Category Archives: Food/Drugs/Healthcare/Life Sciences

Hyphen Law’s deputyship expertise plays key role in landmark clinical negligence case

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Christine Bunting, Director of Deputyships at Hyphen Law, the specialist Court of Protection deputyships services firm, recently played a key role in relation to Court of Protection costs in the landmark Robshaw v United Lincolnshire Hospitals NHS Trust 2015 clinical negligence case which achieved a record quantum of at least £14.6 million, litigation conducted by Denise Stephens partner at Shoosmiths LLP.

James Robshaw, now aged 12 years, suffers from severe cerebral palsy as a result of his birth being negligently handled by Lincoln County Hospital, Lincolnshire on 9 December 2002. While liability for his significant brain damage and serious physical disabilities was admitted, quantum was disputed by the NHS Litigation Authority (NHSLA). In fact, virtually all heads of future loss were disputed by the NHSLA, leading to an 11-day hearing before Foskett J.

James’ litigation solicitor and appointed deputy, Denise Stephens of Shoosmiths, asked Hyphen Law’s Christine Bunting to provide expert legal evidence on future deputyship costs for James. These were disputed by Hugh Jones, the Court of Protection solicitor for the defendant, who raised concerns about past deputyship costs.

Christine submitted expert, detailed assessment of the estimated yearly future deputyship costs for James up to and including the age of 18 years and his ongoing deputyship requirements for the rest of his life. Her specialist Court of Protection deputyship services insight proved invaluable to James’ case and resulted in Foskett J. agreeing with most of her cost calculations.

He allowed deputyship costs of £43,500 in year 1, £30, 900 in year 2, £20,800 from year 3 to age 18 and £23,200 from age 18. Foskett J. also allowed a contingency of £40,000 and further costs for future applications to the Court of Protection, statutory will applications, compliance with pension auto enrolment obligations and financial accounting.

Christine Bunting said: “When it comes to the calculation of future deputyship costs, there is no such thing as a ‘typical’ clinical negligence case. Every claim is different in terms of scale, complexity, the individuals and their families and the challenges they face. Each case must be considered on its own merits. In the words of Foskett J., the ‘one cap fits all approach is not going to provide the solution: each case will be fact-specific.’

“The growing number of clinical negligence quantum trials highlights the fact that the NHSLA has become more aggressive in its approach and is far more willing than ever before to fight cases to trial. It is hoped that my success in this case will highlight to other solicitors who find themselves up against the NHSLA that the outcome is not a foregone conclusion. In fact, seeking help from the right expert including specialist Court of Protection deputyship experts, such as Hyphen Law, may influence which aspects of a particular claim the NHSLA decides to contest and the level of future deputyship costs awarded.”

Denise Stephens commented: “Christine is widely acknowledged as a specialist in the field of Court of Protection deputyship services in high value, complex clinical negligence cases. Her in-depth knowledge and 25 years + of experience in deputyships and her expertise on the issue of future deputyship costs played a significant part in the recovery of this head of James Robshaw’s claim. I was impressed with her professionalism and the evidence she provided based on solid facts and would have no hesitation in recommending her as an expert in deputyship matters and costs for other high-profile clinical negligence cases.”

The full judgment of the landmark Robshaw v United Lincolnshire Hospitals NHS Trust 2015 case which is set to be one of the highest value clinical negligence court awards ever is available here http://www.bailii.org/ew/cases/EWHC/QB/2015/923.html.

Recent Update of Foreign Investment in China’s Senior Care Industry

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The recent legislative moves have presented a huge opportunity for private and foreign investors to enter into the senior care market in China, which has long been dominated by publicly-run institutions, yet is significantly underfunded and has shown an urgent demand for viable business model and well-trained senior care professionals[1]. To address the issue of fast aging society of China, the Chinese government lately amplified its voice for invitation and calling for private sector participation and foreign investment in senior care industry, by introducing a series of more detailed supportive measures and policies in favour of private and foreign investment in senior care sector, in response to the State Council’s earlier guiding requirements to speed up the senior care industry in September 2013[2]. These measures and policies not only provide clarification on how to establish foreign invested for-profit senior care institutions, but also ease the lingering difficulty in land acquisition and financing, and create more appealing financial incentives to private and foreign investors with an attempt to invest in the sector. The measures are intended to clear the hurdles standing in the way of private and foreign investment in senior care industry so as to boost the investment in the industry in China.

