Appeals Court Affirms Breach of Recruitment Agreement Against Physician

The U.S. Court of Appeals (8th Circuit) recently affirmed the grant of summary judgment by the District Court for the Western District of Arkansas to Johnson Regional Medical Center (“JRMC”) in a breach of contract action against Dr. Robert Halterman, a former employee physician.  Halterman was ordered to pay JRMC $64,931.81 in principal, interest, attorney fees, and additional costs for breaching a recruitment agreement (including an employment agreement and a promissory note) entered into with JRMC.

JRMC and Halterman entered into a recruitment agreement in which JRMC provided Halterman with a $50,000.00 signing bonus, payable in monthly installments. The monthly payments were to be forgiven so long as Halterman remained an employee of JRMC and remained in full compliance with the terms of the recruitment agreement.  Under their terms, the recruitment agreement and the promissory note obligations were to remain in effect until the final payment on the note was either made or forgiven.

Halterman worked for JRMC for a short period prior to resigning, due to an alleged shoulder injury and an alleged misrepresentation by JRMC regarding on-call obligations of the position.  Upon his resignation, JRMC informed Halterman that the monthly forgiveness of the promissory note would cease and that he was obligated to begin making payments on the principal amount of the note ($37,894).   Halterman did not make any payments toward this obligation and JRMC brought a lawsuit against him for breach of contract. The trial court ruled in favor of JRMC and issued a judgment in the amount of $64,931.82 (principal, interest, attorney fees and additional costs) against Halterman.

Halterman appealed the trial court’s decision, alleging that JRMC fraudulently induced him into signing the agreements by misrepresenting the on-call requirements of the OB-GYN position. He also claimed that his performance under the agreements was excused due to his shoulder injury, which impaired his ability to perform his duties as an OB-GYN.  The latter claim was contradicted by the fact that he accepted employment as an OB-GYN shortly after resigning from JRMC.

The Eighth Circuit rejected Halterman’s arguments, holding that he was contractually obligated to return the remainder of the principal amount of $37,894. The court also affirmed the lower court’s award of attorney fees and costs against Halterman, based on the promissory note provision allowing JRMC to collect reasonable costs and expenses incurred in collecting the balance due thereunder.

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Revenue Recognition Rule Changes Could Trigger Increased in Fraud Inquiries

A new accounting rule, known as ASC 606, was adopted recently by the U.S. Financial Accounting Standards Board and the International Accounting Standards Board.  This new rule requires fundamental changes to the manner in which health care organizations will report revenue.  The rules go into effect for public companies in 2018 and for all other companies in 2019.  These changes to revenue recognition rules could create an increase in healthcare fraud investigations and prosecutions, as various healthcare industry sectors (including hospitals, physician practices, skilled nursing facilities etc.) transition from fee-for-service to value-based payments.

Upon the effective date of ASC 606, virtually all of the revenue recognition guidance previously applied by health care organizations is superseded.

Industry observers are concerned that health care organizations, in seeking to report on various quality measures under value-based payment methods (i.e., bundled payment arrangements, shared savings arrangements) would be potentially violating the Federal False Claims Act were they to misstate their achievement of certain performance obligations.  Any claim that is submitted with an overestimation of a quality index resulting in  excess reimbursement could be construed as a false claim.  To be sure, processes will need to be agreed upon by providers and payors that will allow for periodic reconciliation of any such estimating errors.

In the recent past, attestations used to garner incentive payments from CMS for the “meaningful use” of electronic health records have been challenged by government enforcement agencies as false claims because the attestations themselves were found to be inaccurate.  It is expected that similar problems could arise for health care organizations in financial reporting for value-based payments under these revenue reporting rules.

These new revenue recognition rules will have a dramatic effect on the already complex world of governmental and non-governmental reimbursements.  Health care organizations will need to evaluate the nature and scope of the changes required to comply with current revenue and financial reporting processes and systems to minimize the risk of false claim allegations.

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New York Hospital Management Company Agrees to $4 Million False Claims Act Settlement

Arising from Stark Law Improprieties

On September 13, 2017 the Justice Department announced that MediSys Health Network Inc. (“MHS”) agreed to pay $4 million to settle allegations that it violated the False Claims Act by engaging in improper financial relationships with referring physicians. MHS owns and operates Jamaica Hospital Medical Center and Flushing Hospital and Medical Center in Queens, New York.

The settlement resolves allegations that the MHS hospitals submitted false claims to the Medicare program for services rendered to patients referred by physicians with whom the MHS hospitals had compensation arrangements that did not comply with the requirements of the Stark Law. The claims settled by this agreement are allegations only, and there has been no determination of liability.

The lawsuit was filed by Dr. Satish Deshpande under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private citizens to bring suit on behalf of the United States and share in the resultant recovery. Dr. Deshpande will receive $600,000 as his share of the recovery.

