Brunini Law

Health Care

CORONAVIRUS AND THE INTERRUPTION OF YOUR BUSINESS

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As rapidly as the coronavirus is spreading its footprint across the globe, businesses of all shapes and sizes are closing their doors … and losing income.  Unfortunately, Mississippi businesses are not exempt from this fast moving reality.  Indeed, coffee shops, boutiques, restaurants, office complexes, and a variety of other businesses across the State have been forced to drastically change their operations or, in some cases, completely shutter their businesses in response to the coronavirus pandemic and the related government directives concerning travel and social distancing.  As a result, many companies are already reporting lost profits, as well as a significant concern about the future of their businesses.

Fortunately, most companies carry a commercial property insurance policy, which typically includes not only coverage for property damage but also coverage for lost profits incurred as a result of damage to the covered property.  In other words, a business may have coverage for its coronavirus lost profits through its commercial property policy.  To know that, an insured should first review its policy to determine if it contains any of the following types of coverages which are frequently included in a commercial property policy.

Business Income/Interruption 

Business Income/Interruption Coverage provides coverage for the loss of income an insured sustains as a result of a suspension of an insured’s operations.  However, most policies require that the suspension stem from “direct physical loss or damage” caused by a “covered peril” (typically theft, fire, wind, falling objects or lightning) to the specific covered property.  This type of coverage is most commonly found in circumstances where an insured’s covered property is damaged by a fire, or perhaps a storm, forcing the insured to suspend its operations for a period of time.  In that scenario, the fire or storm damage to the subject property would be readily apparent, and assuming it is a covered peril, the claimant would have a strong claim for the income lost during the restoration period.  However, a claim for lost income as a result of the coronavirus will be much more complex.

First, an insured will need to demonstrate “direct physical loss or damage” to its covered property.  Given the nature of the coronavirus, however, there likely will be no apparent damage to the property.  So, insureds will likely contend that, regardless of its visibility or lack thereof, the virus is within their workplace – albeit at a microscopic level – and that it is has in fact damaged their covered property.

Courts have heard similar arguments in other contexts (e.g. asbestos, gasoline fumes, etc.) and reached varying conclusions.  Some have sided with the insureds that the contaminant damaged the property, while others agreed with the insurers that the contaminant had not damaged the insured’s property.  This determination, which will involve a detailed analysis of the relevant policy and applicable law, will be the critical issue in evaluating these claims for coverage.

Next, an insured should review its policy to determine if it excludes coverage for business interruption claims based on communicable diseases.  Due to the SARS outbreak in 2003, the insurance industry purportedly paid out a significant amount of claims based on “business interruptions” caused by SARS.  After the SARS outbreak, and to avoid a repeat, the insurance industry began excluding losses incurred by communicable disease.  Perhaps most importantly, in 2006, the heavily relied upon Insurance Services Office (ISO) issued form CP 01 40 07 06 excluding “loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease.”  Determining whether the insured’s policy contains this exclusion will be a critical component of any coverage analysis.

Contingent Business Interruption

Commercial property policies routinely include coverage for disruptions in an insured’s supply chain.  This coverage applies when damage occurs not to the insured’s property but to the property of others relied on by the insured to supply materials to the insured or its customers.  Again, it is important to note that these policies usually require damage or physical loss caused by a covered peril to the supplier’s property.  As with the Business Income/Interruption claim, the specific language of the policy will be critical in this analysis.

Order of Civil Authority

Many commercial property insurance policies provide coverage for business income losses sustained when a “civil authority” prohibits or impairs access to the policyholder’s premises.  Some of these policies do not require “physical loss” to the insured’s covered property, and those that do sometimes do not require that the physical loss occur to the insured’s own property.  Thus, if a governmental authority – federal, state, or local – prohibits or even limits access to an area including an insured’s business, the insured may have coverage for its loss of income under its “civil authority” coverage.  Yet again, analysis of the specific language in the policy and applicable law will be critical in determining coverage.

