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Pepper Hamilton, L.L.P.

Supreme Court Limits Securities-Fraud Class Actions in State Courts
In an 8-0 decision (Justice Alito did not participate), the U.S. Supreme Court recently ruled that a 1998 federal law bars securities class actions brought under state law where the plaintiff alleges that he was fraudulently induced to hold onto overvalued securities. The decision in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit (No. 04-1371, 2006 U.S. LEXIS 2497 (2006)), solidifies federal preeminence over regulation of the national securities markets and strikes a blow to plaintiffs seeking to circumvent federal securities law and its stricter pleading requirements, limited damages and enhanced defenses.

In this case, a former Merrill Lynch broker sued the firm after the New York Attorney General’s 2002 investigation of Merrill Lynch and other investment banks. The investigation focused on the potential of conflicting bank loyalties when providing investment advice about securities issued by a bank’s investment banking clients. The plaintiff brought suit on behalf of himself and all other current or former Merrill Lynch brokers who owned certain stocks and held them during a particular time period. The plaintiff alleged that biased research reports issued by Merrill Lynch caused the firm’s brokers and their customers to hold onto overvalued stocks they otherwise would have sold. He claimed that brokers were damaged both because the stock price declined, and because they lost commission income when clients became dissatisfied and moved their business to other brokers.

Rather than rely on federal securities law, the plaintiff asserted his claims under Oklahoma state law, contending that Merrill Lynch breached its fiduciary duties and the covenant of good faith and fair dealing owed to its brokers by issuing misleading research reports. The Court ruled against him, since the Securities Litigation Uniform Standards Act (SLUSA) preempts class actions brought under state law alleging fraud “in connection with the purchase or sale of a security.”

Congress enacted SLUSA in 1998 to combat the proliferation of state-law securities actions after passage of the Private Securities Litigation Reform Act (PSLRA). PSLRA, which targeted abuses of the class action vehicle in securities litigation, instituted several reforms in federal securities law, including: heightening pleading requirements for securities actions under section 10(b) of the Securities Act of 1934 and the SEC’s Rule 10b-5; limiting recoverable damages and attorneys’ fees; and augmenting defenses to securities claims. Since PSLRA made it more difficult to assert securities class action claims under federal law, some plaintiffs filed actions under state law, often in state court. Congress enacted SLUSA to stop the move from federal to state courts, and to prevent private fraud-based securities class actions from evading the broad federal mandate of PSLRA.

The plaintiff argued that SLUSA only preempts actions alleging fraud “in connection with the purchase or sale” of a security. As used in Rule 10b-5, the same phrase requires that the alleged fraud coincide with an actual purchase or sale of a security. The plaintiff contended that the phrase’s use in SLUSA meant that the statute did not preempt his “holding” claim, which alleged that the fraud caused him to hold onto the overvalued stock but not purchase or sell it.

The Court disagreed. It found the plaintiff’s narrow reading of the phrase “in connection with the purchase or sale” to be inconsistent with the overarching policies behind SLUSA and PSLRA – specifically, the prevention of vexatious litigation and duplicative proceedings in state and federal court. Allowing the plaintiff’s “holding” claim to fall outside of SLUSA’s range and permitting the plaintiff to proceed under state law would undercut those policies. The plaintiff’s interpretation of the phrase, though not without support in the federal securities regulation landscape, was inappropriately narrow for SLUSA’s broad reformative mandate, the Court ruled.

The Court also found that restricting SLUSA’s applicability would compromise the federal government’s historically strong interest in regulating the securities markets. “The magnitude of the federal interest in protecting the integrity and efficient operation of the market for nationally traded securities cannot be overstated,” Justice Stevens declared.

07-12-2006

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Pepper Hamilton, L.L.P.

Supreme Court Limits Competitor Lawsuits Under RICO
On June 5, 2006, the U.S. Supreme Court issued a new opinion limiting the ability of competitors to maintain lawsuits against one another under the civil enforcement provisions of the federal Racketeering Influenced Corrupt Organizations Act (RICO). The ruling is likely to deter lawsuits claiming that business losses from legitimate competitive conduct (such as non-predatory price cutting) actually resulted from a RICO violation. It also is likely to influence lower courts, which in the future may be careful to separate the types of conduct that give rise to antitrust and RICO violations, and to limit the use of RICO to evade the often rigorous proof standards of an antitrust claim.

