In a Federal Register notice today, the USPTO has published interim guidance regarding how examiners are to assess whether an application's patent claims fall within the scope of patentable subject matter defined in § 101 in light of the Supreme Court's decision in Bilski. Many patent attorneys were concerned when the initial memo to examiners was released, suggesting the machine-or-transformation test was a burden-shifting mechanism and leaving it to an applicant who did not meet the test to prove the claims fell within § 101. The new guidance should allay these concerns somewhat, and comments are sought on both the guidelines and to provide examples of claims that are perceived to fall both within and without § 101.
Section 101 is merely a coarse filter and thus a determination of eligibility under § 101 is only a threshold question for patentability. Sections 102, 103, and 112 are typically the primary tools for evaluating patentability unless the claim is truly abstract . . . .
If a claim is rejected under § 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea. Specifically identifying the factors used in the analysis will allow the applicant to make specific arguments in response to the rejection if the applicant believes that the conclusion that the claim is directed to an abstract idea is in error.
The Notice lists various factors that an examiner can use to assist in the determination. On the whole, this approach should assist both applicants and examiners in addressing § 101 issues in a productive manner, although there will in most cases be room for argument regarding the relative weighing of the factors.
Click below for a listing of the factors identified in the notice as relevant to the § 101 analysis.
(1) The particularity or generality of the elements of the machine or apparatus; i.e., the degree to which the machine in the claim can be specifically identified (not any and all machines). Incorporation of a particular machine or apparatus into the claimed method steps weighs toward eligibility.
(2) Whether the machine or apparatus implements the steps of the method. Integral use of a machine or apparatus to achieve performance of the method weighs toward eligibility, as compared to where the machine or apparatus is merely an object on which the method operates, which weighs against eligibility.
(3) Whether its involvement is extrasolution activity or a field-of-use, i.e., the extent to which (or how) the machine or apparatus imposes meaningful limits on the execution of the claimed method steps. Use of a machine or apparatus that contributes only nominally or insignificantly to the execution of the claimed method (e.g., in a data gathering step or in a field-of-use limitation) would weigh against eligibility.
(1) The particularity or generality of the transformation. A more particular transformation would weigh in favor of eligibility.
(2) The degree to which the recited article is particular; i.e., can be specifically identified (not any and all articles). A transformation applied to a generically recited article would weigh against eligibility.
(3) The nature of the transformation in terms of the type or extent of change in state or thing, for instance by having a different function or use, which would weigh toward eligibility, compared to merely having a different location, which would weigh against eligibility.
(4) The nature of the article transformed, i.e., whether it is an object or substance, weighing toward eligibility, compared to a concept such as a contractual obligation or mental judgment, which would weigh against eligibility.
(5) Whether its involvement is extrasolution activity or a field-of-use, i.e., the extent to which (or how) the transformation imposes meaningful limits on the execution of the claimed method steps. A transformation that contributes only nominally or insignificantly to the execution of the claimed method (e.g., in a data gathering step or in a field-of-use limitation) would weigh against eligibility.
(2) Whether the claimed method recites an application of a law of nature solely involving subjective determinations; e.g., ways to think about the law of nature. Application of a law of nature to a particular way of thinking about, or reacting to, a law of nature would weigh against eligibility.
(3) Whether its involvement is extrasolution activity or a field-of-use, i.e., the extent to which (or how) the application imposes meaningful limits on the execution of the claimed method steps. An application of the law of nature that contributes only nominally or insignificantly to the execution of the claimed method (e.g., in a data gathering step or in a field-of-use limitation) would weigh against eligibility.
(1) The extent to which use of the concept, as expressed in the method, would preempt its use in other fields; i.e., that the claim would effectively grant a monopoly over the concept.
(2) The extent to which the claim is so abstract and sweeping as to cover both known and unknown uses of the concept, and be performed through any existing or future-devised machinery, or even without any apparatus.
(3) The extent to which the claim would effectively cover all possible solutions to a particular problem; i.e., that the claim is a statement of the problem versus a description of a particular solution to the problem.
(4) Whether the concept is disembodied or whether it is instantiated; i.e., implemented, in some tangible way. Note, however, that limiting an abstract idea to one field of use or adding token postsolution components does not make the concept patentable. A concept that is well-instantiated weighs in favor of eligibility.
(5) The mechanism(s) by which the steps are implemented; e.g., whether the performance of the process is observable and verifiable rather than subjective or imperceptible. Steps that are observable and verifiable weigh in favor of eligibility.
Instructing "how business should be conducted," Bilski, slip op. at 12.


text:
Koltzsch, Georg W. Deutsches Informel Symposion Informel. Moderiert und Herausgegeben von Georg W. Koltzsch. Photo available. Berlin. Edition Galerie Georg Nothelfer. 1986. 293 pps. 4to. Hardcover. First edition. Illustrated in black, white and color. Important reference work. Fine copy in fine dust jacket (in mylar).
Kominsky, Nancy Circelli. More Instant Painting. A Guide for the Absolute Beginner. The Only Book with Color Formulas in Exact Amounts. Indianapolis. Bobbs-Merrill. 1972. Octavo. Hard cover. First edition. Illustrated in black, white and color. Fine copy.
Kominsky, Nancy. Pastel & Oil Painting. Photo available. Hammersmith. Diamond Books. 1995. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
Kondos, Gregory. Kondos. Zografo. Inscribed by the author. Catalog and Checklist. Photo available. Sacramento. California State Library. 1996. 4to. Soft cover. First edition. Illustrated in black, white and color. Important reference work. Inscribed "For Carls and Nola My very best Greg. G. Kondos". Fine copy.
Konrad, Ursula et al. Asmat. Perception of Life in Art. The Collection of the Asmat Museum of Culture and Progress. Photo available. Verlag. Boston. Kuhlen 2002. 4to. Hardcover. First edition. Illustrated in black, white and color. Important reference work. Fine copy.
Kopper, Philip and Mary Carll Kopper. A Christmas Testament. Photo available. New York. Stewart, Tabori & Chang. 1982. Octavo. Gilt decorated hard cover. First edition. Illustrated in black, white and color. Fine copy in fine slip case.
Kopper, Philip and Mary. A Christmas Testament. Photo available. New York. Stewart, Tabori & Chang. 1982. Octavo. Gilt decorated hard cover. First edition. Illustrated in black, white and color. Fine copy in fine slip case.
Korn, Henry. Marc Chagall. Ridgefield. Medaenas. Artist's Limited Edition. 1985. 4to. Soft cover. First edition. Illustrated in color and black & white. Fine copy.
Korn, Marian & Oliver Statler, Donald Richie and Tsuguo Yanai. The Prints of Marian Korn. A Catalogue Raisonne. Photo available. New York. Weatherhill. 1988. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
Korn, Marian & Oliver Statler. The Prints of Marian Korn. A Catalogue Raisonne. Photo available. New York. Weatherill. 1988. 207 pps. 4to. Hardcover. Stated first edition. Illustrated. Important reference work. Near fine copy (light damp stain along bottom edge) in near fine dust jacket (in mylar).
Kornhauser, Elizabeth Mankin. Hudson River School. Masterworks from the Wadsworth Atheneum Museum of Art. Photo available. New Haven. Yale University Press. 2003. 169 pps. 4to. Hardcover. First edition. Full number line. Illustrated in black, white and color. Important reference work. Fine copy in fine dust jacket (in mylar).
Kosinski, Dorothy et al. Matisse. Painter as Sculpture. Photo available. Baltimore. The Baltimore Museum of Art et al. 2007. 4to. Decorated hard cover. First edition. Illustrated in black, white and color. Important reference work. Fine copy.
Kosmowska-Ceranowicz., Barbara. Tajemnice Bursztynu. In Polish. The Mysteries of Amber. Photo available. Warszawa. Wydawnictwo. Sport I Turystyka. 1989. 232 pps. 4to. Hardcover. First edition. Illustrated in black, white and color. Important reference work. Fine copy in fine dust jacket (in mylar).
Kostabi, Mark. Sadness Because the Video Store Was Closed & Other Stories. Photo available. New York. Abbeville Press. 1988. Octavo. Hard cover. First edition. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
Kostenevich, Albert. Hidden Treasures Revealed. Impressionist, Masterpieces and Other Important French Paintings. Photo available. New York. Harry N. Abrams. 1995. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine copy.
Kostof, Spiro. A History of Architecture. Settings and Rituals. Photo available. New York. Oxford University Press. 1995. 792 pps. 4to. Soft cover. Revised edition. Illustrated in black, white and color. Important reference work. Fine copy.
Kotsilibas-Davis, James. Milton's Marilyn. The Photographs of Milton H. Greene. Photo available. Munich. Schirmer/Mosel. 1994. 4to. Hardcover. First edition. Illustrated in black, white and color. Important reference work. Fine copy in fine dust jacket (in mylar).