The First Coronavirus Coverage Case

On March 16, 2020, Oceana Grill in New Orleans, Louisiana filed what is thought to be the first lawsuit – of many more to come – dealing with a coronavirus business interruption coverage dispute (Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s London, et al., Civil District Court for the Parish of Orleans, Louisiana).

In its Petition for Declaratory Judgment, Oceana Grill requested a declaration of coverage for coronavirus-caused losses under a business interruption policy.  Oceana contends that it purchased an “all risk policy” from Lloyd’s of London, “which covers all risks unless clearly and specifically excluded” and further contends that “the policy does not provide any exclusion due to losses, business or property, from a virus or global pandemic.”

With respect to harm caused by the virus, Oceana contends that:

[T]he scientific community, and those personally affected by the virus, recognize the Coronavirus as a cause of real physical loss and damage….The virus is physically impacting public and private property, and physical spaces in cities around the world….The global pandemic is exacerbated by the fact that the deadly virus physically infects and stays on the surface of objects or materials, ‘fomites,’ for up to twenty-eight days, particularly in humid areas below eighty-four degrees….It is clear that contamination of the insured premises by the Coronavirus would be a direct physical loss needing remediation to clean the surfaces of the establishment.

Oceana also pointed out that the Louisiana Governor issued a statewide order banning gatherings of 250 or more people and the New Orleans Mayor issued additional operating restrictions on businesses.

For these reasons, Oceana has asked the Court to declare that:

  1. The policy provides coverage to Plaintiffs for any future civil authority shutdowns of restaurants in the New Orleans area due to physical loss from Coronavirus contamination; and
  2. The policy provides business income coverage in the event that the coronavirus has contaminated the insured’s premises.

This will be an important case to monitor as the coronavirus crisis and resulting business interruption coverage disputes continue.

The Brunini attorneys are closely monitoring developments in the coronavirus crisis and are counseling clients through the various legal and business issues involved in the crisis.

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A Message from Brunini to our Clients and Friends (COVID-19)

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As we all work to address the growing personal and business challenges presented by COVID-19, Brunini wants to assure our clients, friends, and the public that we will continue providing top-notch legal services uninterrupted by the ongoing public health crisis.  The firm activated its business continuity policies and procedures some time ago, and we are taking every precaution possible to protect the health, safety and welfare of our clients, the entire Brunini Team and their families.  Among other protective measures:

  • Brunini lawyers and staff may work remotely and securely, as may be needed for each individuals’ circumstances, to ensure we continue to serve our clients’ legal needs without interruption;
  • Brunini has implemented enhanced cleaning efforts to protect our lawyers, staff, clients and families, and encourages safe practices and hygiene to minimize the person to person spread of the coronavirus;
  • For some time Brunini has limited non-essential travel of its lawyers and staff, and has established procedures for employees to self-monitor and self-quarantine in the event of potential exposure in high-risk areas; and
  • Brunini encourages social distancing in our practice, including promoting the use of remote meeting technology to help our lawyers and clients avoid unnecessary exposure to potential risks, and we are prepared to adjust our means of communicating as may be needed to suit clients’ specific needs and capabilities.

We recognize that our clients, friends, and the public are being impacted by this challenging public health crisis and are dealing with many difficult and novel business issues.  We are here to help with employment concerns, tax issues, insurance coverage questions or any other legal assistance you might need.  Contact information is available on our website (www.brunini.com), or you may call (601)948-3101 for assistance in reaching any member of our team.

U.S. Supreme Court’s Same-Sex Marriage Decision & Its Potential Impact on Employers

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In a historic decision on Friday, June 26, 2015, the United States Supreme Court recognized a fundamental right for same-sex couples to marry throughout the country.  In a 5-4 opinion, authored by Justice Anthony Kennedy, the Court held that both the Due Process and Equal Protection Clauses of the Fourteenth Amendment require states to license a marriage between two people of the same sex.