Clarification on Procedures

Currently there is no express restriction on the form of entities that private and foreign investors may set up in China to afford senior care services. For-profit senior care institutions or non-profit institutions, joint venture or wholly foreign owned enterprise, are all permitted. However, there had been no detailed measures on specific procedures for foreign investment in this industry. On 24 November 2014, the Ministry of Commerce (“MOFCOM”) and the Ministry of Civil Affairs (“MCA”) jointly released the “Public Announcement on Relevant Issues on Foreign Investment in For-profit Senior Care Institutions” (“Public Announcement”), which clarifies on the requirements and procedures to establish foreign invested for-profit senior care institutions and sets a twenty-day timeframe for the approval process at local branch of MOFCOM. It is worth highlighting that foreign investors are allowed to obtain the business licence before they apply to MCA for the Permit on Establishment of Senior Care Institutions, a requisite permit to do business as a senior care institution (e.g. home for the aged).

Moreover, foreign investors are also encouraged to participate in the privation and restructuring of the publicly-run senior care institutions and develop the franchise in the country.

Elevated Priority in Land Supply to Senior Care Industry

Despite China has encouraged foreign investment in senior care industry as early as 2002, it proved to be no more than dead letters in the law. It was not until 2011 that the first foreign invested company in this sector was established[3]. This owes very much to the practical difficulty in acquisition of land for senior care facilities by private or foreign investors. Previously, in China, private or foreign enterprises in senior care industry have to secure the land use right of a piece of land from the government by a public bidding process[4], which not only means the highest bidding price but also in practice “a nearly impossible land acquisition process”, as remarked by Bromme Cole, a managing partner at Hampton Hoerter, a health care services company in Asia[5].

On 17 April 2014, the Ministry of Land and Resources issued the “Guidelines on Use of Land for Senior Care Facilities” (“Guidelines”), which made several improvements in terms of how private and foreign investors may acquire land for senior care services:

  • First, the land for senior care industry has been incorporated into the system of land planning and it has gained higher priority in land supply.

 

  • In the process of invitation for tender, auction and listing for land to be used for senior care, the government may not impose requirements in respect of qualifications on bidders, nor may the government impose limitation on level of creditworthiness on senior care institutions to be established.

 

  • For the purpose of encouraging non-profit senior care institutions, the government offers various ways for enterprises to acquire the land. In addition to the traditional land acquisition by invitation for tender, auction and listing, the investors may also

 

  • acquire the land by allocation[6] without going through the tender, auction and listing; or
  • use the land collectively owned by peasants[7].

Furthermore, In the scenario (a) above, non-profit senior care institutions are allowed to be changed into for-profit senior care institutions later, under which circumstances the allocated land such an institution has obtained can be changed into granted land by way of agreement with local government and paying the land grant premiums. The land grant premiums are required to be set on the basis of the market price and no less than the minimum land price of the region published by the local government[8], yet no public bidding process is required for the land during such transition.

Although these measures remain to be tested in practice, they indeed indicate more likelihood for private and foreign investors to acquire the land for senior care industry and also increase the diversity in manners of land acquisition.

Financial Incentives and Benefits

The underdevelopment of a market is, more often than not, attributable to some extent to the difficulty in financing in this sector. This is also the case to the senior care market in China. To change the situation, the government adopted many measures to facilitate the financing in senior care industry, but the most striking is the permission of mortgage to be created on the land acquired by leasing for senior care purposes, which apparently breaks through the old rules and offers a brand-new source of financing to investors, especially those in senior care industry.

Moreover, the government lends more financial incentives to these investors by reductions and exemption of taxes and fees and by provision of subsidies. First, it was expressly stipulated that the senior care institutions, for-profit ones and non-profit ones, may enjoy exemption from business taxes that would otherwise be levied on care services. Even more remarkable are the exemption from real estate taxes and urban land-use taxes for all non-profit senior care institutions, and exemption from income taxes for qualified non-profit senior care institutions. As to the administrative charges, the construction of for-profit senior care and medical institutions may be granted 50% reduction of such fees while the construction of non-profit ones may be given full exemption from the same. In addition, some of local governments (e.g. Beijing) have also decided to pay subsidies from local financial budgets to senior care institutions, for-profit or non-profit.

Conclusion

Top-level Chinese government has made great efforts to pave the way for private and foreign investors to step into the senior care industry of China. To this end, a wide variety of supportive rules and regulations are successively issued, ranging from incorporation procedures to land acquisition, from financing tools to tax exemption. Despite some implementation rules have not been issued, it is foreseeable the legal environment for private and foreign investors in the senior care industry of China will become more favourable.