Kovel, Ralph & Terry. Dictionary of Marks - Pottery and Porcelain. New York. Crown Publishers. 1953. 275 pps. Octavo. Hardcover. Reprint. Illustrated. Fine copy in near fine (light shelf wear) dust jacket (in mylar).
Kovel, Ralph & Terry. Kovels' Bottle Price List. New York. Crown Publishers. 1987. 166 pps. Octavo. Soft cover. Reprint. Illustrated in color and black & white. Fine copy.
Kovel, Ralph & Terry. The Kovels' Collector's Guide to American Art Pottery. New York. Crown Publishers. 1974. 370 pps. Octavo. Hardcover. First edition. Illustrated in color and black & white. Fine copy in very good (light shelf wear) dust jacket (in mylar).
Kovel, Ralph & Terry. The Kovels' Collector's Guide to American Art Pottery. New York. Crown Publishers. 1974. 370 pps. Octavo. Hardcover. Reprint. Illustrated in color and black & white. Fine copy.
Kovel, Ralph & Terry. The Kovels' Collector's Guide to Limited Editions. Plates, Figurines, Ingots, Paperweights, Etc. New York. Crown Publishers. 1974. 250 pps. 4to. Soft cover. First edition. Illustrated in color and black & white. Fine copy.
Kovel, Ralph and Terry. The Kovels' Collector's Guide to American Art Pottery. Over 1500 Illustrations, Including Full Color and Hundreds of Marks. Photo available. New York. Crown Pub. 1974. Octavo. Hard cover. First edition. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
Kovel, Ralph and Terry. The Label Made Me Buy It. From Aunt Jemima to Zonkers - The Best-Dressed Boxes, Bottles and Cans from the Past. Photo available. New York. Crown Pub. 1998. 4to. Hardcover. First edition. Full number line. Illustrated in black, white and color. Important reference work. Fine copy in fine dust jacket (in mylar).

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text:
5 McNamara v. Gregory, 211 N. Y. 21; 105 N. E. 78 (1914).
6 Warnekros v. Bowman. 128 Pac. (Ariz.) 49; 43 L. R. A. (N.S.) 91 (1912). In the note to this case in 43 L. R. A. (N. S.) 91, many authorities are cited. 6Note to Warnekros v. Bowman, in 43 L. R. A. (N. S.) 91 (1912).
8Davidson v. Stocky, 202 N. Y. 423; 95 N. E. 753 (1911).
9 Mott v. Minor (Cal. App.), 106 Pac. 244 (1909).
10 Knisely v. Leathe, 178 S. W. (Mo.) 453 (1915) ; Coleman v. Meade, 13 Bush. (Ky.) 358; Donohue v. Flanagan, 9 N. Y. Suppl. 273; Roche v. Smith, 176 Mass. 597: 58 N. E. 153; 51 L. R. A. 510; 79 Am. St. Rep. 345; Francis v. Baker, 45 Minn. 83; 47 X. W. 452; Wray v. Carpenter, 16 Colo. 271; 27 Pac. 24S; 25 Am. St. Rep. 265; Lockwood v. Halsey, 41 Kan. 166; 21 Pac. 98; Springer v. Orr, 82 111. App. 558; Love v. Miller, 53 Ind. 294; 21 Am. Rep. 192; cf. Riggs v. Turnbull, 105 Md. 135.
11Roche v. Smith, 176 Mass. loc. cit. 597; 58 N. E. 153; 51 L. R. A. 510; 79 Am. St. Rep. 345.
This is, obviously, on the theory that where the principal himself enters into and executes the contract, he has thereby made his choice of personally accepting the purchaser and has thus himself passed upon the financial responsibility and the acceptability of the purchaser, whereas when the broker has entered into and executed the contract on behalf of his principal, the broker assumes to take the responsibility of the financial ability and other ability of the purchaser to carry out the contract.
12Van Varick v. Suburban Inv. Co.. 76 Misc. 593; 135 N. Y. Suppl. 299 (1912); Travis v. Graham, 23 App. Div. 214; 48 N. Y. Suppl. 736.
13Van Varick v. Surburban Inv. Co., 76 Misc. 593; 135 N. Y. Suppl. 299 (1912); Alt v. Doscher, 102 App. Div. 344; 92 N. Y. Suppl. 439; affd.. on opinion of the lower court in 186 N. Y 566; 79 N. E. 1100; Brady v. Foster, 72 App. Div. 416; 75 N Y Suppl 994; Heinrich v. Korn, 4 Daly 74: Wray v. Carpenter, 16 Colo. 271; 27 Pac. 248; 25 Am. St. Rep. 265; Shainwald v. Cady, 92 Cal. 83;28 Pac l01; Parker v. Fstabrook, 68 N. H. 349; 44 Atl. 484; Hancock v. Dodge 85 Miss. 228; 37 So 711; Morgan v. Keller, 194 Mo. 663. 680; 92 S. W. 75; Crane v Eddy. 191 111. 645; 61 N E. 431; 85 Am. St. Rep. 284; Bankers Loan Investment Co. v. Spindle, 108 Va. 425: 62 S. E. 266; Green v. Hnllinsshead, 40 111. App. 195.
14Stewart v. Fowler. 37 Kan. 677; 15 Pac. 918.
15 .Id. 53 Kan. 537; 36 Pac. 1002.
16Van Varick v. Suburban Investment Co.. 76 Misc. 593; 135 N. Y. Suppl. 299 (1912); Inge v. McCreery, 60 App. Div. 557; 69 N. Y. Suppl. 1052.
Bailey v. Padgett, 70 So. (Ala.) 637 (1915).
17Hutchinson v. Plant, 218 Mass. 148; 105 N. E. 1017 (1914). 18 See Bailey v. Padgett, 70 So. (Ala.) 637 (1915).

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Questions about this case can be directed to Sarah Arosell, at (717) 255-7231 or sarosell@tthlaw.com.
Joshua Bovender secures dismissal of roofing contractor in seven-figure Hurricane Sandy claim.
Attorney Joshua Bovender won the dismissal of a roofing contractor in a Berks County lawsuit. The suit arose from a seven-figure property damage claim following Hurricane Sandy. During the course of the litigation, Josh uncovered a procedural flaw in the joinder claims against his client, the roofing contractor, who was alleged to have negligently installed temporary roofing materials at the property. This procedural flaw stemmed from the dismissal of the joining defendant, which allowed Josh to successfully argue that the Plaintiff was unable to proceed with a claim against the roofing contractor under the circumstances. The Court agreed that the joinder claims were untenable and granted summary judgment, dismissing the claims against Josh’s client.
TT&H Attorney James Swartz, III wins defense arbitration award in Bucks County trip and fall case.
James F. Swartz, III, an attorney in TT&H’s Allentown office, recently secured a defense arbitration award in Bucks County. Plaintiff claimed that she tripped and fell over a manhole cover located within a paved walkway on the defendant homeowners’ association’s property. In connection with the accident, which was unwitnessed, Plaintiff claimed that she broke her ankle. She further claimed that after the fall, she could not walk from the area and was found by police officers next to the manhole cover. At arbitration, Jim introduced evidence that the police officers were called to an area some two blocks away from the alleged condition, where they then found the Plaintiff. Based on this evidence, Jim was able to convince the arbitration panel that the fall did not occur on the portion of the walkway at issue.
Questions about this case can be directed to Jim Swartz, III, at (610) 332-7028 or jswartz@tthlaw.com.
TT&H Attorney James Swartz, III, successfully obtains abatement in Monroe County trip and fall case.
James F. Swartz, III recently won the abatement of a trip and fall claim venued in Monroe County, Pennsylvania. The Plaintiff allegedly tripped and fell in the parking lot of a restaurant owned by Jim’s client, resulting in a fractured hip. Suit was filed in 2013 and the Plaintiff thereafter died in 2016. Four months later, Plaintiff’s counsel filed a suggestion of death. However, Plaintiff failed to take out letters of administration for the appointment of a personal representative for a period well in excess of one year. Jim filed a Petition for abatement pursuant to 20 Pa.C.S. § 3375, which requires the substitution of a personal representative within one year of the filing of the suggestion of death. The Court agreed with Jim that the delay in taking out letters was not reasonably explained and dismissed the case by entering judgment in favor of the defendant.
Court finds class action plaintiffs, who purchased J&J baby powder, did not have Article III standing simply because they claimed an economic injury when they allegedly based their decision to purchase the product on its implied safety, had entirely consumed it, and it had functioned as advertised.
Lead Plaintiff, Mona Estrada, for herself and similarly situated consumers, alleged that her perineal use of J&J’s Baby Powder can lead to an increase risk of developing ovarian cancer. She did not allege that the product caused her physical injury or emotional injury or that the powder was defective or did not perform as advertised. Moreover, Ms. Estrada did not seek to be reimbursed for powder she still possessed but was afraid to use, or damages for medical monitoring expenses, or reimbursement for costs associated with reselling or returning the product. Rather, Ms. Estrada’s theory of recovery was that she suffered economic harm simply by purchasing improperly marketed baby powder, because there was no warning on the product that using the powder could lead to an increased risk of ovarian cancer. Had she been so warned, she would not have purchased the product.