The Decision

The opinion (Obergefell et al. v. Hodges, No. 14-556) consolidated four federal court cases that presented two questions:  first, does the Constitution require states to issue marriage licenses to same-sex couples; and second, are states required to recognize same-sex marriages performed elsewhere.  The Court answered both questions in the affirmative.

On Due Process grounds, the Court stated that the Constitution guarantees same-sex couples the right to marry because:  (1) “the right to personal choice regarding marriage is inherent in the concept of individual autonomy”; (2) the right to marry “supports a two-person union unlike any other in its importance to the committed individuals”; (3) the right to marry “safeguards children and families and thus draws meaning from related rights of childrearing, procreation, and education”; and (4) marriage is a “keystone of [the Nation’s] social order” for which there is no difference between same-sex and opposite-sex couples.  Additionally, the Court also relied on the Equal Protection Clause to reach its decision, but with substantially less analysis.

Of note, the opinion expressly recognized the First Amendment rights of religious organizations and individuals to oppose same-sex marriage.  Thus, there may be a latent conflict between the fundamental right to marry laid out in this opinion, and the expansive view of religious liberty laid out in opinions like Burwell v. Hobby Lobby Stores, Inc.

The Potential Impact

Although the tone of Friday’s decision was far-reaching, the full impact of the decision remains to be felt.  For example, although it is clear that the states must recognize same-sex marriage, it is not clear that private employers are required to do so where such policies do not flow from federal or state law.  (I.e., rights under employer-provided leave policies vs. FMLA leave rights).  However, policies that treat opposite-sex spouses differently from same-sex spouses may become subject to legal challenge, as Friday’s decision will likely become a basis for litigation to further expand the reach of laws such as Title VII.

Of note, Friday’s ruling does not appear to impact other private employer discrimination claims.  Specifically, in states that do not extend anti-discrimination protections to LGBT individuals in employment at the state level (such as Mississippi), while gay or lesbian individuals in these states are now able to lawfully wed, this ruling does not afford them employment anti-discrimination protections under Title VII.  However, most legal experts expect additional litigation challenging adverse employment actions taken on the basis of sexual orientation—especially in light of the Court’s decision.

By highlighting the Court’s previous decision in Burwell v. Hobby Lobby Stores, Inc., the Court possibly foreshadowed a looming challenge between the federal government and private religious-based employers who feel recognizing same sex marriage (through the offering of employee benefits) violates their First Amendment religious protections.  Can the employer opt to not provide the benefit to any “married” employee, regardless of sexual orientation?  What about for mandatory federal benefits, such as the Family and Medical Leave Act?  The Supreme Court’s decision in Obergefell did not resolve these questions.

The primary impact of this decision from the employer benefit plan perspective will be on health and welfare benefits.

Friday’s decision will impact some employers’ health and welfare benefits design and administration.  After theUnited States v. Windsor decision in 2013 (which struck down part of the federal Defense of Marriage Act), employers who offered same-sex spouses health and welfare benefits were able to treat those benefits as non-taxable for federal tax purposes.  In those states that did not previously recognize same-sex marriage, however, those benefits may have been subject to state taxes.  This created a situation where some same-sex spousal welfare benefits were taxable for state tax purposes but not for federal tax purposes–resulting in the potential for participant confusion and administrative burden for the plan sponsor.  After this ruling, those benefits should no longer be taxable for federal or state tax purposes which should ease administration for employers.
In addition, employers who had previously defined “spouse” for purposes of their welfare plans based on a state definition, should consider revisiting those definitions, to see if changes in administration are necessary.  Employer welfare plans that continue to define “spouse” for purposes of welfare benefits to exclude same-sex marriages should expect an increased chance of potential legal challenges in light of the new ruling.