[1] Sovereign China, “Foreigner Piety China’s Aging Population Creates Opportunities in Senior Care for Foreign Investors”, 1/2014, Business Journal of the German Chamber of Commerce in China, available at http://www.jljgroup.com/uploads/JLJ%20Articles/Senior_Care%20German_Chamber_of_Commerce_Ticker_magazine_Feb_March_2014.pdf as of 12 February 2015.

[2] “State Council’s Various Opinions on Development of Senior Care Industry” issued by the State Council on 6 September 2013.

[3] The first foreign investor that established the foreign invested company in senior care industry in China is Cascade Healthcare. Alyssa Gerace for ALFA Update, “Senior Living in China: Big Barriers, Bigger Opportunity”, available at http://www.alfa.org/News/2358/Senior-Living-in-China%3A-Big-Barriers,-Bigger-Opportunity as of 12 February 2015.

[4] Under the current PRC law, the land is either state-owned land (“Guoyoutudi”) or land owned by rural collective economic organization (“Jititudi”). That being said, China has developed the concept of “land use right” (“Tudishiyongquan”) to effect the transfer of land between state-owned or private entities. Accordingly, the government on behalf of the state may allocate (“Huabo”) the land use right of a land lot to enterprises for zero consideration or grant (“Churang”) the land use right for the consideration of land grant premiums. The land used for profit-oriented purposes, such as retail, travel, office, industrial, residential, finance, entertainment and etc. shall be supplied in the form of land grant through a public bidding process (i.e. invitation for tender, auction and listing).

[5] ibid [3].

[6] ibid [4].

[7] ibid [4].

[8] This is pursuant to the “Regulation on Transfer of Land Use Right of State-owned Land by Agreement” issued by the Ministry of Land and Resources on 6 November 2013.

Effects Of The New Federal Spending Package On The Health Sector

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In mid-December, President Obama signed into law a $1.1 trillion spending bill known as the “Consolidated and Further Continuing Appropriations Act, 2015” or “Cromnibus.”1 This post explores provisions that relate to the health sector and Affordable Care Act (ACA) implementation.

Health IT

The spending package allocates just over $60 million to the Office of the National Coordinator for Health Information Technology for the ongoing development and advancement of interoperable health IT. An emphasis on interoperability resounds as another provision limits aspects of Department of Defense and Department of Veterans Affairs spending until the department’s report on a plan to achieve electronic health record interoperability between them.

The Act allocates just over $14.9 million for health IT adoption (and other quality improvement measures) in rural hospitals. An additional $1 million is available to fund telehealth initiatives in rural areas.

Health Insurance

Among other provisions affecting insurance, the Act mandates that the ACA’s risk corridor program be budget neutral. The program seeks to incentivize insurers to offer qualified health plans in the face of significant uncertainty by transferring funds from plans with lower than projected costs to those with allowable costs that are higher than anticipated. According to the spending package, the Centers for Medicare & Medicaid Services (CMS) may not apply resources from accounts funded by the Act towards risk corridor payments. This limits the agency to funding the program through collections.

While insurers may have depended on risk corridor payments in setting rates for 2014 and 2015, budget constraints should not come as a surprise. Department of Health & Human Services (HHS) guidance issued earlier in 2014 set forth that the program would be implemented “in a budget neutral manner.” While HHS anticipated that collections would be sufficient to cover expenditures, the department also stated that payments would be reduced pro rata to the extent of any shortfall.2

A second insurance-related provision amends section 833 of the Internal Revenue Code, which grants tax benefits to Blue Cross and Blue Shield plans, as well as certain other qualifying health care organizations. Section 833 benefits apply only to an organization with a medical loss ratio (MLR) of at least 85 percent. The IRS published final regulations in January 2014 providing that the MLR numerator—defined as the organization’s total premium revenue expended on reimbursement for clinical services provided to enrollees—does not include amounts spent on activities to improve health care quality. (The MLR denominator is an organization’s total premium revenue for a taxable year.)

The Act’s amendment aligns section 833’s MLR definition with that provided by section 2718 of the ACA, pursuant to which costs associated with activities to improve health care quality may be counted in the numerator alongside medical claims. Examples of activities affected by the change include case management, care coordination, and care compliance initiatives, and investments in health information technology to support such initiatives. The provision is retroactively applied to taxable years beginning after December 31, 2009.

The Act does not address other controversial aspects of section 833, such as the scope of the benefits provided to nonprofit health plans, and whether there are possible means for an otherwise eligible organization to mitigate the consequences of having an insufficient MLR.