The action was first filed in the United States District Court for the Eastern District of California, which dismissed the action for lack of standing. Thereafter, Ms. Estrada filed an amended complaint. Her action was then consolidated as part of a Multi-district Litigation and transferred to the United States District Court for the District of New Jersey. There the Court also dismissed the action for lack of standing, finding that her claims did not fall within one of three different theories of economic harm.
In order to have standing under the Federal Court’s Article III jurisdiction, a plaintiff must have “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Here the District Court held she did not show that she suffered an invasion of a legally protected interest; a concrete and particularized injury; and, her injury was not actual or imminent.
The Third Circuit held that Plaintiffs lacked standing under Article III. In affirming the District Court, the Third Circuit held that “buyer’s remorse, without more, is not a cognizable injury under Article III of the United States Constitution.” In dissent, Circuit Judge Julio Fuentes opined that Ms. Estrada had standing because the alleged false representation concerning the products inherent safety was part of her “benefit of the bargain.” Plaintiffs will have 90 days to file a petition for certiorari to the United States Supreme Court.
An individual who is not the beneficiary of an estate may not conduct a federal court case on behalf of the estate if they are not an attorney.
Tracy Murray was named the administrator of her son’s estate after he was shot and killed by two Philadelphia police officers. The estate’s sole beneficiary was Ms. Murray’s granddaughter, the deceased’s daughter. Ms. Murray hired an attorney and brought an action against the officers on behalf of the estate. A jury found the officers not guilty. Ms. Murray subsequently filed a pro se notice of appeal.
The Court held that Ms. Murray could not represent the estate pro se because it would require her to represent the interests of other parties, i.e. beneficiaries (her granddaughter). Given that non-attorneys cannot represent the interests of others, her appeal was dismissed.
Higman v. State Farm Mut. Auto. Ins. Cos.
Bad faith claim dismissed where Complaint failed to plead sufficient facts to support a plausible bad faith claim.
Plaintiff sustained a left shoulder injury in an auto accident on June 2, 2017. He treated conservatively for six months before he underwent surgery on October 27, 2017. Defendant paid $5,000 in no-fault medical pay coverage and $5,000 in no-fault income loss coverage. Plaintiff had underinsured motorist limits of $100,000. The 3rd party tortfeasor tendered its limits of $15,000. On November 28, 2017, one month after the surgery, Plaintiff submitted a UIM demand for limits, which included evidence of lost income of $74,000. In February 2018, Defendant advised Plaintiff of the need to further investigate Plaintiff’s UIM benefits claim to determine causation. No offer of settlement of Plaintiff’s UIM claim was made, prompting Plaintiff to commence his civil action on April 19, 2018. The action included claims for UIM benefits, breach of contract and Bad Faith.
Defendant filed a Motion to dismiss the bad faith claim for failing to plead sufficient facts to support a plausible bad faith claim. Defendant also sought dismissal of the claims for UIM benefits and breach of contract, arguing that the claims were duplicative. Plaintiff contended that the suit was about Defendant’s dragging out payment of benefits which it owed, arguing that Defendant had information necessary to make an offer since it already collected medical records and wage loss information under the first party claim and had already paid its limits for first party medical and wage loss coverage. Defendant maintained that it had the right to further investigate the claim and doing so did not amount to bad faith.
The Trial Court held that since the UIM claim was presented only one month following the surgery, Defendant had not had a substantial amount of time to investigate the claim and did not deny the claim, but simply indicated a need to investigate. In dismissing the bad faith count, the Court stated that “formulaic recitals of the elements of a bad faith claim” without factual support are insufficient to state a plausible bad faith claim. The Court noted that the Complaint failed to allege when Defendant knew the full extent of Plaintiff’s injuries or what records it possessed before the demand was presented. It further noted that suit was filed before Defendant could fully investigate the claim, thereby precluding any settlement discussions or offers. The claim was dismissed without prejudice, and Plaintiff was granted leave to amend the Complaint. The Court denied Defendant’s Motion to Dismiss the UIM and contract claims, ruling that the claims were not duplicative because they encompassed distinct elements and standards of proof.
Urda v. Darden Rests., Inc.
U. S. District Court, Eastern District of Pennsylvania, remands slip and fall case back to the Philadelphia County Court where the lawsuit was filed as an arbitration level case and, therefore, did not meet the amount in controversy requirement for diversity jurisdiction.
Plaintiff Urda filed a Complaint against the Defendant Restaurant in the Philadelphia Court of Common Pleas alleging that an interior walkway at a Longhorn Steakhouse was obstructed causing her to fall and suffer injuries. The Complaint contained one count alleging negligence and sought damages in an amount less than $50,000. Defendant filed a Notice of Removal contending that the Federal Court possessed jurisdiction over the matter due to Plaintiff’s counsel’s unwillingness to stipulate to limiting damages to $75,000. Plaintiff filed a Motion to Remand on alleging that the Federal Court lacked subject matter jurisdiction because the Plaintiff did not seek damages in excess of $75,000. Defendant contended that the $75,000 jurisdictional limit has been met because the Philadelphia Arbitration limit of $50,000.00 is non-binding.
The federal court held that the Plaintiff’s ability to recover damages exceeding $50,000 in a de novo appeal from arbitration does not establish subject matter jurisdiction, and Plaintiff’s refusal to stipulate to a damage award of less than $75,000 does not, by itself, satisfy Defendant’s burden of proof.
Questions about this case can be directed to Christopher Gallagher, at (215) 564-2928 or cgallagher@tthlaw.com.
Pennsylvania Supreme Court modifies economic loss doctrine by holding that recovery for purely pecuniary damages is permissible under a negligence theory provided that plaintiff establishes the defendant’s breach of a legal duty arises under common law and independent of any duty assumed pursuant to contract.
Plaintiffs filed a class action against UPMC for negligence and breach of contract after a data breach which occurred to the medical center’s computer system. The breach exposed personal and financial information of the employees, which was given to UPMC as a condition of the employees’ employment. UPMC filed preliminary objections to complaint arguing that, inter alia, the negligence claim failed as a matter of law pursuant to the economic loss doctrine because the employees did not allege any physical injury or property damage, only pecuniary loss. The Superior Court affirmed.
The Pennsylvania Supreme Court found that UPMC did owe a common law duty to employees to exercise reasonable care in collecting and storing their personal and financial information on its computer systems. The Court then held that because the employees asserted UPMC breached its common law duty to act with reasonable care in collecting and storing their personal and financial information, and because this legal duty existed independently from any contractual obligations between the parties, the economic loss doctrine did not bar the pecuniary claims made.
Questions about this case can be directed to Jolee Bovender at (717) 255-7626 or jmbovender@tthlaw.com.
The Pennsylvania Supreme Court rules that absent assignment or voluntarily joinder by an injured employee, a workers’ compensation insurer may not enforce its statutory right to subrogation by filing an action directly against a tortfeasor.
On October 10, 2013, Chen was injured while in the parking lot of Thrifty Rental Car when she was struck by a rental vehicle operated by Kamara. At the time of the incident, Chen was working for Reliance Sourcing, which maintained workers’ compensation coverage through the Hartford Insurance Group. Hartford paid workers compensation medical and wage benefits to Chen as a result of the incident.
Subsequently, Chen did not file an action against Kamara or Thrifty Rental Car, nor did she assign any relevant cause of action to Hartford. Nonetheless, Hartford brought a cause of action against Kamara and Thrifty Car Rental “on behalf of” Chen. The complaint was objected to by the Defendants, who alleged that Hartford improperly filed a suit which could only have been brought by the injured employee. Accepting that argument, the Trial Court dismissed the complaint, with prejudice. The matter was then appealed to the Superior Court, which vacated the Trial Court’s order and remanded the matter for further proceedings. In so ruling, the Superior Court emphasized that Hartford was not attempting to “split” Chen’s cause of action, as it sought the full amount of recovery due to Chen, not merely the amount representing its own subrogation interest.
On further appeal to the Pennsylvania Supreme Court, the Superior Court’s ruling was vacated and the Trial court’s order was reinstated. The Court found that an action brought by an insurer could be detrimental to the injured employee’s interests because the insurer would be faced with an “insurmountable conflict of interest,” as it has no incentive to expend time or resources to prosecute an injured employee’s independent claims for pain and suffering.
Recognizing § 319 of the Workers’ Compensation Act, which provides for the subrogation right of a workers’ compensation insurer, the Court discussed the dichotomy presented where an injured worker declines to file a third-party claim. The Court noted that a procedure allowing a workers’ compensation insurer to sue a third-party tortfeasor, without detrimentally affecting an injured employee’s independent cause of action, would further the purposes of § 319. However, the Court also noted that it was not in a position to create a “remedy to cure a possible deficiency in the Workers’ Compensation Act.” Thus, the Court explicitly held that unless the injured employee assigns his/her cause of action, or voluntarily joins the litigation as a party plaintiff, the insurer may not enforce its statutory right to subrogation by filing an action directly against a tortfeasor.
