Part III: Analysis and Conclusion

(April 26, 2010): Part III:  Analysis and Conclusion

In the midst of an economic downturn, headlines are filled with accounts of failed corporations and bankruptcies as well as notorious government bailouts.  There are many threatened lawsuits directed at officers and Directors of corporations for breaches of their fiduciary duties or seeking judicial declarations that corporations are insolvent or in the so called “zone of insolvency.” Gheewalla provides important guidance to  Directors, creditors and their professionals. It establishes that, irrespective of whether a Delaware corporation is within the zone of insolvency or insolvent, individual creditors cannot assert direct claims for breach of fiduciary duty against Directors. In the case of an insolvent corporation, however, creditors can assert derivative claims on behalf of the corporation against Directors. It should be noted that the ruling is limited to breach of fiduciary duty claims: it does not restrict other kinds of claims or rights that may be asserted by creditors directly against a corporation under a contract, agreement or applicable law. Also, the ruling may engender increased litigation over when a corporation becomes “insolvent” and which parties should have the right to prosecute derivative claims.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

Part II: The “Zone of Insolvency” — the Delaware Example

(April 26, 2010): This is the second installment of a three part article by David P. Parker examining the fiduciary duties of officers and directors of insolvent corporations and corporations operating in the so called “Zone of Insolvency.”

In Gheewalla, a significant Delaware law decision regarding creditors’ ability to sue corporate fiduciaries, the Delaware Supreme Court addressed the issue of whether a corporate director owes fiduciary duties to the creditors of a company that is insolvent or in the “zone of insolvency.”  The Court ruled that directors of a solvent Delaware corporation that is operating in the zone of insolvency owe their fiduciary duties to the corporation and its shareholders, and not to its creditors. The Court also ruled that the fiduciary duties of directors of an insolvent corporation continue to be owed to the corporation.   However, with respect to an insolvent corporation, you must have standing in order to pursue derivative claims for directors’ breaches of their fiduciary duty to the corporation.

The Supreme Court of Delaware examined the issue as to whether Delaware law recognizes a creditor’s right to bring direct fiduciary-duty claims against the directors of a corporation operating in the zone of insolvency. In holding that Delaware law does not recognize such a right, the Court explained:

When a solvent corporation enters the zone of insolvency the focus for Delaware directors does not change: Directors must continue to discharge their fiduciary duties to the corporation and its shareholders by exercising their business judgment in the best interests of the corporation for the benefit of its shareholder owners.

The Court also stated that creditors, unlike shareholders, already have several protections available to them, including contractual agreements, security instruments, the implied covenant of good faith and fair dealing, and fraudulent conveyance laws that “render the imposition of an additional, unique layer of protection through direct claims for breach of fiduciary duty unnecessary.” The Court also agreed with the Chancery Court’s reasoning that:

[A]n otherwise solvent corporation operating in the zone of insolvency is one in most need of effective and proactive leadership — as well as the ability to negotiate in good faith with its creditors — goals which would likely be significantly undermined by the prospect of individual liability arising from the pursuit of direct claims by creditors.

The Court also closed the door on a creditor’s right to bring a direct breach of fiduciary duty claim against directors of an insolvent corporation, reasoning that such a right would create uncertainty for directors who have a fiduciary duty to exercise their business judgment in the best interests of an insolvent corporation. According to the Court, a direct right of action would create a conflict between the duty of the directors to “maximize the value of the insolvent corporation for the benefit of all of those having an interest in it, and the newly recognized direct fiduciary duty to individual creditors.” The Court explained that it is important to allow a director to “engage in vigorous, good faith negotiations with individual creditors for the benefit of the corporation.” The Court did not, however, leave creditors without recourse for a breach of fiduciary duty by a director. It made clear that creditors of an insolvent corporation have standing to maintain derivative claims against directors on behalf of the corporation for a breach of fiduciary duty.

The ability of a creditor to sue a fiduciary can vary, depending on the specific facts at issue.  David Parker has extensive experience in this care of the law and can represent your interests.  For a complementary consultation, you may call Mr. Parker or one of our other attorneys at:  1 (800) 475-1906.

Part I: The Fiduciary Duties of Officers and Directors of Insolvent Corporations

(April 23, 2010): This is the first installment of a three part article by David Parker examining the Fiduciary Duties of Officers and Directors of Insolvent Corporations and Corporations operating in the so called “Zone of Insolvency.”

Part I:  The Fiduciary Duties of Officers and Directors of Insolvent Corporations

Over the next few days, David P. Parker will be posting several articles examing the  fiduciary duties of Officers and Directors of insolvent corporations and corporations operating in the so called “Zone of Insolvency.”

