Posts that I am not sure exactly how to categorize.
Well, it has been at least 5 months since I last posted on this blawg. This was not simply due to getting lazy, but a rather hectic fall. As some of you may know, the firm went through some changes last year. THe most obvious is the name change, which was the result of the withdrawal of a partner. In addition, we had two other staff move on to new opprotunities. This of course meant I spent a lot of time last fall interviewing and hiring. Plus, I traveled to Orlando in November to attend the HCCA Compliance Academy. This was part of becoming certified in healthcare compliance. The seminar was excellent, but with all of that going on, plus client work, posting to the blog was sort of "on the back burner." During the hiatus, I did have some time to read a few other blogs and to think about how I had been doing this one. As a result, I am gong to do things a little differently, mostly posting a larger number of shorter posts try to make it more like a blawg and less like a newsletter. We will see how it goes. I was reading in this week's ELI about the proposed Home Care and Hospice Medicare budget cuts. As I read the prognostications about the effect of these cuts, I was reminded about two other pieces of legislation currently in Congress, one would eliminate the compansionship services exemption for third party employers and the other would radically alter the current laws on labor organzining, effectively eliminating organizing campaigns. (The Union gets the cards, you get the union.) These two pieces of legislation have been relatively "under the radar", because of revised PPS, budget cuts, etc. however, these two pieces of legislation could result in radically increased costs for providers. Combined with the projected budget cuts, things could get even tighter for the home health and hospice industry.
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The Remington Report recently published its technology issue. As I flipped through it, I found an interesting article on how one agency went through the process of procuring new software for clinical and billing purposes. The article raised a number of interesting points and focused very hard on the idea of using the bidding and evaluation process to develop a relationship with the vendor you ultimately choose.
The article did not touch much on the process of developing a contract once you have settled on a vendor. Although you may think you have a good relationship with the vendor, you may run into problems down the road. (Many software or system agreements are for periods of up to five years.) When problems arise between you and your software vendor, the contract will determine what remedies you have, if any.
Most software contracts are written by the vendors attorneys and are decidedly favorable to the vendors. They usually include very few, if any, performance warranties. They contain a specific limitation of liability and they may provide you with few options to suspend payment if the software fails to perform or to rescind the contract if the software fails to perform.
Without any specific performance warranties, anything the sales reps told you during the sales process may not matter. If a sales person promised certain performances, features, or anything else that you relied upon to purchase the software, it should be stated in the contract, because the contract will likely have a clause that says the only representations you relied upon where those in the contract.
Another example of something to specifically set forth in the agreement is how the software support is provided. The contract should state who is responsible for each aspect of tech support and it should identify the types of support available and the timeframes within which support must be provided. For example, if a support issue has rendered the system unusable, the company should respond to the support call within an hour and work on the problem continuously until the problem is solved. While the software is not functioning, your payment obligations should be suspended.
You will spend a large amount of money to purchase a clinical software system. You should be sure that the contract provides clear statements about what the software will do and what remedies you have if it does not perform as ?advertised.? If you simply accept the default agreement from the vendor you will find that even if the software causes you a great deal of financial loss, you may only be entitled to a refund of some of the purchase price. Or worse, you may find you have to pay a substantial penalty to get out of the contract early. This will inevitably lead to you incurring legal fees as you fight with the software company to get out of the contract.
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Well, just a few weeks into 2007 and the Indiana Court of Appeals has already issued a new opinion involving non-competition agreements in the world of health care. This new case, Central Indiana Podiatry v. Kreuger, involves a non-competition agreement between a podiatrist and the practice group for which he worked.
In this case, Kreuger went to work for CIP, after his own practice ran into some ?financial difficulties.? As part of being hired, he signed a non-competition agreement. After working at COP for some time, another employee alleged he had kissed her. During the investigation he confessed not only to the kiss, but to touching another employee. Dr. Kreuger realized he was probably going to be terminated, and he made preparations to move onto a new job. As part of his preparation, he obtained a list of all the clients he served while at CIP.
Kreuger used that list to notify all of his patients of his new job, when he was hired by a competitor just ?ten minutes? away from his old office. His former employer filed suit seeking an injunction to stop Kreuger from serving CIP?s patients. In responding to the complaint, Kreuger argued that he had a duty to inform his patients of his new practice. See, 845 IAC 1-6-1(c), he also argued that the patient?s right to choose a provider trumped the employer?s right to enforce a non-compete agreement.
Surprisingly, the trial court agreed with Kreuger and denied the former employer?s request for an injunction. The trial court found that the employer had an adequate remedy at law, that Dr. Kreuger had a duty to inform his patients, and that the former employer was not seeking to protect ??the good will of the corporation? but ?to protect its patient population and insure that there was no loss of income??. Central Indiana Podiatry v. Kreuger, 2007 WL 46066 (IN App 2007).
As to that last point, the obvious response is that of course protecting the goodwill of the company involves protecting your patient population which insures no loss of income. While economic harm is generally not a sufficient basis for an injunction, the harm to good will is. When a health care provider puts an employee in the position of Kreuger, or a home health aide, or a home health nurse, the company is allowing the professional to care for the company?s patients. When the professional tries to take the patients with him or her, he is trafficking in the company?s goodwill. This case was even more egregious because the doctor took a patient list with him.