In light of the Supreme Court’s decision, workers’ compensation insurers seeking to pursue subrogation would be wise to seek the active participation of the injured worker. Alternatively, efforts should be made to obtain an assignment of the claim from the injured worker.
Questions about this case can be directed to Ryan Blazure, at (570) 820-0240 or rblazure@tthlaw.com.
Stapas v. Giant Eagle, Inc.
Dolan v. Hurd Millwork Co.
The Dolans filed suit against multiple entities, including Bentley Homes, alleging several substantial defects in the construction of their new home. The case proceeded to a non-jury trial before Judge Proud, and the Court entered a general verdict in favor of the Dolans.
Bentley filed a timely appeal. In response, Judge Proud issued a three-page 1925(a) opinion stating, inter alia, that the verdict was against the Appellees jointly and severally. Bentley filed its brief, raising nine issues on appeal. A panel of the Superior Court issued a memorandum decision noting that the Trial Court’s 1925(a) opinion was inadequate to allow effective appellate review, and accordingly remanded the case to the Trial Court for a supplemental opinion. However, Judge Proud had retired from the bench at this point. The panel issued a memorandum noting that without further explanation from the Trial Court, it was unable to address the issues raised on appeal. The panel, therefore, vacated the judgment and remanded for a new trial on liability and damages. The Supreme Court granted allowance of appeal to consider the appropriate role of the Appellate Court under these circumstances and to determine the scope and standard of review to apply if the appellate court is required to reach the merits of the Trial Court’s decision.
The Pennsylvania Supreme Court reversed and held that the proper procedure in a case where the 1925(a) opinion is deemed inadequate and the Trial Judge is unavailable to supplement the opinion is for the Superior Court to review the legal issues raised in the statement of errors complained of on appeal. Noting that an appellate court’s standard of review as to questions of law is de novo and its scope of review plenary, the Court found that the Appellate Court could review the entire record and determine whether the Trial Court correctly decided the legal issues raised in Bentley’s appeal. As to any factual findings implicated in the issues raised on appeal from the nonjury trial, the Superior Court was directed to determine whether the same were supported by competent evidence.
Whether plaintiffs were reasonably unaware of an injury or its cause, so as to toll the statute of limitations, was a jury question under the circumstances.
Plaintiffs alleged that Defendant medical providers were negligent in failing to timely diagnose and treat Lyme disease sustained by Plaintiff-patient as a result of a tick bite in 2001. From 2001 through 2008, Defendants treated the patient for multiple sclerosis (MS), and did not administer the standard antibiotic therapy for Lyme disease. Four tests for Lyme disease were negative, and despite treatment, the patient developed symptoms, including increased inability to walk, fatigue, incontinence, and lesions of the brain and spine. An MRI in 2006 indicated the patient had either MS or Lyme disease. The patient acknowledged that in 2007, she suspected she may have Lyme disease and not MS. She began treating with a non-party nurse specializing in Lyme disease on July 20, 2009.
The nurse confirmed the possibility of Lyme disease and prescribed antibiotics, which improved some symptoms. She suggested a new test to confirm the diagnosis, but the patient declined for months purportedly due to inability to pay. The patient took the test on February 1, 2010, and was given the positive results on February 13. Suit was filed on February 10, 2012. Defendants filed a motion for summary judgment, arguing that no later than February 1, 2010, Plaintiffs reasonably should have known that the health issues may have been caused by Defendants’ failure to properly diagnose and treat Lyme disease, and that the action was time-barred as the two-year statute of limitations was not tolled beyond February 1, 2012. The Trial Court and an en banc panel of the Superior Court agreed, holding that reasonable minds could not differ.
The Pennsylvania Supreme Court noted “the discovery rule tolls the statute of limitations where the plaintiff is reasonably unaware that he has been injured and that his injury has been caused by another party . . . .” While “the reasonable diligence standard is objective,” it is normally a fact-intensive jury determination. With the record viewed most favorably to Plaintiffs, the Court held that the Lower Courts erred in concluding, as a matter of law, that Plaintiffs knew or should have known more than two years before suit was filed that the Plaintiff-patient suffered from Lyme disease and that her problems could have been caused by Defendants’ failures. Instead where there was evidence that the patient had been diagnosed with MS by several doctors, four tests were negative, and she had no insurance to pay for more testing, the question of reasonableness was for a jury.
Questions about this case can be directed to Matthew Ridley, at (717) 255-7239 or mridley@tthlaw.com.
Kelly Systems, Inc. v. Leonard S. Fiore, Inc.
Trial Court properly held that a contractor did not need to file a Certificate of Merit with its joinder complaint against an architectural firm because the allegations in the joinder complaint were related to the breach of contract action claimed by the subcontractor in the original complaint.
A subcontractor filed an action against the general contractor for negligence arising out of the general contractor’s failure to pay additional costs incurred by subcontractor to correct issues during the construction of a building. The general contractor filed a third-party complaint against the architectural firm that provided the general contractor with the architectural designs. The architectural firm filed a Notice of Intent to Enter Judgment of Non Pros against the general contractor for failure to file a certificate of merit (COM) with the joinder complaint. The general contractor filed a Motion to seek determination by the Trial Court as to whether they were required to file a COM to the joinder complaint. The architectural firm argued that the joinder complaint was tort-based, not contract-based, and that the professional negligence claim alleged by the general contractor required a COM. The Trial Court entered an Order declaring that the general contractor was not required to file a COM because the general contractor’s negligence claim was related to the breach of contract claim raised by the subcontractor in the original complaint, even if the original complaint contained allegations of negligence.
The Superior Court held that the Trial Court’s analysis was proper, because it had looked to the gist of the subcontractor’s complaint, which sounded in contract, and the general contractor’s joinder of the architectural firm did not change the nature of the underlying action. As such, the general contractor was not required to file a COM, even if the joinder was based on acts of professional negligence as those acts of negligence were related to the allegations claimed by the subcontractor in the original complaint. The Superior Court noted when joining an additional defendant under Pa.R.C.P 2252(a)(1), the claim does not move from the plaintiff to the additional defendant, but rather is an assertion by the defendant that the plaintiff’s claim is actually against the additional defendant.
Schatz v. John Crane, Inc.
Maryland law imposes no duty on a manufacturer to warn the household member of a worker who used the manufacturer’s product about potential dangers.
Concetta Schatz died from mesothelioma. Her estate filed a products liability action against Defendant John Crane, the manufacturer of products containing asbestos that her husband used for work, then brought his asbestos-covered clothing home, and Ms. Schatz would clean them—exposing her to asbestos. The Trial Court dismissed Plaintiff’s complaint after it found Defendant had no duty to warn Ms. Schatz. Plaintiff appealed.
The Court of Special Appeals affirmed the dismissal. It found that in a household member’s failure to warn products liability case, the existence of the duty is based on whether the manufacturer knew or reasonably should have known about the dangers posed to household members and the weighing of foreseeability of harm against other policy based factors, including the relationship between the parties and the feasibility of providing warnings. The greater weight is given to the second factor and the focus is on the warning to the household members themselves—not the intermediary, e.g., the worker. The Court found that it was not foreseeable for the Defendant to warn Ms. Schatz because they had no relationship to her. Further, there was insufficient evidence in the record to prove that even if the Defendant gave Ms. Schatz a warning that such a warning would have limited her exposure to the asbestos. Thus, there was no evidence that the warning would have been effective.
In determining whether a punitive damages award is warranted under the circumstances, a court must consider six factors: (1) the gravity of the wrong, (2) ability to pay, (3) deterrence value, (4) legislative sanctions, (5) comparison to other awards, and (6) relationship to compensatory damages.
Michael Scott and Raychel Harvey-Jones (Harvey-Jones) were dating. During that time, Scott was receiving anonymous harassing text messages and e-mails that Harvey-Jones told him were from his ex-girlfriend, Susan Coronel (“Coronel”). The messages were not from Coronel. They were from Harvey-Jones. However, to convince Scott that the messages were from Coronel, Harvey-Jones fabricated a statement of charges to misrepresent that Coronel had a prior history of harassment as a course of conduct, electronic mail harassment, and telephone misuse.
When Coronel learned of the fake statement of charges, she sued Harvey-Jones for defamation per se in the Circuit Court for Baltimore County. Coronel received a default judgment award in her favor when Harvey-Jones failed to timely answer. The Trial Court awarded Coronel $10,000.00 in compensatory damages and $200,000 in punitive damages. Harvey-Jones appealed to the Court of Special Appeals, presenting the following issues of whether the Trial Court erred in awarding (1) compensatory damages; (2) punitive damages that were grossly excessive and violated due process, and (3) an excessive monetary judgment where it was based on unverified admissions by default?