In the United States, corporations are creatures of state law, and the fiduciary duties of a corporation’s directors are defined by its state of incorporation. Many U.S. corporations are incorporated in the state of Delaware, which has a strong tradition of well-developed corporate jurisprudence.   There may, however, be differences between Delaware law and the laws of other states within the United States.  In general, Directors of solvent corporations have two basic “fiduciary” duties, the duty of care and the duty of loyalty, owed to the corporation itself and the shareholders. Directors must act in good faith, with the care of a prudent person, and in the best interest of the corporation. Directors must also refrain from self-dealing, usurping corporate opportunities and receiving improper personal benefits.  Decisions made by a Director on an informed basis, in good faith and in the honest belief that the action was taken in the best interest of the corporation will be protected by the “business judgment rule.”  Generally, officers owe the same fiduciary duties as directors.

It has long been settled that under ordinary (i.e., solvent) circumstances, shareholders typically have only a derivative (and not direct) right to sue for breach of the fiduciary duties of directors. If they do bring suit against directors, they must do so on behalf of the corporation, and any proceeds of those suits are for the benefit of the corporation.

The Delaware Supreme Court in Catholic Educ. Programming Found., Inc. v. Gheewalla opined that upon insolvency, creditors (who have, after all, taken the place of shareholders as the de facto owners) may likewise bring only derivative – and not direct – suits on behalf of the corporation against directors

 David Parker has extensive experience representing the interests of Corporate Officers and Directors.  Should you have questions regarding the responsibilities of these individuals to insolvent corporations, give us a call.  Mr. Parker can be reached at: 1 (800) 475-1906.

HHS-OIG Reports that Four Types of Errors Accounted For 95% of the Net Improper Medicaid Overpayments

(April 20, 2010): The Department of Health and Human Services, Office of Inspector General (HHS-OIG) recently released its report “HHS-Analysis of Improper Payments Identified During the Payment Error Rate Measurement Program Reviews in 2006 and 2007 (A-06-09-00079).” As set out in the report, four types of medical review errors accounted for 95% of the net improper Medicaid overpayments during 2006 and 2007.  A breakdown of the findings set out in the report is detailed below.  HHS-OIG examined a total of 1,356 medical review errors and 202 data processing errors.

I.      Medical Review Errors:

Of the medical review errors analyzed by HHS-OIG, the agency found that four types accounted for 78% of the errors and 95% of the net improper Medicaid overpayments. The four error types included:

Top Four Types of Medical Review Errors:

• Insufficient documentation (37.4%),
• No documentation (25%),
• Services that violated State policies  (12.9%), and
• Medically unnecessary services (2.4%).

The 1,356 medical review errors included 23 service categories, six of which accounted for 67 percent of the errors and 95 percent of the net improper Medicaid overpayments. The six service categories included:

Top Six Types of Service Categories Involved

• Nursing facilities,
• Inpatient hospitals,
• Home and Community-Based Services waivers,
• Intermediate care facilities for the mentally retarded,
• Prescribed drugs, and
• Physician.

II.     Data Processing Errors:

Of the 202 data processing errors HHS-OIG analyzed, four types accounted for 78 percent of the errors and 64 percent of the net improper Medicaid overpayments. The four error types included:

• Pricing errors,
• Non-covered services errors,
• Rate cell errors for managed care claims, and
• Errors in the logic edits of claim processing systems.

The 202 data processing errors represented 18 service categories, six of which accounted for nearly 73 percent of the errors and 79 percent of the net improper Medicaid overpayments. The six service categories included:

• Inpatient hospitals
• Nursing facilities,
• Capitated care,
• Prescribed drugs,
• Physicians, and
• Outpatient hospital.

III.     Estimated Financial Impact (Federal Only):

For 2006, CMS estimated that the Federal share of the improper payments paid was $6.6 billion.  This increased considerably, to $18.6 billion in 2007 (Federal share only).  HHS-OIG has recommended that CMS provide States with similar analytical data to help them address these improper payments.

Liles Parker Commentary:  With the passage of the recent Health Care Reform Bill, CMS has been authorized to expand the RAC program to Medicaid.  Now, more than ever before, it is essential that providers carefully analyze their operations, coding and billing practices in order to ensure that Medicaid billings meet applicable regulatory and statutory requirements.

Several of our attorneys have extensive experience working on Medicaid cases.  Should your practice or clinic find itself facing a Medicaid audit or investigation, give us a call for a complementary consultation.  We can reached at: 1 (800) 475-1906.

The Next “Patient” You See May be an Undercover Agent Auditing Your Practice.

(April 10, 2010): As the American Medical Association (AMA) recently reported on March 22^nd, health care providers may find themselves subjected to “Secret Shopper” audits by fellow providers hired by the government conduct reviews and investigations.