In Anza v. Ideal Steel Supply Corp., the plaintiff, a seller of products for steel mills, sued its competitor, alleging RICO violations based on the defendant’s alleged pattern of tax fraud. The plaintiff alleged that the defendant did not pay New York state sales taxes for cash transactions, which the defendant allegedly covered up by filing fraudulent tax returns. The plaintiff also alleged that the defendant lowered its prices by not charging sales taxes, taking customers away from the plaintiff. The defendant used the proceeds from avoiding taxes to open a new competing facility that further eroded the plaintiff’s business, the plaintiff charged.

Although the district court granted the defendant’s motion to dismiss, the appeals court reversed. The Supreme Court then reversed the appeals court judgment, holding that the plaintiff failed to plead a cognizable injury under RICO’s civil enforcement provision.

The Court first noted that RICO only permits recovery for injuries directly caused by the alleged acts of “racketeering.” In this case, a significant gap was apparent between the alleged racketeering – filing false tax returns – and the plaintiff’s alleged injury – losing customers because of lower prices. The Court noted that the filing of false tax returns directly harms New York state, not the plaintiff. The plaintiff’s injury derived from a series of alleged indirect consequences from the falsification of the defendant’s tax returns. As the Court noted, the defendant could have lowered its prices without defrauding the state government, such as by reducing margins, or could have defrauded the state without reducing prices.

The Court made clear that the “direct causal connection” requirement is particularly important where the immediate victim of an alleged RICO violation – in this case New York state – can be expected to vindicate its rights against the defendant. The Court worried that entertaining such attenuated claims of injury between competitors “could blur the line between RICO and the antitrust laws.” Indeed, the Court expressly held that a “RICO plaintiff cannot circumvent the proximate cause requirement simply by claiming that the defendant’s aim was to increase market share at a competitor’s expense.”

In an interesting concurring opinion, Justice Breyer suggested that RICO’s proximate cause requirement should be read in harmony with the underlying policy goals of the federal antitrust laws. According to Justice Breyer, no proximate cause exists where there is an intervening act of legitimate, pro-competitive activity between the racketeering conduct and the alleged injury. Justice Breyer was concerned that RICO not be used as a tool to chill lawful pro-competitive business practices encouraged by the antitrust laws, like cutting prices and expanding capacity. Inhibiting such conduct would ultimately injure consumers. Justice Breyer reasoned that the activities causing the plaintiff’s alleged injury are pro-competitive, defeating any possible show of proximate cause.

07-12-2006

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Pepper Hamilton, L.L.P.

Privacy Implications of Disease Management Programs
In an effort to keep costs down and improve the quality of care, many health organizations, health plans and providers have begun adopting and implementing disease and/or care management programs, typically using special disease management software. These software programs greatly ease the sharing of information among a patient’s treatment team – but also expose users to the risk of improperly disclosing patient information. Health plans and providers should keep privacy requirements in mind when licensing and using disease management programs.

What’s Disease Management?

The Disease Management Association of America (DMAA) has defined disease management as “a system of coordinated health care interventions and communications for populations with conditions in which patient self-care efforts are significant.”

Electronic medical records allow a patient’s health history and current condition to be instantly available to an entire medical treatment team, helping in delivery of the most appropriate and best care. This information could affect the treating physician’s suggested care plan, help prevent bad outcomes and ultimately improve patient care.

Typically, managed care organizations and other types of health plans license disease management software for use by institutional and group providers to facilitate the sharing of patient information with a beneficiary’s participating physicians and other members of the treatment team. Using a PC and Web-based software, participating physicians can log on to a managed care organization’s Web site and quickly gain access to a patient’s health information. This allows the participating physicians to fully consider the patient’s general health status, as well as other diagnoses and conditions that could potentially affect patient care and treatment. Consequently, physicians and their patients can take a more active role in care planning and clinical decision-making.

However, any electronically-based disease management program can create significant risk to an organization through unauthorized use or disclosure of patient information. Any disease management program must comply with applicable federal and state patient confidentiality, privacy and consent requirements.