The Court of Special Appeals affirmed the Trial Court’s findings. The Court explained that the Trial Court’s award of compensatory damages was not in error, because Harvey-Jones admitted that the defamatory statements were made with actual malice. It also held that the Trial Court’s award of punitive damages was not error because the $200,000 award was not disproportionate to the gravity of Harvey-Jones’s wrong, and the record showed that Harvey-Jones had ability to pay the punitive damages award. Finally, the Court explained that the Trial Court did not award “an excessive monetary judgment” because it was established both that Harvey-Jones had the ability to pay the judgment, and the judgment was not disproportionate to the gravity of her wrong.
Unless a dog owner “purposefully or negligently conceals a particular known hazard,” an independent contractor, such as a dog groomer, who agrees to care for a dog could not assert a claim under the dog-bite statute.
Plaintiff Cichoski sued Defendants Richard and Carol Turick seeking damages for injuries sustained when Plaintiff, who was a dog groomer, was bitten by Defendants’ dog, Harrison – a golden retriever. Plaintiff alleged Defendants were strictly liable under N.J.S.A. 4:19-16 – the “dog- bite statute” and negligent in failing to control their dog. Plaintiff obtained her dog-grooming certification in June 2010. Beginning in 2011, Defendants brought Harrison to Plaintiff for grooming and informed Plaintiff the dog “was a little problematic.” Plaintiff claimed she understood this statement to mean Harrison did not “care to be groomed.” Plaintiff placed a muzzle on the dog every time she groomed him because she did not “want any of [her] employees to get hurt and [she] felt it was safer.” Plaintiff groomed Harrison six or more times before June 6, 2013 when Plaintiff was bitten. On that date, Defendant arranged to have Plaintiff bathe the dog, cut his hair, clean his ears and trim his nails. As she had done in the past, Plaintiff put a muzzle on the dog. After Harrison was bathed/dried and with no indication the dog was agitated or aggressive, Plaintiff began to trim the dog’s hair around his rear, when the dog suddenly pulled the muzzle off, whipped around and bit Plaintiff once on her left arm.
Defendants filed a summary judgment motion, which the Trial Court granted, enunciating the principles of Reynolds v. Lancaster County Prison, 325 N.J. Super. 298 (App. Div. 1999), which held that an independent contractor who agrees to care for a dog could not assert a claim against a dog owner under N.J.S.A. 4:19-16 unless the dog owner “purposefully or negligently conceals a particular known hazard from the” independent contractor. The Trial Court found that Reynolds applied to persons like Plaintiff, who are engaged in the commercial dog-grooming business.
MacKenn v. Agios Haralambos Corp.
Superior Court affirms Trial Court’s grant of summary judgment because Plaintiff could not establish notice of a dangerous condition.
Plaintiff MacKenn claimed that, as she entered the diner, owned and operated by Defendant Agios Haralambos Corp., she fell on a raised portion of a weather mat located in the diner’s vestibule area and sustained injuries. The diner moved for summary judgment which was granted by the Trial Court. Plaintiff appealed.
The Court affirmed the Trial Court’s decision and held that there was no evidence of how long the mat had been raised prior to the fall. Thus, Plaintiff could not establish that the diner had actual or constructive notice of the alleged dangerous condition. Interestingly, the Superior Court noted that the record included a security video that showed the mat and Plaintiff’s fall. Giving Plaintiff the benefit of all favorable inferences, the video depicted the mat having a slightly raised portion in the right-hand corner nearest to the door. However, the video clearly depicted that Plaintiff did not trip on the raised portion of the mat as alleged.
Under the “litigation privilege,” a statement made in the course of judicial proceedings, by a person authorized to make the statement, to achieve the objectives of the litigation, and related to the underlying action, is absolutely privileged.
Alevras sued for defamation, alleging that Barletti’s characterization of him as “a pathological liar” was false and that the letter falsely implied that he was engaging in the unauthorized practice of law. The Trial Court dismissed Alevras’s complaint, finding that Barletti’s statements were absolutely immune from a defamation claim under the “litigation privilege” because the statements were made in a judicial proceeding, by a person authorized to make those statements, to achieve the objectives of the litigation, and had some connection or logical relation to the underlying action. The Appellate Division affirmed for the reasons expressed in the Trial Court’s opinion.
Under the “litigation privilege,” statements are immune from defamation claims when those statements: (1) are made in a judicial proceeding, (2) by a person authorized to make those statements, (3) to achieve the objectives of the litigation, and (4) have some connection or logical relation to the underlying action.
D.C. Court of Appeals adopts equitable reformation approach for interpretation of noncompete agreements.
This case involves an appeal of a preliminary injunction granted by the D.C. Superior Court and the Trial Court’s application of the equitable reformation doctrine to revise noninterference and noncompete clauses in an employment contract between Rabbi Yehuda Steiner and the American Friends of Lubavitch (“AFL”), a nonprofit religious organization. Rabbi Steiner and his wife initially moved from Brooklyn, New York, to Washington, D.C. in 2008, when Rabbi Steiner was hired by AFL to run the campus outreach program at the George Washington University (GW). Rabbi Steiner butted heads with Rabbi Levi Shemtov, the head of AFL’s Washington office, who attempted to fire Rabbi Steiner. Rabbi Steiner challenged his termination before a Rabbinical Court, where he prevailed, and entered into a subsequent employment contract that included non-compete and non-interference clauses which form the basis of this appeal.
After Rabbi Steiner’s employment was terminated a second time, the Steiners continued to engage in religious outreach activities at GW. Rabbi Shemtov and the AFL sued the Steiners for breach of contract and AFL also sought and obtained a preliminary injunction to prevent the Steiners from competing or interfering with the organization’s on-campus activities at GW. The Steiners appealed the injunction and argued, among other things, that the injunction violated their rights under the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act, and that the Trial Court erred in applying the doctrine of equitable reformation to the noncompete and non-interference clauses in order to make reasonable modifications to the clauses rather than employing the more rigid “blue pencil rule,” which is favored in Maryland, and would have required the Court to simply strike out unenforceable provisions.
The D.C. Court of Appeals rejected the Steiners’ arguments that the employment agreement involved religious interpretation and found that the dispute could be resolved based on neutral principles of law. The Court then formally adopted the doctrine of equitable reformation to modify overly broad or otherwise unenforceable provisions in noncompete clauses, but held that the Trial Court erred by modifying the noncompete clause to prohibit activities conducted by the Steiners in their personal capacity. The Court of Appeals vacated the preliminary injunction order and remanded the case to allow for the Trial Court to assess how to properly enforce the employment agreement consistent with the Court of Appeals’ guidance.
Virginia law does not create a cause of action for negligence per se where a hospital fails to protect patient’s records against disclosure in violation of HIPAA.
The patient received a diagnosis of a condition from her OB/GYN at one of the Hospital’s facilities. While awaiting treatment at another Hospital facility for unrelated conditions, the patient began conversing with an acquaintance. A staff member at the second facility who knew the acquaintance accessed the patient’s file, and discovered the diagnosis. She then contacted a coworker at a third facility run by the Hospital and told the coworker about the diagnosis. The co-worker revealed the diagnosis to the acquaintance, who in turn revealed the disclosure to the patient. The patient sued the hospital for vicarious liability based on its employees unauthorized disclosures, for direct liability for failing to secure her confidential records, and for negligence per se based on HIPAA’s statutory requirements to secure records to prevent unauthorized disclosures.
Under Virginia law, the doctrine of negligence per se only applies where the duty exists at common law. A duty of care does not arise by virtue of a statute, rather the statute sets out the standard of care for the existing duty. Because Virginia has no common law tort duty requiring healthcare providers to protect confidential records from unauthorized access by employees, no negligence per se cause of action exists. The Court distinguished this duty of non-disclosure from the duty to protect the records, the former being a recognized common law duty. The Court declined to create a new duty to protect records from unauthorized disclosure, recognizing that the possibility of vicarious liability would be even more attenuated than in a negligence per se case founded upon unauthorized disclosure.


The American Network on Community Options and Resources (ANCOR) appreciates the opportunity to submit the following comments with respect to the above referenced Notice of Proposed Rulemaking, 76 Fed. Reg. 26342 (May 6, 2011) regarding Methods for Assuring Access to Covered Medicaid Services. ANCOR appreciates the opportunity to comment on a long-standing issue that deserves federal requirements and oversight.
ANCOR represents more than 800 private providers of community living and employment supports to more than 500,000 individuals with disabilities of all ages who employ more than 400,000 direct support professionals. Our members provide an array of supports and services to individuals with autism, intellectual and developmental disabilities, mental illness, sensory and physical impairments, individuals with multiple disabilities, as well as individuals who are elderly and have developed disabilities. Many of ANCOR’s provider organizations were founded by family members of children and/or adults with significant disabilities, are currently administered by family members, directly employ individuals with disabilities and family members, and include family members and individuals with disabilities on their board of directors.
