CONTRACT BLUES

In 2012, Dr. Raheem agreed to sell his medical clinic to Pinnacle Health Care in Michigan City. The deal was to close in June and Dr. Raheem was to receive $565,000.00. Pinnacle was not ready to close and asked for an extra six months to close the transaction and pay Dr. Raheem. The second closing date would have been December 31, 2012.

Shortly before this rescheduled closing, Pinnacle again said that it would not be ready to close and asked for a third extension of the closing date. Dr. Raheem, when faced with the request for a third extension of closing, asked for certain modifications to his Employment Agreement which he was required to sign under the terms of the Purchase Agreement. Pinnacle did not agree to it, and therefore, Dr. Raheem did not agree to the third extension.

Pinnacle failed to appear at the December closing and Dr. Raheem spent four hours on the closing day trying to find anyone from Pinnacle. A few weeks later, Pinnacle accused Dr. Raheem of breaching the Agreement. This lawsuit resulted in the lower Court finding that Dr. Raheem’s failure to provide documents before the closing was a breach of the Contract and found in favor of Pinnacle.

At the Appellate Court, the decision was reversed. The Court pointed out that Dr. Raheem had met all of the requirements, and was only required to produce certain documents at the closing, which never occurred due to Pinnacle’s failure to appear.

The take-a-ways from this decision are:

• Indiana follows the First to Breach Rule meaning that the first party that breaches a contract cannot complain about any breaches by the other party after the first party’s breach.
• Although Dr. Raheem and Pinnacle’s transaction may seem fairly common place, it is always the details that lead to a derailment like we see in this case. Careful drafting by attorneys familiar with healthcare transactions are much more likely to result in an effective agreement and no-drama closing.

IDENTIFIED?

Recently, HHS/CMS issued its final rule regarding how Medicare and Medicaid overpayments should be reported and returned. The basic rule is, of course, that any overpayment must be returned by the later of sixty days after an overpayment was “identified” or the date any corresponding cost report is due. The questions have always been: what does identified mean? When does identification occur?

The final rule continues CMS’ efforts to avoid answering these questions regarding identification. CMS gives several examples discussing certain circumstances, but it never gets to the heart of the matter; does identification occur when you first hear about it, a rumor, a tip, a hint, or a suspicion? Or does identification occur when you’ve had a reasonable period of time to make a reasonable investigation of the rumor, tip, hint or suspicion? Then having made your review or audit, does the sixty days start when the audit or report is completed (assuming it only took a reasonable period of time)?

Implicitly, the examples given by CMS seem to indicate that for the CMS overpayment rule, identification occurs when you first get a tip, hint, rumor, or suspicion that an overpayment may have occurred. CMS assumes in its examples that you can make a full review or audit within that first sixty days and make any reimbursement to CMS.

Is this realistic? Certainly, if we are talking about a limited sample size and a clear yes/no question about whether a matter was properly billed at the correct rate. However, with large data sets or nonspecific tips or rumors, is sixty days a reasonable period of time? I would say no.

CMS seems to recognize this as it refers to prompt action and reasonable inquiries. This hints at some CMS flexibility on this rule, but until we see CMS’ actions over the next year or two, you cannot count on reasonability and must assume that the sixty days is a absolute drop dead date.

This newsletter is edited by Paul Wallace of Jones ∙ Wallace, LLC, a member of the American Bar Association Healthcare Law Section and the American Health Lawyers Association who has been representing physicians and healthcare practices for over 25 years.  Mr. Wallace assists physicians, practices and hospitals in contract items, federal legal compliance, practice entity creation, estate and wealth planning and similar issues.  Please feel free to call if you have any questions on this newsletter or legal matters at (812) 402-1600 or pwallace@joneswallace.com.