Federal Law

Generally, under federal law, a covered entity – including a health care provider, health plan and health care clearing house – may not use or disclose protected health information (PHI) except as permitted or required under the privacy regulations (Privacy Rule) of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). A “health care provider” includes any physician who transmits any health information in electronic form in connection with a transaction covered by the Privacy Rule.

PHI includes individually identifiable health information, including demographic information collected from an individual and is created or received by a covered entity or employer and relates to the past, present, or future physical or mental heath or condition of an individual; the provision of health care to an individual; or the past, present or future payment for the provision of health care to an individual and that identifies the individual or that reasonably could be used to identify the individual.

The Privacy Rule prohibits a covered entity from using or disclosing PHI without valid authorization unless otherwise permitted by the rule. Since a participating physician would be permitted access to an individual’s PHI through use of the Web-based disease management program, any disclosure of PHI to the physician would have to comply with HIPAA and the Privacy Rule. However, requiring a provider to obtain the patient’s authorization before using or disclosing PHI for disease management purposes is simply not practical. One of the strengths of these programs is the immediate availability of patient information for the care and treatment of the patient. To comply with HIPAA and the Privacy Rule, the parties would have to rely on an exception to the HIPAA authorization requirement. The treatment and health care operations exceptions may be viable alternatives for uses and disclosures of PHI related to disease management.

Disease management was originally mentioned in the proposed draft of the Privacy Rule under the treatment definition. In the final Privacy Rule, however, disease management was removed. The Department of Health and Human Services (HHS) concluded that no consensus industry definition or core set of activities applied to all or most disease management programs. Without a single disease management definition, HHS thought that including it in the definition of treatment would be confusing and ripe for abuse. Instead, HHS references many disease management activities in its definition of health care operations, and recognizes that virtually all activities carried out as part of legitimate disease management programs should be exempt from the consent and authorization requirements under either the treatment or health care operations exceptions.

Treatment

Under the Privacy Rule, treatment includes:

the provision, coordination and management of health care and related services by one or more health care providers, including the coordination or management of health care by a health care provider with a third party
consultations between health care providers relating to a patient
the referral of a patient for health care from one health care provider to another.
In the final Privacy Rule, HHS essentially determined that disease management activities that focused on a specific individual would fall within the treatment definition, even though the term has been removed. In order to utilize the treatment exception for disease management purposes, the purpose of the use or disclosure would have to be focused on a specific individual rather than population-based activities.

Health Care Operations

The Privacy Rule defines health care operations to include the following activities (provided such activities are related to covered functions of the covered entity):

quality assessment and improvement activities, including outcomes evaluation and development of clinical guidelines (provided that the obtaining of generalizable knowledge is not the primary purpose of any studies resulting from such activities)
population-based activities relating to improving health or reducing health care costs
protocol development
case management and care coordination
contacting of health care providers and patients with information about treatment alternatives
related functions that do not include treatment.
Disease management activities that are population-based would fall within the health care operations exception, including activities related to improving health, coordinating care, reducing health care costs, communicating treatment alternatives and outcomes evaluation. A participating physician would be accessing a patient’s PHI in connection with a disease management program for reasons that would presumably fall within the scope of this exception and not require patient consent or authorization.

HIPAA’s security regulations (Security Rule) also require covered entities to implement certain administrative, physical and technical safeguards to protect electronic PHI. Since the information that would be accessed by participating physicians under a Web-based disease management program would constitute electronic PHI, the parties involved would also have to ensure that the program, as well as the parties’ using the program, complies with the requirements under the Security Rule.

State Law Requirements

States often have more stringent patient confidentiality, privacy and consent laws that could affect any disease management program. For example, some states may require a form of consent of the patient before any use or disclosure of the patient’s health information, even when the information is being used by or disclosed to the patient’s treating physician or medical team. Organizations adopting and implementing disease management programs need to comply with these requirements before providing physicians access to patient information. Because consent requirements vary from state to state, no “one-size fits all” consent document can be used. Many jurisdictions also have more stringent requirements for using or disclosing certain types or classes of highly sensitive health information.

Pennsylvania, for example, provides much greater protections over the use and disclosure of mental health, drug and alcohol, and HIV information. With respect to drug and alcohol information, patient records prepared or obtained under the Drug and Alcohol Abuse Control Act may be disclosed only with patient consent and only to a limited number of recipients, such as medical personnel. If a disease management program permits access to a patient’s entire medical record, this type of sensitive information may be at risk of being disclosed without the proper patient authorization. Physicians and other providers using or licensing any disease management program should ensure that the program is designed to permit access only to that information for which consent has or can be obtained in advance, or for which no consent is required.