In a speech he made March 10^th, President Obama expressed interest in a proposal by Senator Tom Coburn, M.D. (R-OK) to have physicians and other health professionals go undercover and pose as patients to root out fraud. Apparently, President Obama included it among with several other Republican proposals which were considered when the recently passed Health Care Reform Bill was enacted.  Dr. Coburn tried to amend the Senate health reform bill with a provision that would direct the Department of Health and Human Services to establish a demonstration project for undercover investigations.  While a number of demonstration projects were ultimately included in the legislation, it isn’t clear if this is one of them.

Not surprisingly, the AMA has dismissed the idea of paying physicians to pretend to be patients in an effort to smoke out criminal activity.  As the AMA responded:

“The AMA has zero tolerance for health fraud, but there’s no evidence that the undercover-patient tactic would be effective or efficient in finding fraud. . . We are partnering with HHS and the Justice Dept. to address fraud, and we strongly recommend the government target areas where fraud occurs most, instead of wasting physician time that could be better spent caring for real patients.” (AMA President J. James Rohack, M.D.)

Notably, “Secret Shopper” audits and investigations are nothing new.  Both HHS and DOJ have used individuals posing as patients or employees in investigations for as long as health care fraud has been prosecuted by the government.

From a compliance standpoint, this could present a number of additional risks, not normally encountered in a standard billing and coding audit.  This could implicate a variety of E/M related issues.  Moreover, this may raise quality of care issues not otherwise covered in a routine audit.  To limit your potential liability, you should work with legal counsel to develop, implement and follow an effective Compliance Plan.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other health lawyers at: 1 (800) 475-1906.

Robert W. Liles Participates in Meeting with Congressman Culberson and Health Care Association Representatives in Houston

(April 8, 2010): On Wednesday evening, April 7, Robert W. Liles, Managing Member of the Firm, met with Congressman John Culberson and a group of  state and local medical association executives to discuss the recent passage of the health care reform bill.  Congressman Culberson heard from the participants, noting their views of how this legislation is going to impact Texas physicians and hospitals.  Mr. Liles discussed several provisions of the bill aimed at increasing health care fraud enforcement efforts.   He also discussed the currrent ZPIC audits being conducted in Texas by Health Integrity, a Medicare contractor.   The event was held at the Harris County Medical Society’s headquarters in downtown Houston.

Providers were understandably worried about the situation at hand. The Federal government’s recent emphasis on combating health care fraud and abuse – establishing nationwide RACs, ZPICs and HEAT teams in just the past year – has left hospitals, physicians and other health care providers in a state of panic. Audits of Medicare and Medicaid claims have been ramped up significantly, while Medicare reimbursement rates have been cut. While the deck seems stacked against health care providers, remember that providers themselves have a number of important rights under existing statutes, including rights for appealing denied claims. In this new environment though, it is imperative that health care providers accurately and appropriately document their services and that they use experienced and trained billers to process their Medicare claims.

If you would like more information on this meeting or the services of Robert W. Liles, please call us at:  1  (800) 475-1906 or send an email to rliles@lilesparker.com.

HEAT Enforcement Update: Investigations and Prosecutions in Texas Increased in March 2010

(April 3, 2010): Notably, the number of publicly-disclosed investigations and prosecutions in Texas significantly increased last month.  Two of the cases disclosed involved mental health professionals.

• A Psychologist was convicted of health care fraud and money laundering, in connection with various claims fraudulently billed to Medicare.  Instances of improper conduct included billing for more than twenty-four hours of services in a single day; billing for services in a single day which amounted to more than double the normal business hours of the Psychologist’s practice; billing for services allegedly rendered during weekends, holidays, and times that the Psychologist was known to be out of town and away from the practice; and, submitting claims for services and evaluations not actually performed by the Psychologist, as required by law.
• An unlicensed Behavioral Health Counselor was charged with Medicaid fraud for allegedly engaging in aggravated identity theft.  The defendant allegedly improperly acquired Medicaid beneficiaries’ information, including names, addresses and Medicaid numbers, then used the information to file false claims through a behavioral counseling service the defendant owned.  These behavioral counseling services were billed to Medicaid but allegedly not provided to the beneficiaries for which they were billed.

Since being established approximately a year, Texas HEAT team investigations and prosecutions have significantly increased throughout the State.  Both enforcement efforts and the frequency of Medicare audits are anticipated to increase throughout 2010.  In addition to the increasing number of civil and criminal cases brought by the Texas HEAT Strike Forces, the number of administrative overpayment cases is anticipated to grow as well.  It is essential that CMHCs continue in their efforts to ensure that both business operations and billing practices fully comply with applicable statutory and regulatory requirements.

Our Firm includes a number of attorneys with extensive former experience as Federal and / or State prosecutors.  Should your organization find itself under investigation, you may give us a call for a complementary consultation at: 1 (800) 475-1906.