Medicare

The spending package cuts appropriations for the Independent Payment Advisory Board (IPAB) by $10 million. While it has not yet been operationalized, IPAB is a 15-member panel created and empowered by the ACA to achieve cost savings in the Medicare system.  The ACA appropriated $15 million a year for the entity.  In addition, CMS is prohibited from using Medicare program funds for non-Medicare ACA activities.

Prevention and Public Health

Finally, the Act places some restrictions and requirements on spending under the ACA’s Prevention and Public Health Fund. These provisions generally appear to address concerns over transparency. For example, HHS must establish a publicly accessible website to provide information regarding the use of available funding.

Footnotes

1. The full text of the Act is available here.

2. Department of Health & Human Services. Risk Corridors and Budget Neutrality. Apr. 11, 2014.

Real Estate Tax Exemption Issue Muddied Again

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On December 23, 2014, the Commonwealth Court of Pennsylvania logged another frustrating mile down the confused and confusing road of property tax exemption for purely public charities.  In Fayette Resources, Inc. v. Fayette County Board of Assessment Appeals, the Court overturned a lower court finding that an operator of group homes for intellectually disabled adults satisfied the requirements for tax exemption as a “purely public charity.”  The Commonwealth Court held that Fayette Resources failed to show that it satisfied the second requirement of the so-called HUP test (declared in Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985)) — that it donate or render gratuitously a substantial portion of its services.

While this opinion may be viewed simply as Fayette Resources failing to make an adequate record below, the case also illustrates the confusion created by the Pennsylvania Supreme Court’s decision in the 2012 Mesivtah case, Mesivtah Eitz Chaim of Bobov, Inc. v. Pike County Board of Assessment Appeals, 44 A.3d 3 (Pa. 2012), which held that non-profit entities must satisfy both the statutory requirements of the Purely Public Charity Act (“Charity Act”), codified at 10 P.S. 371-385, and the court-established HUP test.

When the HUP test was developed by the Supreme Court in 1985, there was no statute implementing the charitable exemption for “purely public charities” under Article VIII, Section 2(a)(v) of the Pennsylvania Constitution.  When the Charity Act was passed in 1997, however, the legislature filled that void, and created what should be the standard against which such questions are evaluated, unless the statute itself is declared unconstitutional either on its face or as applied.  Instead, in Mesivtah, the Supreme Court required that entities meet both tests, which can lead to inconsistent results, as occurred here.

The Commonwealth Court recognized that Fayette Resources “satisfies all of the statutory requirements imposed by the Charity Act”; nevertheless, it overturned the exemption because it found that an element of the HUP test was not met.

Even apart from the dual standard itself, it is  troubling that Fayette Resources, which provides staffed homes for the intellectually disabled (who are legitimate subjects of charity), is exempt from federal taxation, relieves the government of the duty and burden to care for the intellectually disabled and has no private profit motive, was found not to have established its entitlement to a real estate tax exemption because it did not show that its costs exceeded its revenues.  This rationale appears to conflict with the evidence that Fayette Resources is compensated by Medicaid payments, that any surplus revenues are directed back into acquisition or fixing up of group homes and that distribution of any funds for a private purpose is prohibited by the organization’s by-laws.

Is the Court saying that an entity must lose money on a consistent basis to be entitled to a real estate tax exemption?  Must it solicit charitable contributions to establish its claim?  These are the types of questions the legislature answered in the Public Charity Act.  The Supreme Court’s, and here the Commonwealth Court’s, insistence on applying the less detailed, court-established standard of the HUP test in addition to the Public Charity Act standards only creates confusion and additional costs to charities who must repeatedly litigate the vagaries of the HUP test — the very result the legislature attempted to avoid.

FTC And Florida Attorney General Settlement Cripples Medical Alert Device Company

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On November 13, 2014, the United States District Court for the Middle District of Florida approved and entered a permanent injunction and settlement between the Federal Trade Commission (“FTC”) and the Florida Attorney General (the “AG”), on the one hand, and Woldwide Info Services, Inc. (“Worldwide”), on the other.  The settlement effectively ends the medical alert device business of Worldwide and its principals.  The settlement is the result of a lawsuit filed by the FTC and the AG in January alleging that Worldwide and its principals fraudulently marketed their devices to seniors in the State of Florida.  The settlement imposes sweeping restrictions on Worldwide and its principals, forbidding them from, among other things, making any robocalls or performing any telemarketing campaigns in the future.