Central to our national non-profit organization’s mission for 41 years is securing sufficient access to needed long-term supports and services and health care coverage for our nation’s most vulnerable individuals—individuals with disabilities of all ages with very low-incomes who depend upon SSI and Medicaid. The regulations governing setting of provider reimbursement rates by states, and CMS’s oversight of that process, are critical for assuring that individuals with disabilities receive quality health care and long-term supports and services. These regulations are critical to ensure the availability of sufficient qualified private providers of long-term supports and services.
We strongly concur with the following CMS statements: Payment rate changes made without consideration of the potential impact on access to care for Medicaid beneficiaries or without effective processes for assuring that the impact on access will be monitored, may lead to access problems. Payment rate changes are not in compliance with the Medicaid access requirements if they result in a denial of sufficient access to covered care and activities. ” (preamble, page 26343).
While states currently face significant budget challenges, states historically have faced budget challenges and, in particular, throughout the past decade. States are not alone in facing budget challenges or in wanting to have predictability in regards to their budgets.
Providers of Medicaid covered services, including providers of long-term services need predictability relative to their budgets in order to meet their mission and their contractual obligations with the state, regardless of provider rate reductions. Rather than terminating enrollees, reducing needed supports, or neglecting quality services, providers of supports and services frequently turn to outside contributions and fundraising efforts to meet their mission. It must be noted that state or other government operated providers are not forced to seek external funding to meet their state contractual obligations. In addition, regardless of increases in labor costs, medical inflation rate, housing costs, additional state regulatory burden, state changes in service definitions that add additional hours of service or required personnel for the same service, housing costs, and other cost factors, providers of long-term supports and services have faced multiple cuts in provider rates—both annually and throughout a given year. ANCOR members report that seldom do these “rate adjustments” occur in compliance with a formal and timely notice of public input.
Current Medicaid regulations require public notice for “significant” changes in methods and standards for setting payment rates. It is also long-standing CMS policy to require public notice for any change in payment methods and standards because there is no definable threshold for a “significant” change that applies across services, service providers, and beneficiaries. CMS notes in the preamble that there is confusion and uncertainty among states as to the analysis required to meet the Medicaid access requirements at 1902(a)(30)(A). ANCOR appreciates CMS’s efforts to survey states regarding this requirement with states responding with a mix of answers that included some formal processes and some informal processes.
Comments made in the preamble to the proposed regulation make it clear that states are not currently following the mandates of Section (30)(A), which makes strong federal oversight critical. The preamble indicates that, when CMS has sought clarification on states’ process for determining that access standards are met, it has become clear that states are not taking the determination seriously. The preamble states: “When asked for additional detail on the methodology that States used to determine compliance with the access requirement, only a few Sates indicated that they relied upon actual data to make a determination.” (page 26348). Clearly, such determinations must be made on actual data, or they are meaningless. This confirms that a strongly enhanced regulatory framework is needed to ensure state compliance.
Whether due to “confusion” or the deliberate failure by states to follow both regulation and CMS policy demonstrate the existing “corruption of the SPA process” and state obligations in complying with the statutory provision inherent in 1902(a)(30)(A). The state responses and violations in meeting the statutory requirements, along with increasing litigation, also demonstrate the need for strong CMS oversight and enforcement.
ANCOR providers report that, historically, little or no attention has been placed by states on the potential effects to access to care when states reduce provider rates for long-term services and supports. Seldom are the reductions accompanied by an analysis of the potential impact on access to care, including impact on providers and their ability to provide quality supports to enrollees. We will submit further comment on provider experiences below that demonstrate the necessity of a specific CMS regulation to address the confusion, uncertainty, and deliberate failure of states to adhere to 1902(a)(30(A), existing regulations, and CMS policy. Our comments, following our general comments in support of the CMS proposed regulation, also strengthen the case for greater CMS oversight and enforcement.
The necessity of strong CMS oversight of Medicaid rate-setting by the states is extremely important, now more than ever. Historically, lawsuits by private parties, both Medicaid enrollees and providers, have kept some pressure on the states to keep them from slashing provider rates to meet budgetary objectives without considering the impact on access to care. With private enforcement of 42 U.S.C. § 1396a(a)(30)(A) (“Section (30)(A)”) at risk due to the pending Douglas v. Independent Living Center case at the Supreme Court, CMS’s role in assuring that the mandates of this Medicaid Act provision are met by the states will be all the more critical. CMS will have to provide strict oversight to ensure that states are setting and maintaining their Medicaid rate structures at levels to assure that there is sufficient provider participation so that Medicaid enrollees can access necessary services.
Reductions in provider payments are likely to exacerbate the problem that Medicaid beneficiaries already face regarding access to many Medicaid covered services, including access to long-term services and supports. For many years, ANCOR providers have face what they perceive as a “corrupted SPA proc as states fail to adhere to current federal regulations and CMS policy and failure by CMS to enforce these requirements. This regulation is needed more than ever to stop these practices in its tracks and restore confidence in state and federal obligations.
The following serve as just a few examples of reports from ANCOR providers that demonstrate the failure by states to adhere to CMS regulations and policies: states requiring providers to sign contracts that allow a percentage cut in rates without public notice and that such reductions will be made retroactively; provider cuts will be made “if the state does not have the money”; cuts will be made for any reason; providers told by state officials in a meeting that if they fight rate reductions, it will be made harder on them; contacting CMS regarding rate reductions will be harmful to providers regarding rate cuts; and written notice that the state has retroactively cut their provider rates. ANCOR has not specified the states in connection with these practices due to concerns of state retaliation. These practices have created an environment in which providers feel they are held “hostage” by states.
ANCOR supports CMS’s efforts to make states more accountable for assuring that there is sufficient access to quality services for their Medicaid populations, both when proposing provider rate reductions and also on an ongoing basis to make sure that rates are not falling below levels necessary to assure adequate provider participation. We anticipate that there will be significant negative comments by states. Therefore it is important that ANCOR highlights our support of the provisions in the proposed regulation and the direction the agency has taken. We do so below and follow with further discussion, modifications and recommendations.
Federal requirement for state published reviews of all covered services affecting access to services, such as provider payment rates, that consider at minimum: (1) the extent to which enrollee needs are met; (2) the availability of care and providers; and (3) changes in beneficiary utilization of covered services.
Federal requirement for certain data measures and irreductible minimum standards, including measures and standards that address access to Medicaid long-term supports and services, as part of the state access reviews.
Federal requirement that access reviews include provider payment rates across categories of providers that includes state-government owned or operated, non-state government or operated, privately owned or operate.
Federal requirement that describes measure states use to analyze access to care, including access to long-term services and supports, that relate to the framework, any issues with access discovered as a result of the review, and state recommendations on the sufficiency of access to care based on the review.
Federal requirement for a specific timeframe for state access review, regardless of whether there is a change in provider payment rates.
Federal requirement for the results of the access reviews made public.
Federal requirement that states comply with access review requirements when the state submits any state plan amendment (SPA) that would reduce provider payment rates or restructure provider payments.
Federal requirement for ongoing state monitoring mechanism for public input by beneficiaries and providers that includes record of volume and nature of responses to input on access to care.
Federal requirement for states to submit a corrective action plan of CMS within 90 days when the access review or monitoring procedures determine access issues.
Federal requirement for provider participation and public process prior to the submission of any SPA that proposes to reduce or restructure Medicaid service payment rates that includes a record of the volume and nature of the response to the input.
Federal requirement that when CMS determines that service rates are modified without the required analysis, CMS will disapprove the SPA.
Federal requirement for public notice of any changes in state methods and standards for setting payment rates that include a dedicated web site.
ANCOR believes that the regulations, as proposed, do not provide for sufficiently clear criteria for measuring access and should be strengthened. Otherwise, the regulations will not even begin to resemble a federal enforcement scheme. The proposed regulations should be modified to set clear standards against which the agency will measure access to care in state Medicaid programs and should set uniform measures of access for which states must collect data. ANCOR supports the inclusion of specific data measures listed in the preamble. However, we believe those data measures do not address long-term supports and services and recommend the inclusion of specific data measures as follows.
Time from application to Medicaid eligibility and qualification determinations for long-term services. This is important to address issues of inappropriate time lags.
Time from qualification for enrollment to receiving needed supports and services, including but not limited to state waiting lists.
Prompt payment and delays in provider payments/reimbursements and state efforts to address delays.
Develop a state “DASHBOARD” web site for data measures and assessments.
Changes in definition of services that place additional requirements upon providers and state analysis of impact of additional requirements while reducing rates.
Connection between rate-setting process and regulatory process that establish service requirements.
In the preamble, CMS asserts that Section (30)(A) discusses “access to care for all Medicaid services paid through a State plan under fee-fo-service and [does] not extend to services provided through managed care arrangements. “ Thus, CMS has made the proposed regulations inapplicable to managed care rates. ANCOR disagrees with this decision and urges CMS to apply the regulations to managed care plans.