Disease management programs can be an invaluable tool for assisting physicians and other providers with patient care management and treatment. Their use, however, is not without risk. Organizations that license such programs and physicians who utilize them need to be fully aware of the challenges presented and ensure that any use or disclosure of patient information complies with both federal and state law.

07-12-2006

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Pepper Hamilton, L.L.P.

Pennsylvania Law Requiring Notification of Security Breaches Takes Effect
Pennsylvania Senate Bill 712, also known as the Breach of Personal Information Notification Act, went into effect on June 20, 2006. The Act applies to entities doing business in Pennsylvania that maintain, store or manage computerized databases that include personal information of multiple individuals – such as hospitals and other providers, health plans and a wide variety of other health care entities.

Such entities must promptly notify Pennsylvania residents if their unencrypted and unredacted information was or is reasonably believed to have been compromised by a breach of security that would harm a Pennsylvania resident. If residents’ personal information was stolen while encrypted, notice must still be provided if the security breach allowed an unauthorized person to access the data in an unencrypted form. A vendor that manages such data on behalf of a customer is only responsible for notifying that one customer.

What is Personal Information?
The Act defines personal information as an individual’s name linked with her or his Social Security number, driver’s license or state identification card number, or information that would permit access to that individual’s financial account. Personal information does not include information made publicly available from government records.

Required Notice
Notice can be given by mail, e-mail or over the telephone, with some caveats meant to ensure receipt of the notice. “Substitute notice” may be used if the entity needs to notify more than 175,000 people, the cost of notification would exceed $100,000, or the entity lacks sufficient contact information. Substitute notice consists of posting notice on the entity’s Web site, notifying major statewide media, and e-mailing notice upon acquisition of valid e-mail addresses. Any entity notifying more than 1,000 people of a single breach also must promptly notify consumer reporting agencies of the timing, distribution and number of notices.

Exceptions
The Act carves out several exceptions. If a law enforcement agency advises an entity in writing that notification under this Act will impede an investigation, the entity must give notice only after the agency has determined that the notice will not compromise the investigation or security. Financial institutions meet the requirements of the Act by complying with the notification rules under the Federal Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice. Similarly, complying with notification rules promulgated by an entity’s primary or functional federal regulator will meet the entity’s duties under the Act. If an entity complies with its own preexisting notification procedures, and those procedures are consistent with the notification requirements of the Act, the entity has met its duty under the Act.

Remedies
Violations of the Act also violate the Unfair Trade Practices and Consumer Protection Law (UTPCPL). No private cause of action is allowed under the Act or the UTPCPL for a violation of the Act; only the Office of Attorney General can bring such an action.

Tips
The best advice is to be proactive to avoid the breach of security. Minimize the use of personal information in your operations by eliminating the use of social security numbers or redact them; at a minimum, always encrypt information before transmission. Also, you should properly dispose of storage media. Create and document best practice standards for privacy and security and train all employees on them. Should a breach occur, you should understand what the regulations require and set into motion an action plan to assess whether and how to report. Be sure to update your compliance plan as this area of the law is rapidly changing.

07-12-2006

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Pepper Hamilton, L.L.P.

Labor Law, Not Corporate Law, Controls Successor Liability for FMLA
In a case of first impression, the Sixth Circuit recently imposed successor liability on a company that did not merge or acquire the assets of another entity.

In Cobb v. Contract Transport, Inc., the plaintiff began work in July 2000 for Byrd Trucking Company, a contractor for the United States Postal Service. In June 2003, Contract Transport underbid Byrd for the contract, which specifically listed how Contract Transport was to conduct business, the types of trucks to use, hiring criteria, wages, hours and health insurance for drivers. Contract Transport hired Byrd’s former drivers, including Cobb, who then conducted his route in the same manner as he had for Byrd.

When Cobb needed surgery in December 2003, Contract Transport terminated his employment and considered Cobb to have “voluntarily resigned” because he was unavailable to work. Cobb filed a complaint alleging Contract Transport had violated the Family Medical Leave Act (FMLA) by terminating him. Although Cobb worked for Contract Transport for less than twelve months, he claimed that he was eligible for FMLA leave because the three years he had worked for Byrd counted toward his FMLA eligibility under the doctrine of successor liability.