FTC Allegations

According to the complaint, Worldwide and its related entities used pre-recorded messages to robocall senior citizens.  The calls informed consumers that medical alert devices had been purchased for consumers by friends or relatives, and that the shipping costs were prepaid.  The callers were asked to press a number on their telephones to speak with a live agent to schedule delivery.  Thereafter, consumers would be directed to a live operator who, toward the end of the call, would inform consumers that the medical alert service came with a monthly monitoring fee.  To cover the fee, consumers were asked to provide a credit card or bank account information.  Although assured that their accounts would not be charged until the device was received, for many consumers Worldwide would process the monitoring fee on the same day of the call.  The FTC alleged that Worldwide’s business practices violated the FTC Act, the Telemarketing Sales Rule and the Florida Deceptive and Unfair Trade Practices Act, as well as other common law rules.

The FTC Settlement

Pursuant to the terms of the settlement, Worldwide, its related entities, and its principals, are all banned from placing any robocalls or participating in any telemarketing campaign in the future.  Additionally, Worldwide, its related entities and its principals are banned from ever selling, advertising, marketing or promoting medical alert products or services.  A judgment has been entered against the settling defendants for $22,989,609.00, however all but $24,000 of the judgment has been suspended.  The principals have also agreed to sell personal property, such as cars and a boat, with the proceeds to be paid to the FTC.

Protect Yourself

As we have previously noted, the FTC has been increasingly vigilant in pursuing marketers that use deceptive advertising and robocalling in connection with their respective businesses.  The settlement reached with Worldwide demonstrates that business owners risk not only money damages, but also the loss of personal property and possibly the very existence of the business if they run afoul of telemarketing and deceptive advertising laws.

If you are interested in learning more about this topic, or if you have been served with legal process relating to your marketing practices, please e-mail us at [email protected] or call us at (212) 246-0900.

In-Patient Hospitalization And “Minimum Value” Under The ACA

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HIGHLIGHTS:

  • The IRS, DOL and HHS issue guidance on calculating minimum value under the Affordable Care Act for plans not offering substantial coverage for in-patient hospitalization or physician services.
  • Employers need to review plans for hospitalization and related physician care services and reassess whether their plans provide “minimum value.”

The Patient Protection and Affordable Care Act – more commonly known as the Affordable Care Act (ACA) – imposes many requirements on group health plans, including, among others, that plans must provide “minimum value” (MV) in accordance with the Internal Revenue Code1 (Code). The MV rules require that group health plans cover at least 60 percent of the benefit costs provided under the plan. If a covered plan does not provide MV, a participant is eligible for coverage in a healthcare exchange and may be entitled to a premium tax credit. If the plan of a covered employer does not provide MV, the employer will have to pay a fine of $3,000 for every full-time employee under the ACA that obtains coverage in an exchange and receives a premium tax credit.

Employers, brokers and advisors working with group plans recently determined that plans providing limited or no hospitalization and related physician services met the requirements for MV, according to the minimum value calculator provided by the applicable government agencies. After discovering this defect, the government agencies issued Notice 2014-69 to correct this problem and provide limited transition relief.

Notice 2014-69 Addresses the MV Shortfalls

Notice 2014-69 provides the following:

  1. The Internal Revenue Service (IRS), the Department of Labor (DOL), and the Department of Health and Human Services (HHS) will issue final regulations that will correct the MV calculator so that plans not providing substantial in-patient hospitalization or physician services (or both) will not pass the MV requirements.
  2. It is anticipated that the final regulations will take effect in 2015 immediately upon issuance and apply to 2015 plan years.
  3. Notably, Notice 2014-69 indicates that agencies “anticipate” that the final regulations will exempt employers from applicable ACA penalties for the pending plan year if the employer’s plan is a so-called “Pre-November 4, 2014 Plan.”
  4. Employees covered by a plan not providing a proper level of in-patient hospitalization/physician services will continue to be eligible for a premium tax credit under Section 36B of the Code regardless of whether the applicable plan provides MV under the defective MV calculator and without regard to whether the plan is a Pre-November 4, 2014 Plan.

A Pre-November 4, 2014 Plan is a plan that meets all of the following criteria:

  1. An employer entered into a binding written commitment to adopt or has begun enrolling employees in a plan prior to November 4, 2014.
  2. The employer relied on the defective MV Calculator in its design.
  3. The plan’s terms as in effect on November 3, 2014, are not otherwise modified.
  4. The plan year begins no later than March 1, 2015.