Nearly 70 percent of Medicaid enrollees in the country are now enrolled in some form of managed care, with well over half of these enrollees in managed care organizations (as opposed to primary care case management programs). Despite legal requirements that capitation payments made by states to plans be “actuarially sound,” ANCOR hears reports of the failure of managed care organizations to maintain adequate networks of providers, particularly specialty care providers. Many managed care organizations, while receiving capitation payments from the state, pay their providers on a fee-for-service basis. The payments to these providers can be low. The inadequate provider networks are, at least in part, the results of these low provider rates paid by the MCOs. The capitation paid to the MCO should not operate as a barrier to shield the MCOs fee-for-service payments to participating providers from the protections of Section (30)(A). However successfully the proposed regulations are enforced, they will not assure adequate access to the majority of Medicaid enrollees if benchmarks for access and CMS oversight are not applied to managed care plans.
ANCOR recognizes that another provision of the Medicaid Act, 42 U.S.C. § 1396b(m)(2)(A), and Part 438 of the Regulations set a standard of actuarial soundness for capitation payments under managed care risk arrangements. However, there is nothing in Section (30)(A) that would exempt its requirement that rates be adequate to assure access to services from applying to the rates that managed care plans pay to providers. Both requirements are applicable and, together, should act to assure that managed care plans receive adequate capitation payments from states and that managed care plans that are acting as the states’ agents in providing care to enrollees should pay adequate rates to the providers in their networks to assure adequate access.
CMS’s regulations do not include standards for the type, amount, or age of the data used to set rates, and states are not required to report to CMS on the quality of the data. When reviewing states’ descriptions of the data used to set rates, CMS officials focused primarily on the appropriateness of the data rather than their reliability.
Thus, in addition to including managed care within the purview of the Section (30)(A), CMS should also revise its part 438 regulations to set forth clearer standards for managed care rate review. Finally, we are alarmed that excluding managed care organizations from meeting the requirements of Section (30)(A) would establish a dangerous precedent for allowing them to ignore other Medicaid consumer protections in the future.
ANCOR advocated for many years that section 1115 waivers must include specific state requirements for public notice and input. We were successful with the inclusion of provisions in the ACA to address state and federal requirements regarding public notice, input, and transparency. ANCOR commented on CMS proposed section 1115 regulations. However, CMS has not issued final regulations.
States are pursuing1115 waivers to implement managed care arrangements. ANCOR providers are reporting state efforts (through state announcements and concept papers) to enfold long-term services and supports. in state concept papers. Providers also report that there are no clear state discussions regarding provider or beneficiary public notice and input processes. Given ANCOR provider past experiences with states ignoring SPA and rate-setting requirements and CMS failure to enforce these requirements, it is all the more critical that the final CMS Medicaid access to covered services apply to managed care.
Historically, CMS has been reluctant to undertake any strong enforcement actions if a state has set rates too low in violation of Section (30)(A). In the context of a proposed rate reduction, CMS does have a clear enforcement option, which is to deny a SPA request. However, states have, in the past, chosen to implement rate reductions without waiting for CMS action on their SPA requests, essentially ignoring federal regulation and policy with no concern for CMS consequences.
ANCOR joins with others in the belief that the law is clear, as determined by the United States Court of Appeals for the Ninth Circuit, that State Plan Amendments, including those proposing rate-setting adjustments, cannot be implemented until approved by CMS, although the regulations, at Section 447.256(c) permit implementation retroactive to the beginning of the quarter during which the SPA is submitted. Furthermore, CMS issued guidance to the states confirming that implementation is not permitted prior to SPA approvals. See State Medicaid Directors Letter #01-020, January 2, 2001. However, this has not been sufficient to prevent states from implementing rate reductions prior to CMS review, as evidenced by California’s actions in recent years. Thus, to assure that CMS’s authority to review and deny SPA requests has meaning, CMS should amend the regulations to absolutely clarify that SPAs that include rate reductions cannot be implemented until CMS has an opportunity to review the SPA.
Much of the litigation under the repealed Boren Amendment applied to rate reductions or rate freezes adopted by state Medicaid agencies. There are only a few reported decisions that deal clearly with rate reductions or freezes enacted by State legislatures. However, such reductions are increasingly common, as in the rate reductions at issue in Independent Living Center and related cases. Although there is case authority for applying notice and comment requirements to legislatively-enacted rate reductions, the lack of extensive authority has allowed states to ignore the Supremacy Clause of the Constitution and take the position that legislatively-enacted rate-setting is somehow subject to more relaxed federal requirements than rate-setting done by the state agency. The revised regulations should assure that states cannot avoid any of the requirements of Section 30(A) and its implementing regulations by having rate-setting done directly by the legislature. Further, all public notice and comment requirements, including those for institutional rate setting as set forth in the current version of 42 U.S.C. § 1396a(a)(13)(A), which replaced the Boren Amendment, must apply equally to rate-setting done by the legislature. There should be no assumption that legislative rate-setting per se satisfies public comment requirements, since rate-setting may be done by state legislatures, sometimes in behind close door sessions, without full opportunities for public comment.
Proposed Revisions to Section 447.203 – Documentation of access to care and service payment rates.
ANCOR applauds CMS for requiring that states complete periodic access review of their payment structures regardless of whether they are in the process of revising their rates. In many cases states have gone for years and years without adjusting rates and have evaded CMS review because no SPA requests came before CMS. It is absolutely critical that this concept remain in the final regulations.
Section 447.203(b)(1) Access review data requirements.
CMS has not set specific standards or guidelines for achievement of the access requirement or specific data that must be collected, analyzed and disclosed by the states, but instead has adopted the framework set forth in the March 2011 report by the Medicaid and CHIP Payment and Access Commission (MACPAC) as guiding principles for states’ analysis of the Section (30)(A) requirements. ANCOR does not believe that this somewhat vague framework gives sufficient guidance to states for doing the required analysis or that it gives sufficient guidance to CMS regional offices for their review of state Medicaid rates.
The MACPAC report is only a preliminary discussion of what should go into an effective review and analysis of adequate enrollee access. MACPAC has indicated that it plans to develop a set of measures that can be used to determine current access levels and to track access levels moving forward, but it has not yet developed such measures. Moreover, MACPAC has specifically indicated that the general framework it has set forth applies only to primary and specialty care providers (i.e., physicians), but not to hospital, ancillary, long-term care or other services. Thus, it is not even clear that the general framework put forth by MACPAC will ultimately be considered by MACPAC to be appropriate, let alone appropriate for all the varied types of Medicaid rates that are covered by the Section (30)(A) requirements. It is clear that whatever regulations it issues, CMS will want to follow up and review them when MACPAC completes its work. However, CMS should not hold up finalizing the regulations until then, but should issue more specific guidance for now, which can always be revisited at a later date.
While MACPAC will undoubtedly eventually come up with access measures that will be worth considering, CMS has enough experience with these issues to provide clear measures now. As CMS and its predecessor HCFA have recognized over the years, no single factor will consistently and reliably measure access. Therefore, the federal policies have recognized that it is preferable to look to a variety of factors relating to the health care delivery system itself—such as the number of participating physicians, geographic location, travel time and waiting time—as well as factors indicating whether potential access has become realized access, such as utilization rates, reported health care needs, and satisfaction with care. For example, in 2001, CMS required states to provide Plans of Action regarding dental rates, which had been identified as being extremely inadequate. See State Medicaid Directors Letter #01-010, January 18, 2001. In that SMDL, CMS suggested a number of access/rate measures that states could use, e.g. that Medicaid rates for dentists should be set at least at the 75th percentile of fees charged by dentists in the state to assure adequate access. CMS could use this measure, or similar measures for which it may have data, in the interim until MACPAC comes up with more updated measures. (Almost all of the states submitted an action plan, thus evidencing the ability of state program to respond to CMS’s leadership.) In its approvals of numerous section 1115 demonstration projects in the 1990s, the federal agency consistently required each approved state to meet specific appointment scheduling and travel distance times as measures of adequate access and provider participation. Between 1990 and 1993, then-HCFA distributed State Medicaid Manual provisions that included standards for implementing the section 6402 of the OBRA 1989. And while the OBRA provision was later repealed, the access standards framed by HCFA are still relevant (e.g. at least 50% of pediatric practitioners, 100% if there is only one such practitioner in a county or geographic area—participate fully in Medicaid). Clearly, the agency has a history of requiring states to meet access guidelines, and it should build upon, rather than walk away from, those standards now.
With respect to specific data on Medicaid payments , CMS has proposed that states be required to collect data comparing Medicaid payments to average customary provider charges, but has given states an option to collect data on comparison of Medicaid rates to Medicare payment rates, commercial payment rates or Medicaid allowable costs. ANCOR believes that the other measures are significant also and urges CMS to require that data on all three of the other measures be collected and analyzed by states. Medicaid rates are often much lower than rates paid by other payers, so comparisons to both Medicare and commercial rates are important. If Medicaid rates are far below these other payers, that is an important indication that the rates are too low and endanger access. Use of all three measures of comparison is also critical because of the significant gaps in these payers’ rate structures, for example Medicare’s gaps with respect to services for children and dental services.