The Court of Appeals reversed the trial court?s ruling. The court of appeals found a protectable interest, because of the use of customer lists, and because the non-compete stated he would be entrusted with valuable, confidential, and proprietary business information. The contract also stated that use of this information would be harmful to the employer. This demonstrates the value of recitals in a non-compete, because they can establish the existence of a protectable interest. I would also mention that there is a long line of cases that recognize corporate goodwill and how it can be misused by employees who are primarily responsible for generating goodwill with clients. It is the company?s goodwill they are generating, not their own.
Other points of interest in the case include the court stating that a two year limitation period was reasonable as a matter of law. As for the argument that he had a duty to notify his patients, the Court noted that the contract between Kreuger and his employer expressly stated that the patients were the employers. Because the patients were the employers, Kreuger did not have a duty to notify them of his move. Home health professionals do not have a similar requirement, but having the employees agree that the patients are the agency?s patients reinforces the existence of a protectable interest.
Finally, the Court addressed Kreuger?s public policy argument. Kreuger argued that a patient?s right to choose a provider as guaranteed by Indiana law should overcome the provider?s right to enforce the non-compete. The court noted that the Indiana Supreme Court expressly rejected this argument over twenty-three years ago and that Kreuger offered no evidence or case law to support his claim that the recent trend was to look to the rights of the patient over the business interests of the provider. In other words, while patients may have a right to choose a provider, the provider and professionals may agree to restrictions such as a non-compete. In other words, while a patient is still free to pick a different home health agency, they may not choose the same home health aide if doing so violates a non-compete agreement.
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For those of you who know me, you know I am a big fan of gadgets. As such, I was very interested in the recent Apple iPhone announcement. I would not normally post something like that on this blog, except almost immediately after announcing the iPhone, Apple was sued for trademark violations by Cisco systems. I mention this, because large computer manufacturers are not the only ones who find themselves embroiled in trademark lawsuits.
More and more, home health and hospice companies are finding themselves involved in the world of trademark law. Some agencies have been surprised to find themselves on the receiving end of cease and desist letters form other home health and hospice companies claiming a violation of a trademarked name. This can be problematic, because of the number of agencies who use certain phrases in their names, most home health companies will use Home, Residential, Medical, etc. In some cases, agencies in different areas use the same name.
This seems to be more and more common, due to a number of factors. First, many agencies are now using web sites to advertise their company and to communicate with patients. Before the use of the internet, the local nature of home health meant that many agencies were never aware of other companies using the same name. In other words, even a home health or hospice company held a trademark, it might not have realized another company was using the same name in another area. Because it was unaware of the other user, it would not have thought to file a suit.
Second, larger home health companies and franchises have become more concerned about name recognition and branding as the home health and hospice market becomes more competitive. These companies are in multiple regions and spend a great deal of money on advertising, etc. In the competitive home health and hospice market place, they are driven to ensure others do not ?trade on? their established name.
These two factors have resulted in more agencies seeking to protect their ?brand? through enforcement. It has also led to companies in widely separate geographic markets to send letters to other agencies, even when an alleged violation is, at best, weak. As the home health and hospice industry continues to grow, as individual providers grow, and as the marketplace becomes more competitive, we may see more trademark issues crop up, even for the smaller home health and hospice providers.
For newer agencies or those considering starting up agencies or hospices, I have posted previously about steps you can take to try to avoid even accidentally stepping on another companies trademark. At a minimum, this is one more reason to hire a lawyer early in your effort to open a home health or hospice company. (Yes, I know, shameless.)
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I read with some amusement this weeks issue of Home health line. My amusement was not at anything Home health line said, as I am a regular reader, but with Cahaba?s recent ?homebound sting.? It seems Cahaba is concerned that too many patients are receiving home health care on Medicare?s dime when they are not really homebound.
That is not too surprising, given a number of factors, including the soft heartedness of clinicians, a factor pointed out in the article. Of course, recognizing a beneficiary is not homebound and discharging that beneficiary are two very different things.
The home health benefit has become a tool not just for recovery after illness, but for long term home care for the disabled and those suffering from illnesses like MS. Medicare has recognized that this was not the original intention of the benefit, and, as I recall, indicated they were going to perform a study regarding its use in some of these newer contexts.
For agencies, the practical issue is this ? many beneficiaries who have MS or other diseases may not really be homebound but are on the home health benefit. This population can be quite vocal and has a number of advocacy groups, including attorneys, ready to step in if they feel any kind of discrimination is occurring. Also, because these kinds of cases tend to be the lower profit or even loss cases, attempting to discharge a patient can lead to accusations that you are doing it for financial reasons.
Although you do not have an obligation to continue serving a patient, you cannot discharge them for discriminatory means. Thus, when you want to discharge a patient who you believe is not homebound, you need to take steps to prevent accusation of disability discrimination.
First, you should document quite clearly what facts lead you to conclude the patient is not homebound. Some of these facts may not have been apparent when you performed your intake assessment. Your clinician may not have thought to ask if the patient travels or drives himself around town. You staff may routinely come to the home and find the patient out of the house or there may be other factors that lead to this conclusion. I have heard of auditors and surveyors informing agencies that the auditor or surveyor did not think the patient was homebound, when that happens, the agency understandable takes action.
Once you have clearly documented the facts that lead you to your conclusion, you should notify the patient either through an expedited determination notice (if you are terminating care due to non-coverage) or an HHABN using option box one, if you are initiating care. The patient can request a demand bill or can appeal the determination decision through the ED process. Remember, the patient is always free to pay for the care out of pocket. You do not necessarily have to discharge the patient, you just want to be sure you are not billing the Medicare for non covered services.
