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Justice Department welcomes passage of the Competitive Health Insurance Reform Act of 2020
Health insurers are no longer immune from federal antitrust scrutiny for conduct considered the business of insurance.
The Competitive Health insurance Reform Act of 2020 became law on January 13, a move praised by the Department of Justice but opposed by health insurers.
Health insurers are no longer immune from federal antitrust scrutiny for conduct considered the business of insurance and regulated by state law.
With enactment of the Competitive Health Insurance Reform Act, the DOJ and Federal Trade Commission have expanded authority to prosecute alleged anticompetitive behavior, including data sharing between insurers.
The McCarran-Ferguson Act previously afforded immunity by exempting from federal antitrust laws certain conduct considered the “business of insurance.” This exemption has sometimes been interpreted by courts to allow a range of what the Justice Department considered “harmful” anticompetitive conduct in health insurance markets.
The new law aims to promote more competition in health insurance markets by limiting the scope of conduct that’s exempt from antitrust laws. This move was praised by the Trump Justice Department shortly before the former president left office.
WHAT’S THE IMPACT?
The antitrust scrutiny is coming at a time when insurers are under a deadline to meet interoperability standards to share information with patients that meet Fast Healthcare Interoperability Resources, or FHIR, standards.
Eliminating the exemption undermines the goal of affordable coverage by adding administrative red tape and reducing market competition, according to Matt Eyles, president and CEO of America’s Health Insurance Plans.
“The McCarran-Ferguson Act recognized that all healthcare is local, and that states should be able to govern their own health insurance markets,” Eyles said in December. “Removal of this exemption adds tremendous administrative costs while delivering absolutely no value for patients and consumers. It will unnecessarily add layers of bureaucracy, destabilize markets, create conflicting federal and state oversight requirements, and lead to costly litigation.”
The National Association of Insurance Commissioners sent a letter to Senate leaders on December 2 voicing its concern for the bill’s passage.
“The premise of the Competitive Health Insurance Reform Act is that collusion among health insurance companies is permitted under state law and that the McCarran-Ferguson Act somehow currently protects these practices. This is not true. The McCarran-Ferguson antitrust exemption for health insurance does not allow or encourage conspiratorial behavior but simply leaves oversight of insurance, including health insurance, to the states – and state laws do not allow collusion,” commissioners said.
“The potential for bid rigging, price-fixing and market allocation is of great concern to state insurance regulators and we share your view that such practices would be harmful to consumers and should not be tolerated. However, we want to assure you that these activities are not permitted under state law,” commissioners wrote.
While insurers have not been thrilled with the move, Consumer Reports said the legislation is good for providers who have felt pressured into contract terms that benefit insurers.
THE LARGER TREND
The Justice Department has a track record of successfully enforcing the antitrust laws against health insurers. Over the past five years, the department has enforced the antitrust laws against health insurers involved in transactions valued at over $160 billion.
The Act will help the department build on those successes by requiring health insurers to play by the same rules as competitors in other industries. It will clarify when health insurers qualify for the McCarran-Ferguson exemption, and it will enable the Antitrust Division to spend resources more efficiently to achieve desired results, the Justice Department said.
On January 13, Trump signed into law the Competitive Health Insurance Reform Act of 2020, which limits the antitrust exemption available to health insurance companies under the McCarran-Ferguson Act. The act, sponsored by Rep. Peter DeFazio (D-Ore), passed the House of Representatives on Sept. 21, 2020 and passed the Senate on Dec. 22.
Pediatrician shot and killed at medical office in Austin
https://www.healthcarefinancenews.com/news/pediatrician-shot-and-killed-medical-office-austin
Rep. Joe Courtney (D-Ct.) is reintroducing a bill to help curb workplace violence in the healthcare sector to the 117th Congress next week.
In the latest incidence of workplace violence within the healthcare industry, a 43-year old female doctor was shot and killed by another physician at Children’s Medical Group in Austin, Texas on Tuesday afternoon.