The case, United States ex rel. Deshpande, et al. v. The Jamaica Hospital Medical Center, et al., Case No. 13-cv-4030 (E.D.N.Y.), was handled by Senior Trial Counsel David T. Cohen of the Civil Division’s Commercial Litigation Branch, Assistant U.S. Attorney Kenneth M. Abell of the U.S. Attorney’s Office for the Eastern District of New York and Associate Counsel David Fuchs from HHS-OIG.

This settlement demonstrates that Stark Law prosecutions and resultant False Claims Act fines and penalties, remain an important weapon in the Justice Department’s enforcement arsenal.

The Bodenger Law Firm is a boutique legal practice providing specialty legal services to a wide range of healthcare providers.

Our extensive experience and comprehensive understanding of the healthcare delivery system makes us unique in our ability to assist clients in achieving their business objectives while ensuring compliance with relevant healthcare laws and regulations.

Our Firm mission is to provide legal services at least equal to “big firm” quality standards, at a fraction of the cost through extremely competitive hourly rates, as well as fixed fee, retainer-based and other creative billing arrangements.

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CMS Launches New Fraud Audit Initiative

Earlier this month, the Centers for Medicare & Medicaid Services (“CMS”) introduced plans to implement a new strategy for fraud audits used by Medicare administrative contractors (“MACs”). Under the new program, MACs will target only those providers and suppliers with the highest claim error rates or billing practices that vary significantly from their peers. Current processes permit MACs to largely flag and challenge claims at random, which has led to a crushing backlog of pending appeals. The new program is designed to address such concerns.

It is expected that this new audit strategy will result in fewer providers and suppliers being subject to Medicare investigations for improper billing practices. This new audit process augments CMS efforts started in 2014 for “probe and educate reviews”, which combined a claims review with education to help reduce errors in billing practices. CMS has found that claim errors tend to decrease after providers and suppliers received education.

CMS plans to launch the audits in all MAC jurisdictions before the end of 2017.

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Bipartisan Efforts to Address Healthcare Issues

On Tuesday, August 1, 2017, the Senate Health Committee (the “Committee”) announced hearings, to take place in September, on the issue of stabilizing the individual health insurance market. The announcement of these hearings is in response to continued legislative efforts to repeal Obamacare and President Trump’s threats to stop paying insurance companies cost-sharing subsidies, currently availed under Obamacare, that reduce out-of-pocket expenses for low-income policyholders.

Republican Senator Lamar Alexander, Chair of the Committee, is working with Democratic Senator Patty Murray to make the hearings bipartisan. Congress must develop a solution before September
27th, when insurers enter into contracts with the federal government over what insurance plans to sell on the exchange for 2018. If these subsidies are eliminated, then insurance companies will likely stop offering individual products through the exchange,
which is likely to affect a large number of the 18 million Americans who obtain their insurance in this manner.

In addition, a group of around 40 Republicans and Democrats, known as the “Problem Solvers Caucus” (“PSC”), have endorsed a white paper outline of ideas directed toward making some major Obamacare
improvements. While there is no formal legislative text at this time, PSC members are moving rapidly to garner broader support for their proposals in light of the most recent defeat of the Senate bill to repeal Obamacare and to force Republicans, once and
for all, to stop trying to get rid of Obamacare.

The PSC proposal includes mandatory funding for the cost-sharing subsidies for low income policyholders; repeal of the medical device tax; and raising the threshold of the “employer mandate”,
so that companies with 500 employees or more, rather than 50, are required to provide employee health insurance. PSC leadership has acknowledged that this initial proposal is an attempt to fix only certain pieces of Obamacare and should not be viewed as a
“cure all” to its shortfalls

The Committee and the PSC face a number of challenges. First, conservative legislators have made it clear that they are still favor of repeal. In addition, House Speaker Paul Ryan’s office
has stated that a bipartisan healthcare proposal would not be approved by the House anytime soon. At the same time, however, other GOP members are insisting that it is time to leave “repeal and replace” behind and devote their efforts to reaching accord with
the Democrats on smaller fixes before September 27th.

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Centers for Medicare & Medicaid Services (“CMS”) overpaid an estimated $729 million under the Medicare and Medicaid Electronic Health Record (“EHR”) Incentive Program

According to a report issued last month by the Department of Health and Human Services’ Office of Inspector General (“OIG”), the Centers for Medicare & Medicaid Services (“CMS”) overpaid an estimated $729 million under the Medicare and Medicaid Electronic Health Record (“EHR”) Incentive Program (the “EHR Incentive Program”) to physicians and other eligible professionals who did not actually comply with federal meaningful use requirements.    In addition, the Report estimates that CMS mistakenly paid $2.3 million in EHR incentive payments to eligible professionals who switched incentive programs.  These overpayments represent approximately twelve percent (12.0%) of total Medicare/Medicaid spending.