Something else to keep in mind is whether the patient has appealed this decision in the past. Some beneficiaries have already litigated this issue once and had an ALJ determine they are homebound. This can offer you some guidance as the intermediaries are supposed to give this previous determination ?great weight.? While in my opinion such a previous determination is not binding on the agency, it is more difficult for Cahaba or others to penalize you when an ALJ has already ruled a beneficiary is homebound. If you believe a patient may not be homebound, but they have a prior favorable decision, you should ask for a copy of it and discuss the matter with our attorney.
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There is a great article in today?s Washington Post about hospice care. You can read the article here.
The article discusses the hospice experience of Art Buchwald. Mr. Buchwald is a famous humorist who, last February, was diagnosed with kidney failure and told by his physician that he only had a few weeks to live. Nevertheless, Mr. Buchwald recently checked out of the hospice and went home.
The article is interesting for a few reasons. First, it touches on what a patient who is diagnosed as terminal and then lives goes through. More importantly, it touches on the inherent inaccuracy of predicting how long a terminal patient may live and how this is a problem for the patients.
The article overlooked how this inaccuracy can be a problem for the hospice providers. As the hospice providers who read this know and as the article points out, eligibility for the hospice benefit requires a physician certify the patient has less than six months to live. If the patient lives past the six months, additional periods can be certified eventually, the patient passes or the patient is discharged.
While a patient being discharged, especially if they have gotten better, can be a source of joy to hospice workers, I have talked to numerous hospice workers around the country who have run into a problem related to the surviving patient ? auditors questioning the appropriateness of the admission in the first place. Unfortunately, some auditors and regulators find it problematic if an agency has multiple patients who live more than six months or who are ultimately discharged from hospice due to healing or just plain survival.
However, this article points out a number of statistics that lead to the conclusion that hospice patients surviving longer than six months or even being discharged should be expected. The author interviewed a doctor who has ?published several studies? about the accuracy of doctors? estimates of how long a patient has to live. According to one study he published in a medical journal in 2000, only 20% of the time does a doctor?s prognosis approximate how much time the patient actually has left. He also found that 67% percent of the time the patient had much less time to live than the physician had predicted. If my math is correct, that means approximately 13% of the time the patient had longer to live than predicted. Another person interviewed for the article pointed out that hospice patients suffer from a number of other diseases not that are harder to predict, whereas in the beginning hospice patients primarily suffered from cancer.
The physician sums it up as ?doctor?s suck at predicting the future.? (A skill that lawyer?s are also notoriously bad at.) But if doctor?s are no more able to predict the future with certainty than any other person, hospices should not have to worry about what the regulators will say when they are discharging patients from hospice care. You could argue that from the study the physician performed, at least 1 out of 10 patients should survive longer than expected. Given the comments of the other hospice experts regarding the broader range of diseases leading to hospice, that number could be even higher.
The point is that, because of the inherent inaccuracy of predicting the future and the nature of some of the diseases, such as congestive hear failure, that result in a patient receiving hospice care, patient prognosis is inaccurate. Medicare and others should understand that even if we expect physicians to accurately predict how long a terminal condition will take to run its course, they are not able to do so. If the physicians cannot, Medicare and Medicaid should expect to see patients live longer than predicted and should expect a certain percentage of hospice admissions will end with a discharge from hospice. Hospice providers should not have to worry that because they are in fact discharging patients who are alive or having patients routinely live longer than six months that they will be investigated for fraudulent activity.
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Something you may not think about much in your agency or hospice is trademark law. One reason you should consider it is your company?s name. When you organized or incorporated, you chose a company name. Part of that process involved you or your attorney checking with your state?s secretary of state?s office to determine if the name you desired was available. If it was, you most likely went forward with organizing. If it was not, you had to pick a new name.
One thing you may not have considered is the use of your company?s name or part of the name by another company in your state or another state. If you did not check before filing, it is possible that your secretary of state approved your name, even if it was very similar to another company?s name. Even if that did not happen, you may still find yourself using a name another company claims.
Many companies have registered their corporate name as a trademark or service mark. (See for example Volkswagen, Chevy, Ford, etc.) Not surprisingly, a number of smaller companies do the same thing. If your name conflicts with another company and that company is claiming you are violating a trademark or service mark, you may be in for a headache, even if you ultimately get to keep the name.
The first thing to know is that it is the date of first use of the claimed trademark that determines whose right to use the mark in question is superior. If you used the name first, you have a defense. There are other defenses to such a claim, however, once you receive the cease and desist letter, you are going to be spending money in attorney?s fees to defend yourself. If you lose in a case like this, you can be ordered to change your company?s name.
I point all of this out to suggest, at least for those of you starting up, it is worthwhile to check to see if the name you are intending to use for your agency contains any part of a registered trademark. For those of you who have been in business for a while and developed an ?identity? part of which is your name or any logos etc., it is worth considering registering these marks. Again, it is your use of the mark that creates your rights in the mark, but registering them with the Patent and Trademark office creates a number of additional procedural protections for you.
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A few months ago, I mentioned a Missouri Court of Appeals case that seemed to undermine the enforceability of non-competes in that state. I also mentioned that the case was on its way to the Missouri Supreme Court and that could result in a reversal.
