Some taxpayers prefer a sale to a special type of trust called an “intentionally defective grantor trust.” Certain of these transactions allow for a freeze in estate tax values, but still allow the taxpayer to share in the appreciation of the sold asset through variable repayments that can increase as the value of the assets sold increase.

These transactions work best when interest rates are low. Historically, we are still in a low interest rate environment, a further incentive to consider a freeze transaction.

The attractiveness of these transactions won’t last forever. Oil prices will eventually recovery. Additionally, interest rates were hiked by the Federal Reserve last year and are forecasted to rise again in the near future.

For those in the oil and gas industry, today is a challenging business environment. But, this environment presents an exceptionally good opportunity to implement an effective estate planning strategy to save future federal estate tax liabilities.