Since the Report’s issuance, several professional associations have voiced concern over the prospect of CMS seeking to recover these overpayments. The primary issues raised by these groups (including Medical Group Management Association, American College of Physicians, American Medical Association, American Osteopathic Association) relate to whether the results of the Report stem from these professionals receiving improper payments or their failing to provide sufficient proof during the audit process.

As an example, one of the requirements tested in the Report was having clinical decision alerts.  To meet the requirements, the randomly sampled providers were required to have five (5) such alerts.  An example alert is for the EHR system to flag high medical dosage(s).  During an audit, a provider may be able to demonstrate that the alerts were working at a point in time, but it would be impossible to prove that these alerts were in effect during the entire meaningful use reporting period unless the provider had taken a screenshot of the alert every day of the reporting period.

At this point, it is not entirely clear that provider need to be concerned about CMS trying to recoup these overpayments.  In a written statement following the Report’s release, CMS stated that “….this administration is committed to turning the page and ushering in a new era of accountability.  We stand committed to safeguarding federal funding by leveraging proven and new program integrity tools to prevent and identify waste, fraud and abuse.”

So, for the time being, at least, it appears that CMS will not take action to recover these overpayments.  Nonetheless, it will continue to be important for healthcare professionals to make good faith efforts to satisfy these meaningful use requirements and have the evidence to support such attestations when audits are performed.

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Key Takeaways in Recent HIPAA Settlements

Over the past several months, a steady stream of security breaches, coupled with a number of settlements recently announced by the U.S. Department of Health and Human Services – Office for Civil Rights (“OCR”), have put healthcare providers on high alert.  Several OCR decisions, including a $5.5 million settlement with Memorial Healthcare System last month—have highlighted the legal implications of security breaches in the wake of a record-setting year of hackers targeting the healthcare industry. The costs associated with a breach will likely far exceed any settlement with OCR because the significant majority of corrective action plans require providers to hire independent, third-party investigators to assess HIPAA compliance.

In reviewing some of the more significant settlements during the past several months, four (4) distinct themes seem to be evolving regarding the nature and scope of these breaches, which ca be summarized as follows:

  • business associate agreements between providers (as covered entities) and vendors (as business associates) are an important target for OCR enforcement actions;
  • failure to conduct or implement the findings from a risk assessment required by HIPAA can lead to significant fines and penalties over and above standard amounts of $1.5 million;
  • “cloud service” providers are liable for failing to protect PHI; and
  • OCR will take an organization’s failure to report a breach very seriously.


The healthcare industry has received substantial criticism over the past year for cybersecurity failures.  Therefore, it is critical for security concerns to be handled on a timely basis at the executive level and with the full involvement of the organization’s board.

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Pennsylvania Department of Health to Issue Medical Marijuana Permits in June 2017

On March 31, 2017, Dr. Karen Murphy, Secretary of the Pennsylvania Department of Health (the “Department”) announced an important new development in the implementation of the Pennsylvania Medical Marijuana Act (the “MMA”).  Secretary Murphy stated that the Department will, in the very near term, begin the application review process for growers/processors and dispensaries, the key business entities in the production and sale of medical marijuana under the MMA.  She also stated that the Department anticipates being able to release information about who applied, and for which region or county, after the permits are issued in late June 2017.

The Department will issue permits to no more than 25 grower/processors, which are entities that are permitted under the MMA to grow and possess medical marijuana. The Department will also issue no more than fifty (50) permits for dispensaries, which are entities that are permitted to dispense medical marijuana to qualified patients and caregivers, and no more than five (5) dispensary permits to any one person or entity.  All permits are valid for one (1) year.  All applicants will be subject to criminal background checks.

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Health-Related Highlights of Trump Budget Proposal

President Trump recently submitted his first formal budget proposal to Congress.  It is viewed by many to be one of the most ambitious ever proposed, and seeks to “redefine the proper role” of the federal government by dramatically reducing its involvement in many domestic areas, including health spending.  while boosting investments in security and defense.  This post focuses on the health-related highlights of this budget proposal (the “Proposal”):

  • Under the Proposal, the annual budget of the Department of Health and Human Services (“HHS”) would be reduced by more than $15 billion (or 17.9 percent) in 2018.  The Proposal seeks to increase funding for fraud and abuse detection by $70 million, and the Substance Abuse and Mental Health Services Administration would get $500 million to expand opioid addiction treatment efforts.
  • The most significant decrease in spending is directed toward the National Institutes of Health (“NIH”), which would see a $5.8 billion (or 18.3 percent) reduction in funding, bringing NIH’s annual budget to $25.9 billion. The proposal includes a major reorganization of NIH’s institutes and centers, including the closure of the Fogarty International Center, which focuses on global health research and the consolidation of the Agency for Healthcare Quality and Research.
  • The Proposal also looks to cut $4.2 billion by eliminating two programs under the Office of Community Services that help low-income families heat their homes in the winter. The Proposal indicated that the Low Income Home Energy Assistance Program is “unable to demonstrate strong performance outcomes” and the Community Services Block Grant “funds services that are duplicative of other Federal programs.”
  • The Proposal would also double medical product user fees for companies applying for FDA approval and eliminate more than $400 million in funding for dedicated professional training programs for healthcare workers.