Possible changes:

  • Employers may need to make administrative changes to cover same-sex spouses in states where they were not previously covered.
  • For example, employers will need to modify enrollment processes and create or modify consent and eligibility forms.
  • The state income tax treatment of employer-provided benefits could change for individuals with same-sex spouses.
  • With anticipated changes to the state income tax treatment, workers with same-sex spouses covered by employer plans will no longer need to pay imputed income on those benefits.  Further, it will eventually be unnecessary for employers to continue to calculate imputed income.
  • Eligibility rules for employer-provided benefits could change, which would open up eligibility to same-sex spouses in all states.
  • In contrast, employers might discontinue same-sex domestic partner benefits, if all employees are able to marry in their state.

This ruling may impact the number of people who are considered spouses, but should not require a qualified retirement plan change.  After the United States v. Windsordecision in 2013, the IRS issued guidance providing that for federal tax purposes the IRS applied a “state of celebration” rule.   As a result, qualified retirement plans, which rely on the Internal Revenue Code definition of spouse, have already been considering same-sex spouses as “spouses” for purposes of those plans.

The Supreme Court’s decision on Friday was just the latest in a recent trend of legal and legislative changes that could alter the obligations employers face in offering benefits for their employees, and complying with regulations administering these obligations.  We encourage you to have your legal professional review your current employment practices and policies to ensure up-to-date compliance with this ever-changing landscape.

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EMPLOYER MANDATE AND REPORTING REQUIREMENTS – STILL AWAITING GUIDANCE

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On July 2, 2013, we alerted you that the employer mandate penalties and reporting requirements had been delayed until 2015.  On July 9, 2013, the IRS published Notice 2013-45. [Notice] The Notice states that guidance concerning the employer mandate delay and reporting requirements could be “expected to be published this summer.”

The Notice, in a Q&A format, outlines what the delay means.  Employer reporting obligations under §6055 and §6056 are not required until 2015.  However, the IRS “encourages” employers to report voluntarily once the guidance is issued.  The IRS hopes voluntary reporting in 2014 will provide a “real world” test run needed for a smooth 2015 transition.  It is the reports that will allow the IRS to determine whether an employee who obtained coverage in “the Marketplace” (formerly known as “the Exchange”) is entitled to a premium tax credit.

Although the employer mandate penalties have been delayed until 2015, applicable large employers should continue to use the fall of 2013 and 2014 to develop and implement their standard measurement periods to determine which employees are full-time on January 1, 2015.  On August 1, the Administration launched a new website marketed as a tool to help employers determine their insurance obligations.  [Heath Care Changes]  The site provides only the most basic information but does not assist employers with any close coverage questions.

Cheri D. Green

This Newsletter is a publication of the Health Care Department of Brunini, Grantham, Grower & Hewes located in Jackson, Mississippi. The Newsletter is not designed or intended to provide legal or professional advice, as any such advice requires the consideration of the facts of the specific situation.  Listing of a practice area does not indicate any certification of expertise.

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EMPLOYER MANDATE DELAYED UNTIL 2015

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On July 2, 2013, the Administration announced it is delaying the employer mandate for providing affordable health care coverage scheduled to begin January 1, 2014, as well as a delay in the related reporting requirements.  Below is the announcement from the Assistant Secretary for Tax Policy at the U. S. Treasury Department.  When the formal guidance outlining the transition is published within the next several days, we will provide an update.

Continuing to Implement the ACA in a Careful, Thoughtful Manner

By: Mark J. Mazur

7/2/2013

Over the past several months, the Administration has been engaging in a dialogue with businesses – many of which already provide health coverage for their workers – about the new employer and insurer reporting requirements under the Affordable Care Act (ACA).  We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively.  We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.  We have listened to your feedback.  And we are taking action.

The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.  This is designed to meet two goals.  First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law.  Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees.  Within the next week, we will publish formal guidance describing this transition.  Just like the Administration’s effort to turn the initial 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible about reporting requirements as we implement the law.

Here is some additional detail.  The ACA includes information reporting (under section 6055) by insurers, self-insuring employers, and other parties that provide health coverage.  It also requires information reporting (under section 6056) by certain employers with respect to the health coverage offered to their full-time employees.  We expect to publish proposed rules implementing these provisions this summer, after a dialogue with stakeholders – including those responsible employers that already provide their full-time work force with coverage far exceeding the minimum employer shared responsibility requirements – in an effort to minimize the reporting, consistent with effective implementation of the law.