Pediatrician Dr. Katherine Lindley Dodson, 43, died from a gunshot wound that Austin police believe was inflicted by Dr. Bharat Narumanchi, 43. Narumanchi died from an apparent self-inflicted gunshot wound, according to the police report. No motive was given for the attack.
When Austin Police SWAT officers made entry to the medical office building, they found the bodies of Drs. Dodson and Narumanchi inside.
Narumanchi did not work at Children’s Medical Group, but had been there a week earlier to apply for a volunteer position that he reportedly did not get. He was a pediatrician who had been recently diagnosed with terminal cancer, according to the police report.
Other than the visit to the office the week before, there did not appear to be any relation or other contact between Dr. Dodson and Dr. Narumanchi, police said.
In the 911 call, Austin police received a report that a male subject had entered the medical building with a gun and was holding hostages inside. As the incident began to unfold, it was learned that several hostages were being held. Several hostages initially escaped and others were later allowed to leave with the exception of Dr. Dodson.
Hostages told officers that Narumanchi was armed with a pistol and what appeared to be a shotgun and had two duffel bags.
Hostage negotiators arrived on scene and attempted to make contact with Dr. Narumanchi, to no avail, police said. After several attempts, it was decided to make entry into the building. It appeared that Dr. Narumanchi shot himself after shooting Dr. Dodson. The case is under investigation.
WHY THIS MATTERS
Workplace violence in healthcare is an ongoing issue, and the loss of Dodson is particularly tragic.
In a 2015 report the Occupational Safety and Health Administration stated that “healthcare and social assistance workers experienced 7.8 cases of serious workplace violence injuries per 10,000 full-time equivalents in 2013. Other large sectors such as construction, manufacturing, and retail all had fewer than two cases per 10,000 FTEs.”
Another report released by the American Hospital Association called the 2020 Environmental Scan, showed the rate of intentional injuries by others in 2017 to be 9.1 per 10,000 for healthcare and social assistance workers and 1.9 per 10,000 for all private industry.
One statistic that stands out is that nearly half of ER physicians said they’ve been physically assaulted at work and 71% have personally witnessed others being assaulted during their shifts. Since the most recent data is from 2017, the effect of COVID-19 is not included in these figures.
Most incidents of physical and verbal assaults are from patients to staff, according to National Nurses United head Michelle Mahon, assistant director of nursing practice for the professional association of registered nurses.
The issue has been exacerbated by the challenges of COVID-19, according to Mahon, who has said much of it could be prevented by ending staffing shortages.
EFFORTS
Rep. Joe Courtney (D-Ct.) is reintroducing a bill to curb workplace violence in the healthcare sector to the 117th Congress next week, according to information released by his office.
HR 1309, the Workplace Violence Prevention for Health Care and Social Service Workers Act proposed by Courtney, was passed in the House in 2019 after seven years of effort. It did not pass the Senate.
“Joe is confident about our prospects headed into this year,” his spokesman said.
National Nurses United supports the legislation that would create federal prevention standards not only for hospitals, but also for facilities such as Veterans’ Affairs, the Indian Health Service and home-based hospice. The law would require OSHA to develop workplace-violence-prevention standards that would include, among other mandates, that IV poles be stationary so they’re not able to be used as weapons.
The bill directs OSHA to issue new standards requiring healthcare and social service employers to write and implement a workplace-violence-prevention plan to prevent and protect employees from violent incidents and assaults at work.
As fraud rises, CFOs must approach numbers skeptically, report finds
https://www.cfodive.com/news/Center-Audit-Quality-financial-reporting-fraud/593123/
Executives might be committed to accuracy, but middle managers and others throughout the organization must be on board, too.
The pandemic is increasing financial reporting fraud, putting the onus on CFOs to create an organization-wide system that prevents wrongdoing, a coalition of auditing and other oversight groups said in a report released today.
“Financial statement fraud in public companies is real and that risk has only increased during the Covid-19 pandemic,” said Julie Bell Lindsay, executive director of the Center for Audit Quality, one of four groups to release the report.