In summary, it is certain that the Proposal will face some degree of resistance from federal lawmakers.  When reviewing the Proposal, it is important to keep in mind that any such budget proposal is a starting point and, as with any new president, is a direct reflection of the administration’s priorities and something of a wish list.

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Key Features Of Clinically Integrated Networks Versus Accountable Care Organizations

As health systems develop and implement strategies around clinical care redesign and health care reform, industry participants often ask how clinically integrated networks (“CINs”) relate and compare to accountable care organizations (“ACOs”). While unquestionably linked, each of these concepts has its own unique definition and purpose. The following table presents a summary comparison of key operating features and characteristics of CINs and ACOs.


CIN – A network of independent medical practices and physicians who collectively commit to quality and cost improvement. Physicians in the CIN may collectively negotiate third party payer contracts under a “safe harbor” from federal antitrust law relating to joint contracting being “reasonably necessary” to support investment (of both time and resources) in performance improvement and ensure cross-referrals among participating providers.

ACO – A group of different provider types across the care delivery spectrum – potentially including medical practices, physicians, hospitals/health systems and other non-acute care facilities – that are compensated based on their collective responsibility for the total cost and quality of care provided to a given patient population over a defined time period.



CIN – Focus of care management and care improvement for medical practices/physicians across specialties; often a foundational element toward the formation of an ACO..

ACO – Focus on care management and improvement for an entire patient population, across the continuum of care delivery for that population. Physician integration is an integral part of any ACO.



CIN – Free, non-risk bearing contracts that provide networks with the option to negotiate an ACO contract with a local payer with risk for the local population if it so chooses.

ACO – Variable and dependent on the ACO contract terms. An ACO is taking on a contract and can be set up in different ways. Some ACOs have no downside risk to providers whereas other providers could be asked to participate in risk.



CIN – Significant capital requirements from an individual physician perspective ((e.g., $10,000 per physician in start-up costs, $2,500 in annual operating costs).

ACO – ACOs typically require significant investments in reporting and care management infrastructure. Estimates for viable ACO start-ups range from $11.6 million to $26.1 million, depending on the size of the sponsoring health system.



CIN – At this early stage, have little or no opportunity to require participating physicians to contract exclusively through the CIN.

ACO – Typically structured with varying degrees of exclusivity from a contracting standpoint, depending on the market power of the sponsoring health system and the overall competitive environment.



CIN – In CIN arrangements, there is usually only an “upside” based on achievement of performance incentives. More evolved CINs often participate in contracts through an ACO, which gives rise to greater levels of financial risk.

ACO – ACOs are capable of assuming financial risk for defined populations under contract. As such, there is greater “upside” potential, but there is also downside risk for poor performance in managing population health.



CIN – In CIN arrangements, most incentives are based on quality and outcome-based factors, to be agreed upon in the payer contracts.

ACO – ACO members (i.e., medical practices, physicians, hospitals/health systems and other non-acute care facilities) are given quality, outcome and cost-based incentives.



CIN – Performance expectations are well-documented in CIN arrangements, and clear action steps for addressing underperformance are an integral part thereof.

ACO – Performance expectations are well-documented in ACO arrangements, and clear action steps for addressing underperformance are an integral part thereof.



CIN – Requires significant personnel commitments to deal with various operational requirements (e.g., training, case management, technology maintenance and payer contracting).

ACO – ACOs generally require far more significant personnel commitments for these same areas, as compared to CINs.



CIN – Processes to collect patient data from various sources (including claim submissions) are an integral part of CIN infrastructure requirements..

ACO – An IT infrastructure that facilitates exchange of patient information across all ACO members is essential. Therefore, technology investment in these initiatives is very significant.



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Attorney George W. Bodenger


  • Member, American Bar Association, Health Law Section
  • Member, American Health Lawyers Association
  • Member, American Health Lawyers Association Accountable Care Organization Task Force.


  • J.D., Temple University James E. Beasley School of Law
  • M.B.A., Drexel University, summa cum laude
  • B.S., Pennsylvania State University

Bar Admission(s)

  • Pennsylvania
  • New Jersey


December 2017
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