The district court granted summary judgment to Contract Transport on the grounds that Cobb was not an eligible employee. On appeal the Sixth Circuit reversed the decision and held that Contract Transport was a successor to Byrd. The court held successor liability under FMLA was derived from federal labor law, not corporate law, and therefore a merger or transfer of assets as a precondition to the imposition of successor liability is not required.

In determining that Contract Transport was a “successor in interest,” the court followed the FMLA’s regulations which identify the substantial continuity of the same business operations, continuity of work force, and similarity of jobs and working conditions as factors to determine successor status.

Employers must evaluate the ramifications that hiring another company’s employees - whether through a merger, acquisition, or under a new contract - has on their obligations under various labor and employment laws, including the FMLA.

07-12-2006

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Pepper Hamilton, L.L.P.

Internet Sales to Customers Located in Exclusive Marketing Territories May Not Violate Franchise Agreement
In Pro Golf of Florida, Inc. v. Pro Golf of America, 2006 WL 508631 (E.D.Mich. 2006), a federal judge held that a franchisor’s Internet sales to customers in a franchisee’s defined marketing territory may not violate the franchise agreement. Under Michigan law, sales take place at the franchisor’s shipping facility and not where the customer is located.

With its verdict, the court treated Internet sales as it would traditional sales at brick-and-mortar stores. With such a view in mind, the court fashioned a remedy based upon the parties’ agreement and Article 2 of the Uniform Commercial Code (UCC).

After 40 years as a traditional brick-and-mortar retailer, Pro Golf of America (PGA) launched an e-commerce sales program. However, none of the various franchise agreements in place with approximately 120 franchisees directly addressed Internet distribution in the exclusive marketing territories granted to the franchisees. Since the agreements specified that PGA retained the “unrestricted right to engage, directly and indirectly… in the sale of golf equipment…in any geographical area outside the [franchisee’s exclusive territory],” PGA believed that its Internet transactions were not done within the franchisees’ territories.

When PGA informed its franchisees that it would sell merchandise via the Internet to customers in territories defined by franchisee agreements, Pro Golf of Florida, Inc. (PGF) and Frank Fazilat sued PGA for breach of contract. They claimed that PGA’s Internet sales violated the exclusivity terms of the franchise agreements.

Initially, the court rejected PGA’s liberal interpretation of the franchise agreement, which PGA claimed prohibited only the establishment of competing franchises in the exclusive marketing territories and not Internet sales. Instead, the court determined that within the terms of the original agreement, PGA had retained the right to sell via any channel so long as the sales did not take place within the franchisees’ designated territories. To determine if a sale – Internet or otherwise – violated the agreement, it was necessary to know precisely where the sale took place.

PGF and Fazilat argued that any sale to a customer in their territories was a sale “within” their territories. PGA held that the place of delivery was not the place of sale, and that its Internet sales took place either in Pennsylvania, where it accepted and processed the order, or at its Kentucky warehouse and shipping facility.

Since nothing in the franchise agreement defined a “sale,” the court looked to applicable state law for guidance. Under Michigan’s version of the UCC, a “sale” takes place when title to the goods passes from seller to buyer. The point where title passes depends on the seller’s delivery requirements. Since neither party had submitted evidence of the shipping terms for PGA’s Internet sales, the court held that it could not, as a matter of law, determine the place of sales. The holding amounted to a victory for PGA since its sales occurred at its shipping facility in Kentucky and not within the disputed territories.

07-12-2006

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Pepper Hamilton, L.L.P.

Diagnostic Imaging: Privileging and Pre-Authorization
Much has been written in recent years about the rising costs of imaging procedures. Radiology and imaging is estimated to be a $75 billon - $100 billion industry, and hundreds of millions of medical imaging procedures are performed each year. The performance of imaging procedures has become the fastest-growing physician service. Health plans, as the payors for many of these services, have noted this rapid increase; some plans have estimated plan imaging cost increases of between 20 percent and 30 percent annually.