As you may have read in Private Duty Insider? or another trade publication, the Missouri Supreme Court issued its opinion in this case. In the opinion, the Court upheld the enforceability of non-competes under Missouri law. For those of you who missed this case, the case arises out of the actions by two former employees of a home health agency who went to work for a competitor. The employees engaged in a number of activities, including recruiting employees whom the managed at their former job.
The Court discusses non-competes under Missouri law at some length, but the most interesting part of the discussion centers on customer relationships and trade secrets. The Court specifically mentions that Missouri law allows for the enforcement of non-compete agreements when necessary to protect trade secrets and customer contacts. Both of these terms have specific definitions under Missouri law.
For purposes of trade secrets, as I have said on numerous occasions, simply calling a piece of information, a process, or a customer list a trade secret is insufficient. As in many jurisdictions, Missouri requires the party claiming trade secret protection to show a number of things. One of the key requirements is that you have undertaken efforts to maintain the secrecy of the information. Many an employer has discovered that what they thought was a trade secret was not, because they took no efforts to protect it. Every state has a test for determining trade secret status. You shouldn?t just assume your customer lists are protected trade secrets, if you do, you may find you have no protection at all.
As for customer contacts, the Missouri court recognized the necessity of enforcing non-compete agreements as a means of protecting these relationships. The Court defined customer contacts as the ?influence an employee acquires over his employer?s customers through personal contact?.
In this case, the employees conceded that in the home health industry a provider has an expectation of continued service to an individual patient until the patient no longer qualifies for services or dies. The employees also admitted that patients will follow their caregivers from agency to agency. The employees were simply conceding what everybody in the home health and hospice industries know, for direct care staff, your employees have a very high level of influence over your patients.
The defendants in this case were management employees, not direct care staff. The court noted, however, that the two former managers were in a position, due to their knowledge of the former employer?s salary structure and their relationships with the direct care staff, to recruit their former employer?s employees in order to raid their former employer?s patients. In effect, they weren?t stealing the patients, but stealing the patients care givers with the knowledge as conceded above, that that the patients would follow the caregivers.
Recruiting employees to obtain clients is one way competitors attempt to ?avoid? the non-compete. In this case, the court recognized the effort for what it was and enforced the non-compete agreement any way. This reinforces that you should have non-compete agreements with even your management staff and they should address employee recruitment.
One last point of interest, the former employees counter sued for interference with a business expectancy. If you sue to enforce a non-competition agreement, you should assume this type of counter claim will be filed. In this case, the Missouri Court recognized that a company is justified in attempting to enforce the non-compete agreements it has with its employees. Because they were justified and acting in good faith, the employer had no liability.
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I have to confess that I am a little tardy with this post, but I saw an article in last weeks Home Health Line that I had to mention. The article mentions an effort by the U.S. Senate to require agencies to pay for a resurvey, if an agency were to nee one. This is being presented as an effort to save the government money, but overlooks a few issues.
The most obvious is that you are required to respond to findings with a plan of correction. As has repeatedly been pointed out by the Courts, you do not have the right to appeal a survey unless you are going to be decertified (or lose your license). If there are findings in a survey report, even if you disagree with them, you submit the required plan of correction and, if accepted, you await a resurvey. Which may result in additional findings.
I have argued that a survey report should be subject to review for some time. This proposal would make the poc and resurvey process even more onerous, because you would be forced to pay the state for the privilege of having a surveyor come out and check your compliance after the POC. In some cases, this may happen more than once.
If they do charge, what will the fee be? Is it a flat fee similar to a filing fee or will it be directly related to actual costs. This could result in rural agencies paying more for a resurvey. It could also result in agencies being put in an awkward position because of the cost of a resurvey. The resurvey fear would end up being an annual cost an agency would have to pay, because many agencies are resurveyed each year.
This additional fee will be well received, especially with agencies rising costs and the failure of Medicare or Medicaid to increase reimbursement rates to keep up with costs. This potential new fee will simply be one more item to further narrow agencies already narrow margins.
Given the limited rights an agency already has vis-?-vis the survey process and the costs inherent in preparing and submitting a plan of correction, an agency should not have to pay anadditional fee to be resurveyed. Charging an agency for a resurvey would place a heavy burden on the exercise of this ?right?. I think the
Finally, if the Federal Government starts doing this, you can guess that the states won?t be too far behind. (For those agencies who are licensed and certified, you should only pay one fee, since you have one survey for two agencies, but if a state figures there is money to be made, there could be a separate state fee.) This could potentially add even more costs to an agency?s survey. It strikes me that there must be some other way to address this issue than piling more burdens on home health providers.
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I read an interesting article that appeared in Private Duty Insider a week or two ago. The article was about strategies agencies employ to limit their liability for transporting patients. It was rather interesting and touched on all o the possibilities. An agency has three options for dealing with transporting patients ? do it, do not do it, contract with somebody else to do it.
The article also mentioned the need for non-owned automobile coverage if you are going to allow your employees to drive your patients. That is a good point, but you need non-owned automobile coverage regardless of whether or not you allow employees to transport your patients. Your employees can create liability for you by having a car accident without a patient in the car.
This is because of employer liability. If your employee is traveling to a patient?s home or between patients? homes, and has a car accident, in most jurisdictions, you could be liable as well. If you are named as a defendant or a claim is made against you as the result of an employee?s car accident, general business liability will not cover you. You will need to have the same non-owned automobile rider. Many home health agencies have overlooked this, to their regret. The premiums for the additional rider are quite low when compared to the potential liability.