Once these rules have been issued, the Administration will work with employers, insurers, and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015.  Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.

We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014.  Accordingly, we are extending this transition relief to the employer shared responsibility payments.  These payments will not apply for 2014.  Any employer shared responsibility payments will not apply until 2015.

During this 2014 transition period, we strongly encourage employers to maintain or expand health coverage.  Also, our actions today do not affect employees’ access to the premium tax credits available under the ACA (nor any other provision of the ACA).

Mark J. Mazur is the Assistant Secretary for Tax Policy at the U.S. Department of the Treasury.

An Overview of the Legal Issues Associated with Hospital-Physician Recruitment Arrangements

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By: R. Richard Cirilli, Jr.
Brunini, Grantham, Grower & Hewes, PLLC

   Due to the changes in reimbursement proposed by the Patient Protection and Affordable Care Act (“PPACA”), hospitals are finding it necessary now more than ever to employ physicians to ensure the availability of quality care to the hospitals’ patients.  Accordingly, the number of physician recruitment arrangements involving hospitals, physicians, and physician group practices is on the rise.

   In general, there are two laws applicable to physician recruitment arrangements with which hospitals and physicians should be familiar when attempting to structure a recruitment agreement.  These laws are the federal Stark Law and the federal Anti-kickback statute.  The following is a summary of the requirements imposed by these laws and their accompanying regulations.

Stark Law

   Most providers are familiar with the Stark Law in the context of a physician’s ordering for his or her patients certain “designated health services” from entities with which the physician or a member of the physician’s family has a financial interest (either ownership or compensation).  However, Stark also regulates what a hospital or other provider is allowed to do in recruiting a new physician to its practice.  Specifically, Stark provides an exception that permits a hospital to pay a physician to “relocate” to the hospital’s “geographic area” to become a member of the hospital’s medical staff.  There are certain requirements that must be met for a recruitment arrangement to satisfy this Stark exception:

(1)  the arrangement must be in writing and signed by the parties;

(2)  the arrangement must not be conditioned on the physician’s referral of patients to the hospital;

(3)  the amount of remuneration paid to the physician cannot be based, either directly or indirectly, on the volume or value of referrals the physician makes to the hospital; and,

(4)  the physician cannot be prohibited from establishing staff privileges at another hospital.

   In addition to these four requirements, the physician must “relocate” to the hospital’s “geographic area.”  To meet the relocation requirement, the physician must relocate his or her practice a minimum of twenty-five miles from the former practice, or at least 75% of the physician’s revenues must come from care provided to new patients.

   Of note, however, the relocation requirement only applies to physicians who have been practicing for more than one year.  The Stark regulations provide special treatment to residents and “new” physicians (i.e., those who have been practicing for less than one year).  These physicians are eligible for the Stark physician recruitment exception, regardless of whether they will actually be relocating their practices.

   With respect to the requirement that the physician relocate to the hospital’s “geographic area,” the Stark regulations define the term “geographic area” as the area composed of the lowest number of contiguous zip codes from which the hospital draws at least 75% of its inpatients.

   In addition to seeking to employ new physicians, a hospital may assist an existing physician group practice in recruiting a new physician to the hospital’s service area.  Stark imposes additional requirements when the hospital makes payments to the recruited physician, either indirectly through a group practice or directly to the recruited physician.  These additional requirements are:

(1)  the arrangement is in writing and signed by the hospital, the physician, and the group practice;

(2)  the remuneration is passed directly through to the recruited physician;

(3)  if there is an income guarantee made by the hospital, any costs allocated by the group practice to the recruited physician may not exceed the actual additional incremental costs that are attributable to the new physician;

(4)  the recruited physician must establish his or her practice in the hospital’s “geographic area” (see above for definition) and join the hospital’s medical staff;