Notice 2014-69 indicates the final regulations will be applicable in 2015 and only Pre-November 4, 2014 Plans will escape the application of the final regulations. Based on the pending impact of the final regulations, employers should proceed with great care in assessing whether their respective plans meet the Pre-November 4, 2014 Plan requirements and whether changes to their plans to incorporate substantial in-patient hospitalization/physician services can still be made. Finally, Notice 2014-69 also provides that employers are obligated to correct or modify any employee/participant disclosures that indicate plans with inadequate in-patient hospitalization/physician services provide MV in light of Notice 2014-69.

Action Items to Be Compliant with Notice 2014-69

Employers should take the following steps in light of Notice 2014-69:

  1. Review applicable plans to determine whether substantial in-patient hospitalization/physician services are provided under their plans.
  2. If substantial in-patient hospitalization/physician services are not provided under their plans, determine whether the plans are Pre-November 4, 2014 Plans.
  3. Assess whether defective plans that are not Pre-November 4, 2014 Plans can be modified quickly to incorporate substantial in-patient hospitalization/physician services.

Footnotes

1.Section 36B(c)(2)(C)(ii)

Quantum Foods: Committee Files Preference Actions

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Introduction

On October 28, 2014, The Official Committee of Unsecured Creditors of Q v. AB Foods LLC (the “Committee”), the committee in the Quantum Foods, LLC bankruptcy, began filing complaints to recover what it contends are avoidable preferences.  The Committee filed the preference actions in the Delaware Bankruptcy Court and argue that the transfers, or payments, received by various defendants are avoidable and subject to recovery under 11 U.S.C. § 547 and 548 of the United States Bankruptcy Code. This post will look at the Quantum Foods, LLC bankruptcy proceeding, why the company filed for bankruptcy as well as key developments during the course of the bankruptcy proceeding.

Background

On February 18, 2014, Quantum Foods LLC (“Quantum” or “Debtor”), along with various related entities, filed chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware.  The main Quantum Bankruptcy case is Case Number 14-10318-KJC.  As stated in its Declarations in Support of Chapter 11 Petitions and First Day Relief (the “Declaration” or “Decl.”), Quantum described itself as a “leading further-processor of proteins, including beef, pork and poultry.”  Going into bankruptcy, the Debtors employed approximately 1,100 employees, all based in the Debtors’ facilities in Bolingbrook, Illinois.  The Debtors primary objective in commencing its chapter 11 cases was to pursue a prompt sale of their assets in order to maximize value for stakeholders, preserving jobs, minimizing supply disruptions for the Debtors’ customers and ensuring an uninterrupted supply chain for the Debtors’ vendors.  Decl. at * 2.

The Bankruptcy Proceeding

On multiple dates since the bankruptcy petition was filed, including May 16, 2014, June 13, 2014, July 11, 2014, and July 15, 2014 the Debtors file motions for the sale of assets.  The Delaware Bankruptcy Court confirmed the Plan on March 18, 2013.  On April 15, 2013, Southern Air satisfied the conditions precedent to the Plan becoming effective.

On July 14, 2014, the Court entered an order authorizing the Committee to prosecute causes of action on behalf of the Debtors and granting the Committee standing to pursue such claims. The causes of action include all litigation pursuant to Section 5 of the Bankruptcy Code.  This includes the recently filed preference actions.

The Preference Actions

The Quantum bankruptcy, as well as the preference actions, are before the Honorable Kevin J. Carey.  The Committee prosecuting the Quantum preference actions is represented by the Cross and Simon, LLC.

Defenses to a Preference Action

The Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Digital Health Investment In September Tops $700 Million

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Digital health companies raised just over $730 million through venture, private equity and angel investments in September, according to our latest analysis, bringing the total for the third quarter to approximately $1.3 billion.

The largest financing in the third quarter accounted for more than half of the aggregate investment in September. Privia, a practice management and population health technology company, received a $400 million Series C investment from Goldman Sachs. The Washington Post reports that the software company, which helps doctors communicate with patients, particularly those with chronic conditions, and other caregivers, will use the money to expand outside its base of users in the District of Columbia area.

The second largest investment was raised by telemedine provider Teledoc. The Dallas-based company received $50 million in a Series F round. Kleiner Perkins, HLM Ventures, Cardinal Partners and JAFCO participated in the round.

HealthEdge, a provider of cloud-based financial, administrative and clinical software for healthcare payers received the third largest investment in September. The Burlington, Mass.-based company raised $30 million in a Series C financing led by Psilos Group.

Fenwick client iHealth Labs received a $25 million Series A investment from Xiaomi Ventures in the fourth largest investment of the month. The Mountain View, Calif.-based company aims to make it as easy as possible for people to take a more active role in managing their health and produces a variety of mobile personal healthcare products that connect to the cloud.