If you have insurance, you also need to be sure to notify your insurance agency if a claim is made. Most policies require you to make a claim within a certain period of time. If you fail to make a claim within the required time frame, it is the same as if you did not have insurance. Some insured?s have failed to make a claim, thinking it would be cheaper to pay the claim themselves rather than have their premiums go up. While this may be true, you take a very large risk by failing to timely notify your insurance company. You may find that the plaintiff claims much larger injuries after you have missed your claims deadline.
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I was reading an article in one of the many legal publications that come across my desk each day and came across an article discussing a new wrinkle in the federal Computer Fraud and Abuse Act (?CFAA?). The new wrinkle is the result of a case handed down by the Seventh Circuit Court of Appeals in Chicago.
The opinion was issued in a case where an employer sued a former employee. The employee quit his job with the employer in order to go into business for himself. This was a breach of his agreement with his employer. Before he resigned, he deleted all of the information on the hard drive of the laptop he had been provided by his employer. The data he deleted included data he was paid to collect for his employer. The employer also believed the employee destroyed data that would demonstrate he was engaging in improper conduct prior to his termination.
The employee did not simply drag files to the trash and ?empty the trash?. He installed a file deletion program on the computer and used it to truly delete the information. For those of you who are not familiar with how your trash or recycle bin work, when you place a file in the ?trash? and empty the trash, the file is not removed from the hard drive. The computer simply deletes the files entry in the computers file index and deletes the pointers to the file. The data is still in the same place and can be recovered.
In contrast, a true file deletion utility will overwrite the space on the hard drive where the data is physically located. Overwriting means the hard drives recording head moves over the space and records random information. This makes it more difficult to recover the data. Thus, in this case, the employer could not recover the data it had paid the employee to collect as well as the evidence of the employee?s misconduct.
The employer sued the employee for a number of reasons, including a violation of the CFAA. The CFAA is a federal statute that provides criminal and civil penalties for certain activities that harm computers, that involve unauthorized access to computers or use computers to commit fraud. The employer relied upon a specific provision relating to individuals who ?knowingly cause the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization to a protected computer??
The employee argued that erasing a file was not a ?transmission?, because it only involved pressing keys on the keyboard. The trial court agreed and dismissed the case. On appeal, the Seventh Circuit noted that the employee did more than simply press keys, but that the employee actually installed a piece of software. The Court ruled that installing the file deletion program was a transmission for purposes of the CFAA. Because installing the program was a transmission, the employee had violated the CFAA.
The court of appeals also held that the employee accessed the computer without authorization and by deleting the files, recklessly caused damage.
This is good news for home care and hospice providers, because many of you provide your employees with laptops that contain patient information. Employees who install software without authorization to delete files (I have seen this done) or to otherwise cause damage can now be sued under the CFAA.
The CFAA allows individuals harmed by conduct described in the act to file suit to obtain injunctive relief and compensatory damages. In addition, the act provides that violations may be punished by jail time and fines. This means you have another very effective way to respond to employees tampering with your computers.
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I had an interesting conversation this weekend regarding corporate formalities. Many of you who read this are small companies, LLCs and Corporations, with a few sole proprietorships thrown into the mix. The purpose of adopting a corporate form is, primarily, loss limiting. For example, when you start to have employees providing care on your behalf, you may incorporate to protect your personal assets from being attached if your employees have a car accident on the way to an client?s home.
There are many other reasons you may have taken on a business form, but if you wish to be protected by that form, you should treat the corporation as a separate entity. Many new small business owners will "cut corners" on the corporate form. For example, writing a check on the company account for a personal expense. In my opinion that is a bad idea. I heard a story recently about a small company whose owner was using the company accounts and credit cards to purchase furniture, clothes, etc. As a result, the company's accounts became overdrawn and the company did not have funds available for a brief period of time. The company's funds had been completely intermingled with the owners personal funds. Commingling assets in this fashion is one of the factors courts consider in determining whether owners should be personally liable for the obligations of the company.The funny thing is that for most small operations, the owner will often end up with the lion's share of the profit coming directly to them. In turn, they can use that money however they wish. But rather than taking the step of writing a company check to themselves as salary or a distribution, depositing that check in a personal account, and then writing a personal check, they often simply write a company check for the personal item or expense. The logic behind that is usually that they don?t see what the need for the extra steps outlined above, because it is "my money anyway." In most jurisdictions, commingling corporate and personal funds is one of the factors the courts will consider in whether or not to "pierce the corporate veil." Piercing the corporate veil is the term the courts use to discuss allowing a plaintiff to sue the individual shareholders or members of corporation or LLC. If the court decides to Pierce the corporate veil, you will be liable individually. In other words, writing company checks for the owners personal expenses, can eliminate the protection provided by the corporate or LLC form. (Of course, court's review a number of factors besides commingling in making this decision, but why give them this factor to consider.) You should be very conscious of the need to keep corporate and personal funds separate.
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In an earlier post, I discussed the differences between a corporation and a limited liability company. In that post, I mentioned the lack of case law governing LLCs, in comparison to corporations. (And offered my opinion that the courts would look to corporate case law in deciding LLC questions.) Well, the Indiana courts recently ruled on an issue in relation to LLCs that was previously undecided.