(5)  the agreement between the group practice and the recruited physician must be in writing and signed by the parties;

(6)  the recruited physician must not be required to refer patients to the hospital and must not be prohibited from establishing staff privileges at other hospitals;

(7)  the remuneration paid by the hospital must not be based on the volume or value of referrals by the recruited physician or the group practice;

(8)  the group practice may not impose additional practice restrictions (for example, a non-compete agreement) on the recruited physician, but may impose conditions related solely to quality of care; and,

(9)  the arrangement must not violate the federal Anti-kickback statute and must comply with all relevant billing laws and regulations.

Anti-kickback Statute

   In addition to the Stark Law, hospitals and physicians should be aware of the federal Anti-kickback statute when structuring a recruitment arrangement. The Anti-kickback statute prohibits parties from offering or receiving remuneration in return for referrals of patients if payment is made by a Federal health care program.  The Anti-kickback statute provides both civil and criminal penalties, and unlike the Stark Law, it is an intent-based statute.  That is, the parties to the arrangement must intend that “one purpose” of the arrangement is to provide unnecessary referrals.  It is worth noting here that under PPACA, there is no longer a requirement that the Government prove that the parties intended to violate the Anti-kickback statute, only that the parties intended to induce unnecessary referrals.

   Similar to the Stark Law, the Anti-kickback statute contains safe harbors that if satisfied, make the arrangement permissible.  However, unlike Stark, the Anti-kickback physician recruitment safe harbor only applies to recruitment payments intended to induce a physician to relocate to a designated health professional shortage area (“HPSA”).  Moreover, the following requirements must be met:

(1)  the agreement must be in writing and signed by the parties and it must specify the benefits provided by the hospital (or other provider), the terms under which the benefits are to be provided, and the obligation of each party;

(2)   for those physicians who have been in practice for more than one year, at least 75% of the revenues of the new practice must be generated from new patients not previously seen by the physician at his or her former practice;

(3)  the benefits cannot exceed three years and the terms of the agreement cannot be renegotiated during this three-year period;

(4)  there is no requirement that the physician make referrals to, be in a position to make or influence referrals to, or otherwise generate business for the hospital in order to receive the benefits; however, the hospital may require that the physician maintain staff privileges at the hospital;

(5)  the physician must not be prohibited from establishing staff privileges at, referring any service to, or otherwise generating any business for another entity;

(6)  the amount or value of the benefits provided by the hospital may not be tied to the volume or value of referrals or business otherwise generated for the hospital by the physician for which payment may be made in whole or in part by any Federal health care program;

(7)  the physician must agree to treat patients receiving benefits or assistance under any Federal health care program in a nondiscriminatory manner;

(8)  at least 75% of the revenues from the recruited physician’s new practice must come from patients residing in a HPSA or a Medically Underserved Area (“MUA”) or who are part of a Medically Underserved Population (“MUP”); and,

(9)  the payment by the hospital may not directly or indirectly benefit any entity or person other than the recruited physician.

   The Anti-kickback recruitment safe harbor outlined above is different than the related Stark exception in that failure to comply with the safe harbor does not make the arrangement per se illegal.  The facts and circumstances of each recruitment arrangement are unique and the focus should be on the parties’ intent.  However, even though the safe harbor only applies to payments made to recruit physicians to HPSAs, it would be prudent when structuring an arrangement to satisfy all of the non-HPSA requirements.

Summary

   Hospitals and physicians attempting to structure recruitment arrangements should be mindful of the Stark and Anti-kickback laws during their negotiations.[1]  These laws are complex, and violations of the regulations carry severe penalties.  Accordingly, the parties should seek the advice of an experienced health care attorney to ensure compliance with the exceptions and/or safe harbors and to obtain appropriate protections in the event the agreement is terminated.

[1]               Additionally, although it is beyond the scope of this article, tax-exempt hospitals should consult applicable Internal Revenue Service guidelines relating to recruitment agreements.

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