The fifth largest investment was in Sandlot Solutions, which provides an electronic medical records interoperability, big data analytics and population health management platform. The company received a $23.3 million equity capital investment from Lemhi Ventures, North Texas Specialty Physicians and Santa Rosa Consulting.

Fenwick client Netpulse‘s $18.6 million Series D round was the sixth largest investment of the month. The software developer provides an enterprise-level platform for fitness centers that connects with consumers at multiple touch points both in the facility and outside the gym. August Capital, Docomo Capital, DFJ Frontier, Nokia Growth Partners and Javelin Venture Partners participated in the round.

Palo Alto internet software company Jiff received the seventh largest investment of the month, an $18 million Series B round. The company has developed a HIPAA compliant platform that connects employee benefit design to consumer digital health technology. The round was led by Venrock with participation from Aberdare Ventures and Aeris Capital.

The eighth largest investment was in Instamed Communications, which raised $15 million in growth equity capital from Actual Corporation, Osage Partners and JNTC Venture Fund. The Philadelphia-based company allows payers to cut settlement and disbursement costs with electronic payments.

A third Fenwick client, Propeller Health, received the ninth largest investment of the month with $14.5 million in a Series B round. Based in Madison, Wisc., Propeller provides a mobile platform for respiratory health management that tracks when and where patients use medication so patients, physicians and caregivers can better manage symptoms. Safeguard Scientifics, Kapor Capital and Social+Capital participated in the round.

Rounding out the top 10 investments for September is a $13 million growth equity investment in Array Health. The Seattle-based company has developed a retail health insurance exchange through which employers can provide their employees a wide choice of health plans while still controlling cost. Noro-Moseley Partners and Vocap Investment Partners participated in the round.

This article was first published on the Law.com Network on November 5, 2014.

Connecticut Supreme Court Recognizes Individual’s Right For State Tort Action Using HIPAA As Standard Of Care

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The Connecticut Supreme Court handed down a decision in the case of Byrne v. Avery Center for Obstetrics and Gynecology, P.C., — A.3d —-, 2014 WL 5507439 (2014) that

[a]ssuming, without deciding, that Connecticut’s common law recognizes a negligence cause of action arising from health care providers’ breaches of patient privacy in the context of complying with subpoenas, we agree with the plaintiff and conclude that such an action is not preempted by HIPAA and, further, that the HIPAA regulations may well inform the applicable standard of care in certain circumstances.

Interestingly, the decision is dated November 11, 2014, the federal holiday of Veterans Day, but was available on Westlaw on November 7, 2014.  The Court’s decision was rendered 20 months after the date that the case was argued on March 12, 2013.

The decision adds the Connecticut Supreme Court to a growing list of courts that have found that HIPAA’s lack of a private right of action does not necessarily foreclose action under state statutory and common law.  The Byrne case, however, has added significance, as it appears to be the first decision by the highest court of a state that says that state statutory and judicial causes of action for negligence, including invasion of privacy and infliction of emotional distress, are not necessarily preempted by HIPAA.  Moreover, it recognized that HIPAA may be the appropriate standard of care to determine whether negligence is present.

The Byrne case has important implications for HIPAA matters beyond the rights of individuals to sue under state tort law, using HIPAA regulations as the standard of care.  For example, in the area of business associate agreements (“BAAs”) and subcontractor agreements (“SCAs”), as was discussed in a posting in October 2013 on this blog relating to indemnification provisions,

there should be a negation of potential third party beneficiary rights under the BAA or SCA. For example, HIPAA specifically excludes individual private rights of action for a breach of HIPAA – a [p]arty does not want to run a risk of creating unintentionally a separate contractual private right of action in favor of a third party under a[n indemnification] [p]rovision.

A party should, therefore, endeavor to limit the number of persons that may assert a direct right to sue for indemnification resulting from a breach of a BAA.  Failing to limit the number of persons that may assert a direct right to sue for indemnification resulting from a breach of a BAA or SCA can be costly indeed, especially if the number of states that follow the Byrne case principles increases.

Efforts to use HIPAA regulations as standards for causes of action under state law can be expected to rise as a result of the Byrne decision.  Covered entities, business associates and subcontractors should consider acquiring sufficient cybersecurity insurance with expanded coverage and limits.

Federal Circuit Looks For Inventive Concept In Sequenom Patent

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On November 7, 2014, the Federal Circuit heard oral arguments in Aria Diagnostics, Inc. v. Sequenom, Inc., where Sequenom is appealing the district court’s summary judgment of invalidity under 35 USC § 101. The active questioning by the judges suggests that they are wrestling with how to apply the Supreme Court’s decision in Mayo to different types of inventions.