The opinion from the court came down on May 22 and addresses, amongst other things, the fiduciary duty, or duty of good faith and fair dealing, members of a small LLC owe to each other. The case involves a suit alleging self-dealing by a member of an LLC. One of the issues in the case was whether the members of an LLC owe a fiduciary duty to fellow members. In this case, the Court acknowledged the limited amount of case law regarding LLCs generally and mentioned the complete lack of case law on the question of the duty owed by members (owners of an LLC are called members). The Court then analogized an LLC with few members to a closely held corporation. A closely held corporation is a corporation with relatively few shareholders with shares that are not traded on a public exchange. The court then ruled that the members in an LLC owe the same fiduciary duty to fellow members as do shareholders in a closely held corporation. I mention this case, primarily, because it reinforces the idea that for small corporations and small LLCs, there are few, if any, practical differences. I also mention it, because it illustrates that when a closely held company (corporation or LLC) begins to have disputes amongst the owners, the owners should keep in mind they have an obligation to their fellow owners. For those owners that fail to abide by that duty, the fiduciary duty does provide the other owners with legal remedies.
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Because many home care and hospice providers are small companies and because I keep hearing commercials on the radio for companies that help other companies incorporate or organize as an LLC, I thought I would post a few thoughts on the two most common forms of organization for small businesses. Most of you are either incorporated or organized as a limited liability company. For those of you that are incorporated, I would guess that you have filed for treatment under subchapter S of the Internal Revenue Code. Such a corporation is usually referred to as an S corporation and is taxed as a partnership. (Many individuals think an S corporation is a specific form of incorporation, but it is really just a shorthand way to refer to a corporation that is taxed under Subchapter S.)
The reason you chose to incorporate or organize is most likely for the personal liability protection. As a health care provider, you have employees which creates a number of potential sources of liability. The corporation and LLC acts as a ?shield? to help protect you from losses beyond your investment in the company.
Most attorneys and accountants have an opinion as to whether a small business is better off to organize as an ?S corporation? or an LLC is better. In my opinion, they are equal from a standpoint of limited liability and (because of subchapter S) taxation. However, I favor the ?S-corporation?, because there is over one hundred years of case law discussing corporations, corporate governance, corporate liability, shareholder?s rights, etc. This provides a relatively high degree of certainty when it comes to answering questions about a set of facts. In most instances, if an issue comes up regarding the corporate form, it is an issue that has been addressed by the courts before. As an attorney advising clients, predictability is a good thing.
Furthermore, the concept of a corporation is familiar to clients. Most individuals understand shares, shareholders, board of directors, board meetings and the other concepts associated with a corporation. This makes it easier for the client to understand the ?corporate formalities? and follow them. Following the corporate formalities is important for many reasons.
[I will add the following disclaimer: In some states or in certain limited circumstances, an LLC may have specific advantages for a business due to that state?s law.]
Another common misunderstanding regarding corporations and LLCs is the notion that operating as a Corporation requires more paperwork, in the form of resolutions, minutes of board meetings, etc. This is not true. If done properly, a company can be incorporated in a way that will not require any more paper than an LLC.
My real point is this, for small health care providers, S corporations and LLCs are basically the same for liability and tax purposes. The LLC is often recommended as necessary for tax purposes, when in fact, it is not necessary. If you are thinking about using one of those services that advertise on the radio, I would recommend you speak with both your accountant and your attorney instead.
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I have been dealing with a number of issues resulting from surveys lately and I can?t help but make a few comments. This may seem obvious to you, but I keep seeing these things cause providers problems and so I feel the need to repet myself. First, it never ceases to amaze me how surveyors miss documents in a clinical or employee file. I understand form talking to surveyors that part of the problem is that every home health agency does things slightly different. This creates an issue for surveyors who do not know your files the way you do. One thing that can assist surveyors greatly is trying to make it obvious what is in the file. For example, you are required to have criminal histories for employees. The location of these items in the employee file should be noted so that it is obvious to the surveyor were to look. If you are cited for failing to have this documentation, you can engage in the informal dispute resolution process (In Indiana) and usually have the tag removed. However, if IDR is not an option or is unsuccessful, you are stuck with a tag that you do not really deserve. It is far easier to make these items obvious than to fight an incorrect tag later. Another issue that keeps popping up is surveyor confusion resulting from the use of incorrect terminology. For agencies that offer both skilled and unskilled (homemaker/companion/attendant) care this is an even bigger issue. Many a home health aide or attendant has noted in the client?s file that he ?administered? medication. When, in fact, he simply reminded or assisted the patient with the medication. By writing administered in the record, the employee has created a problem for you come survey time. You should train your employees regarding terminology, especially for your non-skilled employees such as homemakers and companions.In states such as Indiana, where agencies are licensed and where State law differentiates between home health care and personal services, errors in terminology can lead to other problems. Personal services licensure statutes have been passed or are being passed in a number of states. These statutes govern the provision of unskilled home care such as companion, homemaker, and attendant services. Because they are non-medical services, they often have less restrictive standards.Agencies that offer both types of services need to be careful not only that the non-skilled employees use the correct terminology assisted with bath, not bathed, etc, but also that the files are kept separate. Misuse of terminology or intermingled files can lead a surveyor to site your agency for a violation of the home health COPs or licensure regs., because the surveyor mistakenly reviews a personal care file as a home health file. The personal care file is maintained according to a different set of standards which will result in citations. In Indiana, the state has indicated that agencies offering both types of service should keep the files strictly segregated and during a home health licensure/certification survey they should only produce the home health files unless the surveyor specifically asks for personal care files as well. This avoids confusion for the surveyor.