Several factors are often cited as causes for this increase: more demand by consumers for non-invasive imaging tests; the practice of defensive medicine; diagnostic imaging tests ordered by non-radiologists; and ownership in imaging centers by non-radiologist physicians. Various approaches are being examined and implemented to address concerns of over-use, including two provisions in the Deficit Reduction Act of 2005 (DRA) that directly affect the provision of imaging procedures.

The DRA adopted a reimbursement reduction for the second and subsequent imaging procedure on contiguous body parts in the same family in the same session. Effective in January 2007, this reduction will be phased in over two years with a 25 percent reduction in 2006 and a 50 percent reduction in 2007. This reduction applies to 11 families of imaging procedures.

The DRA also imposes new payment caps on the technical component for imaging services in physicians’ offices and diagnostic testing facilities. Effective January 1, 2007, payment for the technical component of imaging services performed in physician offices or diagnostic testing facilities cannot exceed payment rates for the same services under the Medicare hospital outpatient prospective payment system fee schedule. The caps apply to x-rays, ultrasounds (including echocardiography), nuclear medicine (including positron emission tomography (PET)), magnetic resonance imaging (MRI), computed tomography (CT) and fluoroscopy. The new caps will not apply to diagnostic or screening mammography. Providers of imaging procedures are very concerned about these caps, and are backing lobbying efforts to amend this requirement before the 2007 effective date.

In Pennsylvania, Pittsburgh-based Highmark Blue Shield (Highmark) has been at the forefront in efforts to manage imaging costs. Highmark recently implemented its radiology management program, which includes an imaging provider privileging process as well as a pre-authorization program. Also in Pennsylvania, Independence Blue Cross (IBC) reinstated a pre-authorization program for outpatient imaging procedures effective October 10, 2005.

Highmark Guidelines

Highmark has implemented its Professional Provider Privileging Guidelines and is working with National Imaging Associates, Inc. (NIA), an imaging management firm. Required privileging for imaging procedures became effective January 1, 2006 for magnetic resonance (MR), CT and PET providers; and September 1, 2005, for all other imaging services. Highmark will only reimburse participating members if they are privileged for the provided imaging services. These privileging requirements apply to imaging provider sites in the 21 counties of central Pennsylvania. Additional guidelines and information, along with a privileged provider directory, are available at the Provider Resource Center on the Highmark Web site (www.highmarkblueshield.com). Highmark’s guidelines include general requirements for all privileged imaging providers as well as guidelines for specific modalities. According to the purpose section of the guidelines, they are “intended to promote reasonable and consistent quality and safety standards for the provision of imaging services.”

General Guidelines

All Highmark credentialed imaging providers must:

provide a written report within 10 business days (30 days for mammography reports) from date of service to the ordering provider
have a documented quality control program inclusive of imaging equipment and film processors, and a documented radiation safety program and as low as reasonably achievable (ALARA) Program
have a current (within 3 years) letter of state inspection, calibration report or physicist’s report if utilizing equipment producing ionizing radiation
be credentialed by Highmark and Keystone Health Plan West.
The Highmark Medical Policy will apply to the delivery of services detailed in the guidelines. In addition, the Highmark Professional Provider Privileging Guidelines include guidelines for each of the following imaging providers: plain films, bone densitometry, nuclear cardiology, echocardiography/stress echocardiography, peripheral vascular ultrasound, obstetrical/gynecological ultrasound, urological imaging, mammography, ultrasound, PET, fluoroscopy, CT and MR, women’s health and mobile services.

Guidelines Specific to PET

To meet Highmark’s guidelines, PET must be performed by a hospital, partially owned by a hospital as part of a joint venture or other partnership, owned and operated by an oncology practice clinically affiliated with hospital or community based cancer treatment programs, or be in an area with an access need.

Additionally, PET facilities must employ technologists certified in nuclear medicine by one of the listed certifying organizations or licensed by the state in nuclear medicine technology, and only high-performance, full-ring PET systems will be considered.

PET scan providers also must achieve accreditation by ICANL (Intersocietal Commission for the Accreditation of Nuclear Laboratories) or the ACR within two years of provisional acceptance in the privileging program. The facility must submit evidence of application for accreditation to NIA within three months of receipt of the letter indicating provisional acceptance.