The Patent at Issue

The Sequenom patent at issue was U.S. Patent 6,258,540, owned by Isis Innovation Limited and exclusively licensed to Sequenom.

Claim 1 recites:

A method for detecting a paternally inherited nucleic acid of fetal origin performed on a maternal serum or plasma sample from a pregnant female, which method comprises amplifying a paternally inherited nucleic acid from the serum or plasma sample and detecting the presence of a paternally inherited nucleic acid of fetal origin in the sample.

When the case previously was before the Federal Circuit after the district court denied Aria’s motion for a preliminary injunction, the Federal Circuit described the invention as follows:

The ‘540 patent discloses methods to identify fetal genetic defects by analyzing … maternal plasma or serum. The ‘540 patent discloses that non-nucleated free floating fetal DNA (the cffDNA) exists in maternal blood. … The specification explains that not only does analysis of cffDNA permit more efficient determination of genetic defects (for example, trisomy of chromosome 21) but that a pregnant woman carrying a fetus with certain genetic defects will have more cffDNA in her blood than do women with normal fetuses. … In other words, the ‘540 patent claims methods to detect fetal genetic characteristics by analyzing cffDNA obtained from a maternal blood sample. These new tests presented fewer risks and a more dependable rate of abnormality detection.

(You can read more about the first Federal Circuit decision here.)

The Previous Proceedings

The case previously was before the Federal Circuit after the district court denied Sequenom’s motion for a preliminary injunction against Aria’s Harmony test for Down’s Syndrome. The previous Federal Circuit decision (authored by then Chief Judge Rader and joined by Judges Dyk and Reyna) focused on claim construction, but also instructed the district court to “examine subject matter eligibility [under the Myriad Supreme Court decision]” on remand.

The Oral Arguments

Oral arguments were heard by Judges Reyna, Linn, and Wallach. I was not able to attend in person, but have listed to the recording. In the summary below, I have done my best to identify which judge was speaking. Mr. Malacek argued for Sequenom. Mr. Gindler and Mr. Reines argued for Aria, but I treat their comments together.

Before Sequenom’s counsel was able to complete his first sentence, Judge Reyna jumped in with his first question:

Looking at the claims themselves … where is the “inventive concept” within the claims?

Show me in the claim limitations the “inventive concept” ….

The presence of paternal DNA in the fetal sample is a natural phenomenon, and the activities that are used to detect are conventional, so where is the inventive concept?

Sequenom’s main response to this line of questioning was that while the general techniques are conventional, it was “radically different” to use them in the claimed context, which uses a sample that had previously been discarded. Judge Linn appeared to be interested in these comments, but also noted that the fact that paternal DNA may be present in the fetal sample is a natural phenomenon. Aria’s counsel argued that Sequenom’s position turned Alice on its head, because Alice shows that conventional steps are not “new” because they are applied to a natural phenomenon. According to Aria’s counsel, Alice requires the following analytical framework:

Under Alice, eliminate the natural phenomenon, see what’s left, and ask if that’s new.

Judge Wallach raised another issue:

Is cell-free DNA that has been amplified physically and chemically different from naturally-occurring DNA?

While Sequenom argued that it is, Aria’s counsel pointed out the claims did not recite any difference, and so any difference could not support patent eligibility under In re Roslin Institute.

Sequenom’s counsel emphasized that the claims did not preclude others from detecting paternal DNA by other methods, but the judges were not satisfied that the claims were sufficiently circumscribed. This led to the following point of discussion:

When we engage in a section 101 analysis … are we restricted to the claim language and the claims, or can we look at the patent as a whole–the written description and the claims …?

Judge Linn asked Aria’s counsel why the claims can’t be characterized as a new use of known techniques, which is decidedly patent-eligible. In response, Aria’s counsel argued that because the new use relates to a natural phenomenon it must be treated differently under the Supreme Court decisions in Parker v. Flook and Myriad.

Predicting the Outcome

I can’t tell from the oral arguments how the Federal Circuit will rule on this case, and am left with the feeling that even the judges are still uncertain of the outcome. Judge Linn may have captured the conundrum best with this comment:

Once you recognize that [there is paternally inherited information in the fetal sample] then there’s nothing beyond that other than applying conventional techniques to go find it … I’m not saying that shouldn’t be rewarded with a patent, but I’m living under a regime set by the Supreme Court.