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Although the theme of the blog the last week or two has been fraud and abuse, I heard something yesterday that I wanted to address here. I heard an attorney opine that in the home care context non-competition agreements were nice to have, but for public policy reasons, they were not enforceable. The attorney offered the opinion to a home care provider that, public policy favored patient’s choosing providers and, therefore, a court would not enforce a non-compete against a former employee who stole the providers patients.
Although I will start with the caveat that each situation is unique, most jurisdictions will enforce a non-compete agreement in the health care industry. (Of course, there are a few states that simply do not allow non-competition agreements, regardless of the industry.) For example,in Indiana, one of the biggest areas outside of beauty salons for non-competition agreements is physician practices. Such agreements are routinely enforced, over the objections of the physician that it interferes with patient choice. I always describe it as the patient is free to choose their agency, they are not free to choose the specific caregiver. (Even CMS recognizes that agencies are harmed when an employee goes to work for a patient directly and that some kind of remedy is appropriate.)
In home care, your aides, nurses, and other caregivers are your contact with your patients. These employees become the face of your agency. If they decide to leave, it is relatively easy for them to use your agencies good will to their advantage and take patients with them; unless you have a properly drafted non-compete agreement in place.
When you are trying to enforce a properly drafted non-compete, the defense may raise public policy. For example, in Indiana, public policy is one factor in enforcing a non-compete. However, the fact that you are a health care provider trying to stop an employee from stealing patients is in most cases not an automatic bar to enforcement.
I can say that I have seen certain sympathetic cases were the court refused to grant an injunction on public policy grounds. However, the same court found the employee to have breached a non-compete agreement and awarded damages and attorney’s fees to my client as a result. But the court’s decision to not grant injunction was, in my opinion, directly related to certain specific facts in the case.
As a home care provider, a non-competition agreement is one of the most valuable agreements to have in place with your employees. Given the scarcity of nurses and the competition amongst providers, it not unusual to have employees try to take your clients to a competitor. A properly drafted non-competition agreement makes stopping this kind of employee activity much simpler.
This post deals primarily in generalities, the specifics may change depending upon in which state you operate. You should discuss a non-competition agreement with your attorney. However, if an attorney tells you that because you are in health care you will not be able to enforce such an agreement, you should consider getting a second opinion.
Finally, for those of you in Indiana that are still on the fence about going to IAHHC’s annual meeting, on Thursday, May 4, I will be giving a presentation on non-competition agreements in home care. You can obtain more information by going to IAHHC’s website.
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One of the reasons I have not posted as frequently the last two weeks is the new HHABN from CMS. In the last two weeks I have been working on an article for a trade association publication and a presentation regarding when to issue the new HHABN and which of the new forms to use. Needless to say, both were rather time sensitive.
I flew up to Milwaukee to record a presentation on the new HHABN for the Home Care Information Network or HCIN. (For those of you who know me personally, you know that I love to travel, especially when it involves a trip to the airport.)
HCIN is a company started up by Tom Williams and provides on-demand video training. You can get to their website by clicking here. (Yes, you can see my smiling face and not just hear my voice. Which hopefully makes the whole prospect of HHABN training less painful, or at least not more painful.)
I spent Friday morning with Tom and Trish Tullock from RBC Limited recording the seminar. Trish was my co-presenter and discussed the clinical aspects of the new HHABN and offered some implementation advice. As you probably guessed I talked about the legal side of the HHABN including a little background on what has led to the change.
Needless to say, the three of us had a pretty good time recording the seminar. Although whenever you tape a seminar or do a telephone seminar, the lack of audience feedback is noticeable. I had the chance to eat at one of Miwaukee’s local brew houses had an uneventful trip back home. With that behind me, I hope to return to a slightly more consistent schedule of posting.
Of course, if I don’t I will just blame my children.
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My posts have been rather sporadic lately due to my recent vacation (and recovery from the vacation) and my most recent disaster – coffee spilled on my computer keyboard. Spilling coffee on a keyboard is usually a problem, however, if your computer is a laptop, spilling coffee on the keyboard can be fatal. My recent experience in this area provides another reminder that it is important to backup your hard drive regularly for many reasons, beyond the HIPAA Security Rule. Now, many of you will immediately think, Bob, you constantly remind us of the importance of backing up our hard drives. Surely, you regularly back up your own hard drive. I must confess that, although I do backup the documents and photos on my hard drive, I do not do this as often as I should. In this case, I performed a backup of all the important files (read documents and photos) on my hard drive right before I went on vacation. (I get a little paranoid about losing my laptop or having something bad happen to it when I travel.) While on vacation, there was nothing work related added to my hard drive, however I did load 200 or more pictures from my digital camera onto the hard drive. Upon my return from Hawaii I did not immediately backup my hard drive (read vacation photos). In fact, I neglected to perform a backup at all last week. Which leads me to this past Monday, I managed to spill some coffee on my keyboard. Now for most computers, coffee on the keyboard is a minor inconvenience, for a laptop, it is a major problem, because the keyboard is on top of the computer. While I was mopping up coffee, the computer stopped (and made a few unhappy noises.) When the computer locked up, I realized that I had neither backed up any of the vacation pictures nor had I backed up the documents I had been working on the week before. Luckily, my major project for the previous week was already on its way to the client. Nevertheless, my laptop was dead and all of the documents I was working on as well as my vacation pictures were at least going to be difficult to access. If I had performed a backup on my regular schedule, I would not have lost a great deal of time at work. I would have been able to restore my information to one of our spare computers and been up and running in an hour so. Because I had to take the computer somewhere learn that it was most likely dead and have them recover the data from my hard drive, I lost more time than necessary. In this case, no information was lost, but the lack of a backup illustrated another reason for having them, you can get back to work more quickly with one than without. My accident illustrates a number of points. First, you may need your backup for reasons other than hard drive failure. Second, you should be sure to evaluate your backup schedule and determine not only could you function without certain items, but if you could function without them, how much productive time at work would be lost by having to start them over. The photos, although personal, illustrate another point, if you are in the midst of a major project, say a proposal for grant funding, you may wish to not only save regularly while you are drafting, but make a duplicate copy of that special file. This may not be a formal backup procedure that is performed regularly, but an additional step taken, because if you were to have an incident that caused you to lose the project, you will very likely have lost a great deal of time.