Guidelines Specific to CT and MR

Practice sites offering CT and MR must:

provide at least five out of a list of nine modalities
offer diagnostic imaging services for a minimum of 40 hours per week
be staffed on-site by a credentialed radiologist who has a current Advanced Cardiac Life Support (ACLS) or Advanced Radiology Life Support (ARLS) certification during the 40 minimum hours of operation and whenever contrast enhanced procedures or diagnostic mammography are performed (including during non-standard hours)
employ an appropriately licensed or certified technologist
provide MRA capability, if offering MRI services
achieve accreditation by the ACR for MRI within one year of provisional acceptance in the privileging program (if offering MRI services). The practice must submit evidence of application for accreditation within three months of receipt of the letter indicating provisional acceptance.
The guidelines do not preclude credentialed cardiologists from performing echocardiography/stress, echocardiography, peripheral vascular ultrasound, arterial angiography, and nuclear medicine/nuclear cardiology diagnostic services at a CT/MR practice site.

In a recent addition to the guidelines, Highmark added an exception to the on-site radiologist staffing requirement when the practice uses teleradiology and satisfies a series of additional requirements, including:

a Highmark credentialed physician must be: on site during normal business hours (at least 40 per week); a member of the imaging provider group; available for patient, referring physician and teleradiologist consultation (minimum of 40 hours per week); current on ACLS or ARLS certification; and on site when contrast enhanced procedures or diagnostic mammography are performed
the radiologist interpreting the image via teleradiology must be: Highmark credentialed and licensed in the state where the imaging site is located and where the diagnostic images services are provided to the patient; a member of the imaging provider group; “dedicated” to providing radiology services via teleradiology during the practice location’s normal business hours (minimum of 40 hours per week); and available for patient, referring physician and teleradiologist consultation (minimum of 40 hours per week)
images must be transmitted in real-time, or near real-time mode, so that the interpreting radiologist can collaborate with the rendering physician and the technicians performing the studies
clinically significant data must not be lost in the transmission process.
If imaging providers wish to use teleradiology they must submit a teleradiology privileging application in addition to the general privileging application.

Hospital Guidelines

Highmark also has adopted radiology privileging guidelines for hospitals. While they are similar to the provider guidelines, there are some key distinctions. All hospital imaging centers located within a 35-mile radius of the hospital’s main campus are treated as part of the hospital. Each hospital-based imaging location is not required to separately satisfy the privileging requirements. Additionally, the hospital guidelines do not require each hospital-based imaging location providing CT or MRI services to provide at least five of the nine imaging modalities. When these guidelines were updated in March 2006, Highmark added the teleradiology exception to the guidelines specific to CT and MRI.

Prior Authorization

In addition to requiring privileges, Highmark requires all physicians and clinical practitioners to obtain authorization when ordering select procedures. The Highmark prior authorization program became effective April 1, 2006. In March 2005, to ease the transition, Highmark implemented the prior notification phase for physicians routinely ordering procedures. During this phase, providers were to notify Highmark before ordering select CT, MRI and MRA scans and all PET scans; however, reimbursement was not affected, and authorization numbers were not issued.

Currently, Highmark requires all physicians and clinical practitioners to obtain authorization when ordering select outpatient, non-emergency advanced imaging procedures, including select CT scans, select MRI and MRA scans and all PET scans covered by Highmark. Authorization numbers will be provided and will be required for reimbursement. Highmark has implemented an online authorization request system called NaviNet. Highmark and NIA have developed guidelines for clinical use of diagnostic imaging examinations to assist providers. Highmark has also implemented a retrospective review and appeal process. The prior authorization reference guide posted on Highmark’s Web site offers additional information for providers.

Other insurers have implemented pre-authorization programs for imaging services, including IBC, which reinstated pre-authorization for outpatient imaging effective October 10, 2005. The IBC program applies to diagnostic imaging in CT, MRI, nuclear cardiology and PET. It does not apply to diagnostic imaging performed in connection with inpatient hospitalizations or emergency room care. The IBC program applies to managed care providers in Pennsylvania, New Jersey and Delaware.

Conclusion

Privileging and pre-authorization, along with caps on reimbursement, are some of the approaches being taken to curtail over-utilization of diagnostic imaging procedures. Insurers say that privileging and pre-authorization are designed to promote quality and patient safety while avoiding unnecessary and/or duplicative expensive services. Whether this growing trend will become standard practice remains to be seen.

07-12-2006

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