Recommendation: ANCOR believes that a comparison to costs is a critical part of any analysis of rate sufficiency. We believe that the regulation should stipulate “that, where states require cost reports and/or cost studies (the latter also required at times by legislative bodies), the state must include those reports and studies it is analysis.
Recommendation: The proposed regulations at § 447.203(b)(1)(B) regarding “Access review Medicaid payment data” should be revised to make clear that data should be obtained and provided for each item or service separately, not for Medicaid payments in the aggregate. Thus, it would not be sufficient for a state to provide data, for example, showing that its Medicaid payments total in the aggregate 95% of Medicare payments for the same aggregate services. It is quite possible that rates are reasonable for some services, but far too low for other services. It is important, therefore, that data be provided for each individual type of Medicaid service.
Section 447.203(b)(2) Access Review Timeframe.
ANCOR endorses CMS’s decision to require rate reviews on an ongoing basis and not just when a state decides to implement rate reductions. History has shown that many years can go by without rate adjustments by states, so that Medicaid rates can fall extremely far behind the rates paid by other payers. This is a feature of the proposed regulations that absolutely must be retained in the final regulations.
As drafted, the regulations require that each Medicaid service undergo a full access review every 5 years, beginning January 1 of the year beginning no sooner than 12 months after the effective date of the regulations. This is too long a period for compliance. Assuming, for example, the regulations became effective in February 2012, then the 5 year review period would not begin until January 2014 and rates for some services would not be reviewed until the end of 2019, almost 9 years from now. In light of the fact that states should already have been assuring that their rate structures complied with Section (30)(A), and that CMS has discovered that states have not been taking that obligation seriously and have not been basing rates on any actual evidence, states should be required to do their rate reviews on a much more expedited basis.
For the first cycle, all rates should be reviewed by the end of the second full calendar year following the effective date of the regulations.
In subsequent cycles, rates should be reviewed at least every 3 years, rather than every 5 years as proposed.
Priority should be given to any services regarding which CMS has knowledge of particular access problems. Rate reviews for these services should be required to be completed by the end of the first full calendar year following the effective date of the regulations.
The regulations as proposed currently vaguely allow the states to review a subset of services each calendar year during the 5 year review period (which we are requesting be reduced to 3 years). This would allow the state to review a minimal number of services during the first review period and save the majority of rate reviews until the last year of the period. The regulations should require that 1/3 of services be reviewed each year.
The regulations should explicitly include that all Medicaid long-term services and supports options must be included in these reviews.
The proposed regulations require that the results of the rate reviews be made public, but do not require that the reviews be posted on the internet. Putting the reviews on a web site is given only as an option. All state Medicaid agencies maintain websites, and there is no reason why the regulations should not require that the rate reviews be posted on the websites. Otherwise, this would place the burden on the public to seek the reviews through public record requests and potentially be requested to incur the cost of copying before the records could be seen. There should be as much transparency as possible.
unclear as to what the clause “in circumstances when the changes could result in access issues” modifies. ANCOR does not think there should be an exception for “restructuring” of provider payments, which is an unclear concept.
The regulation should clarify that any SPA which reduces provider payment rates must be accompanied by an access review. All SPAs that reduce provider rates (whether done by simply reducing a fee schedule or by changing a methodology) should require an access review.
ANCOR strongly supports this CMS providing states to include data across categories of providers that include state government-owned and operated, non-state government owned or operated, and privately owned or operated. It has been ANCOR provider experiences in multiple states that private provider rates for long-term supports and services are lower that state or other government rates. In some cases, the rates are 25% or more low. This disparity affects private providers’ abilities to attract and retain direct support staff as well as other operating factors.
ANCOR strongly supports the proposed provision that would require a state to develop procedures to monitor the impact on access when a rate reduction is approved by CMS and implemented by the state. However, ANCOR believes that the requirements in this regard should be more specific. Presumably, the state will have submitted an access review with a methodology showing sufficient access that can withstand a rate reduction, and CMS will have reviewed and approved the methodology used for the access review prior to approving the SPA.
Recommendation: The state should be required to use the same methodology to measure access once the rate reduction is put into place, or else there would not be a fair comparison of the impact of the rate reduction.
Recommendation:, CMS should set specific timeframes for the required monitoring procedures. At a minimum, the State should be required to monitor the impact on access at 6 months, 1 year and 2 years after the rate reduction, to make sure there is no short term or longer term impact on access that may result.
ANCOR supports the requirement in the proposed rule that the states must adopt mechanisms for beneficiary input on access to care and maintain records of the input. However, ANCOR believes the requirement must include input by other stakeholders.
Recommendation: This section should be revised to explicitly include provider input. We also suggest that the mechanism include all affected stakeholders. Further, the regulation should require that the input obtained shall be made available to the public.
The proposed regulations provide that a state must submit a corrective action plan if it determines, through its review or monitoring procedures, that there is an access problem. ANCOR supports this concept and is comfortable with the proposal that such corrective action plan must be submitted within 90 days of discovery of the access problem and shall provide for correction to the access problem within 12 months. However, ANCOR believes that this provision lacks requirements regarding the significant oversight role that CMS should play in assuring access.
Recommendation: It should be made clear that CMS will review the state’s submitted access rate reviews within a specified time frame (preferably 90 days) and is empowered to determine that the data demonstrates an access problem that warrants corrective action. This should not be left solely to the state’s discretion.
Recommendation: If CMS determines that the state’s access review demonstrates an access problem, regardless of whether the state on its own acknowledges such a problem, then CMS should require the state to develop a corrective action plan. A deadline should be provided for the state to develop such a plan in this circumstance, preferably 90 days after CMS’s discovery.
Recommendation: The regulation should state that the corrective action plan must be approved by CMS. If CMS disapproves the corrective action plan, then the state should be given 60 days to provide a revised plan in accordance with direction that CMS shall give to the state.
ANCOR strongly supports the proposal requiring that states confer with beneficiaries and stakeholders prior to submission of a SPA that reduces or restructures payment rates. (We note that there is no qualification in this section that would require public input only when a “restructuring” of payment rates is likely to lead to an access problem, unlike the language used when describing when an access review must be submitted to CMS with a SPA. ANCOR assumes this is intentional and fully agrees that public input should be required when any restructuring is contemplated, regardless of whether or not the state believes it will lead to an access problem.
However, the proposed language should include specific timetables that will allow enough time for real and valuable public input. In the past, California, for example, when following public notice procedures regarding rate-setting, has allowed as little as five days to receive public comments. If states are not given specific minimum time frames to follow, then the public notice and comment requirement may become meaningless.
Recommendation: States should be required to give beneficiaries, providers, and other stakeholders at least 60 days to comment on proposals to reduce or restructure provider payment rates. While public hearings may be part of the process, the opportunity to submit written comments, which must be considered and addressed by the state agency, is paramount.
Recommendation: The regulation provides that CMS “may” disapprove a SPA if it determines that the state is proposing modified rates without the required public input. Since public input is an integral and required part of the new regulatory scheme, the proposed language should be amended to state that CMS “must “disapprove the SPA if the state has not allowed for public input as contemplated by the regulations.
CMS has proposed one change to § 447.205 to allow for public notice to be provided on an agency website, rather than published in a newspaper or state register. ANCOR agrees that electronic publication is an appropriate alternative for providing public notice, and, in fact, suggests that electronic publication be mandated, in light of current media use. However, ANCOR believes there should be additional requirements.
Recommendation: The regulation should continue to require public notice in newspaper and other state registers and require a dedicated web site for public notice. The web site should allow beneficiaries, providers, and other stakeholders the opportunity to subscribe to email notice of public notice and opportunities for input.
CMS has questioned in the preamble whether the correct standard for requiring public notice is any “significant” proposed change in a states methods and standards, as currently required, whether a specific threshold for significance should be set, or whether the adjective “significant” should be removed altogether. We believe, since, as CMS acknowledges, there is currently no clear threshold for significance, that this term is too vague and should be removed. Because Medicaid rates have historically been so low, we believe that any reduction in rates could endanger access and quality of care, and, therefore, any reduction in rates should trigger the public notice requirements.
Recommendation: The regulation should stipulate that any reduction in rates require an access review and public notice requirements.
Recommendation: Section 447.205 should be amended to tie in with the public process requirement in the proposed revision to § 447.204. The revised § 447.204 would then require a public process before a SPA is submitted, and tie in with the requirements set forth in § 447.205 as to how notice should be given. Procedures for the timing of public notice and comment could also be placed into § 447.205 and then cross-referenced in § 447.204. Thus, public notice and comment would be required pursuant to § 447.204 whenever a SPA reducing rates is being submitted, and § 447.205 would set forth the parameters of the public notice and comment requirement. Section 447.205 would also apply in situations where rates were being reduced by states, but, because of the wording of the current State Plan, a SPA may not be required.