To help ensure the integrity of their company’s financial reporting, CFOs can’t rely on external auditors as their bulwark against fraud; they must weave protection into the fabric of the organization and exercise the same skepticism toward numbers auditors are trained to do.
“The strongest fraud deterrent and detection program requires extreme diligence from all participants in the financial reporting system,” Lindsay said. “Certainly, you have internal and external auditors, but you also have regulators, audit committees and, especially, public company management.”
Heightened stress
The report looks at SEC enforcement data from 2014 to 2019, a period of relative calm Linsday said can help set a baseline for assessing how much in pandemic-caused fraud regulators will find when they do their post-crisis analysis.
“The timing of this report is really a great way to … remind all the folks in the financial reporting ecosystem that … the pressures for fraud to happen are strong right now,” she said.
Improper revenue recognition comprises about 40% of wrongdoing in financial reporting, more than any other type, a finding that tracks an SEC analysis released last August.
Companies tend to manipulate revenue in four ways:
- The timing of recognition
- The value applied
- The source
- The percentage of contract completion claimed
The report singles out revenue-recognition manipulation by OCZ Technology Group, a solid-state drive manufacturer that went bankrupt in 2013, as a typical case.
The company had to restate its revenues by more than $100 million after it was caught mis-characterizing sales discounts as marketing expenses, shipping more goods to a large customer than it could be expected to sell, and withholding information on product returns.
The CEO was charged with fraud and the CFO with accounting, disclosure, and internal accounting controls failures.
The report lists three other common types of fraud: manipulation of financial reserves, manipulation of inventories, and improper calculation of impairment.
Reserve issues involve how, and when, balances are changed, and how expenses are classified; inventory issues involve the amounts that are listed and how much sales cost; and impairment issues involve the timing and accuracy of the calculation.
Increase expected
More of these kinds of problems will likely be found to be happening because of the pandemic, the report said.
“This is where all of this comes to a head,” Lindsay said. “You certainly can see pressure, because some companies are struggling right now and there can be pressure to meet numbers, analysts expectations.”
The pressure finance professionals face is part of what the report calls a “fraud triangle,” a convergence of three factors that can lead to fraud: pressure, opportunity and rationalization.
In the context of the pandemic, pressure comes as companies struggle with big drops in revenue; opportunity arises as employees work remotely; and the rationalization for fraud is reinforced by the unprecedented challenges people are facing.
“It could be anything,” said Lindsay. “‘My wife just lost her job, so I need to make up for it.'”
The report lists fraud types that analysts expect are rising because of the pandemic:
- Fabrication of revenue to offset losses.
- Understatement of accounts receivable reserves as customers delay payments.
- Manipulation of compliance with debt covenants.
- Unrecognized inventory impairments.
- Over- or understated accounting estimates to meet projection.
About a dozen types in all are listed.
“Past crises have proven that at any time of large-scale disruption or stress on an economy or industry, companies should be prepared for the possibility of increased fraud.” the report said.
Lindsay stressed three lessons she’d like to see CFOs take away from the report.
First, the potential for fraud in their companies shouldn’t be an afterthought. Second, protection against it is management’s responsibility but there’s also a role for company’s audit committee, its internal auditors and it’s external auditors. Third, CFOs and the finance executives they work with, including at the middle management level, must bring that same skepticism toward the numbers that auditors are trained to bring.
“Professional skepticism is a core competency of the external auditor and, quite frankly, the internal auditor,” she said. “Management and committee members are not necessarily trained on what it is, but it doesn’t mean you shouldn’t be exercising skepticism, [which is] asking questions about the numbers that are being reported. Is this exactly what happened? Do we have weaknesses? Do we have areas of positivity? It’s really about drilling down and having a dialogue and not just taking the numbers at face value.”
In addition to the Center for Audit Quality, Mitigating the Risks of Common Fraud Schemes: Insights From SEC Enforcement Actions was prepared by Financial Executives International, The Institute of Internal Auditors and the National Association of Corporate Directors.
HENRY KOTULA 