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Let me start by saying, Happy New Year. I have not posted in a little over a week, because I take the week between Christmas and New Year’s off for vacation. There are two reasons I do this, first, I have three kids under the age of three and Christmas is a great time to be at home. Second, the week between Christmas and New Year’s is the slowest week of the year in the legal profession. This means I can take a week off and rest assured that not much will happen while I am out. That makes for a far more relaxing week. The big post holiday news, at least for me personally, is that on January 1, 2006 Gilliland & Caudill became Gilliland Markette & Milligan LLP. I am rather excited about becoming a partner, although I am already experiencing one of the joys of being an owner of a small business -- more management responsibility.
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I was talking with a client the other day about non-competition agreements. The client was trying to find a way to stop her employees from leaving her agency and taking her clients with her. Now depending upon the particular facts, there are many ways an employer could respond to such activity. My client raised the idea of non-competition agreements and her employee told her they were not enforceable. I always love it when employees tell employers that. What else is an employee who is considering poaching a number of your patients going to say? “Gee, great idea, can I sign that tomorrow?” In reality, in many states a properly drafted non-competition agreement is completely enforceable. (Like most things in the law, the viability of a non-competition agreement varies ffrom state to state.) The problem is that many employers do not have a properly drafted agreement. I have seen home health agencies using non-competes they “borrowed” from another agency. Unfortunately, the agreement is either only part of the agreement or, more often, written with another jurisdiction in mind. The result is a useless piece of paper. My other favorite response to a non-compete in the healthcare setting is “patient choice.” Well, patients do have a choice, but that doesn’t give your employees the right to recruit your patients. Furthermore, even if they choose a different provider, that does not mean they can have your former aide working for another agency. Many a doctor has left a practice group and found out that his non-compete does in fact prevent him from serving patients in his old practice group’s service area. One thing employees do seem to misunderstand about non-competes is that they are not intended to prevent the employee from “ever working in this town again.” Most jurisdictions agree that you cannot keep a former employee from using their general skills. Your employees are free to continue working, they just can’t violate the terms of the agreement. (Which usually involves some form of geographic restriction.) For example, if you had a director of nursing leave to go to work in a hospital, but not for the hospital’s home health agency, that would be acceptable. If she left to start a competing agency or hospice just down the road that would be prohibited. Another reason to have your employees sign a non-competition agreement is that it is far more difficult to take action to stop employees from raiding your agency without one. Last spring, the Indiana Court of Appeals in Primecare Home Health v. Angels of Mercy Home Health Care ruled against a plaintiff home health agency who sought an injunction against former employees who had stolen a number of its clients. In that case, the former administrator had left and started her own agency. Not surprisingly, the new agency hired a number of the Plaintiff’s employees and began serving the Plaintiff’s clients. The Plaintiff sued alleging a misappropriation of trade secrets claim, because the former employees did not have non-competition agreements. The court ruled that the solicitation by former employees was not a misappropriation of trade secrets. It appears, that this was partially a result of the Plaintiff failing to provide any evidence that the Defendant’s had physically taken the client list. The Plaintiff did not identify any former clients who became the Defendant’s clients and it failed to submit a copy of its customer list into evidence. It later became clear that Plaintiff’s primary argument for a violation of the Trade Secrets Act was the face to face solicitation of the Plaintiff’s patients. The court felt that this type of conduct was properly addressed by a non-competition agreement, not an injunction. Of course, the Court failed to address the fact that contacting patients using information gained during the course of employment to entice them to another provider is a breach of the employee’s fiduciary duty to her employer, which, in my opinion meets the statutory definition of misappropriation. Furthermore, an employee may only know part of a home health agency’s patient list, but even that part still contains information that is arguably trade secret information. For example, the employee will be aware of the patient’s needs, Medicare or Medicaid eligibility, and the amount of reimbursement available for the case. This is all information that is not readily available elsewhere and has independent economic value. The defendant agency was able to build up a viable client base quickly, because it knew which individuals needed home health care and requested they come to the new agency. This type of client list abuse has been the subject of many trade secret act actions. It seems this case revolved more around a failure to provide sufficient proof. The case makes clear, that,in Indiana, you are in a much stronger position if you have a non-competition agreement with your employees (which is true for most states). and that the courts in Indiana feel a non-competition agreement is appropriate in this type of case.
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