California's Unusual Protections for Medical Information

Today's California Office of Health Information Integrity Privacy Security and Accountability Board Legal Committee meeting continued the discussion of possible deviation in California law from HIPAA.

Like many things in the 9th Circuit, California has its own rules for protection of medical information, the California Medical Information Act ("CMIA" Civ. Code Section 56 et al). Importantly, California Civil Code §56.10(c)(14) has been interpreted by the California Office of Health Information Integrity to possibly be less permissive than HIPAA. The minority view, at least, is that the "as authorized by law" provision applies only to laws pertaining to public safety. Because HIPAA does not pertain to public safety, the Legal Committee is now in the process of examining those state and federal laws that do pertain to public safety. The working list can be found here. The hope is that by better understanding the current scope of permitted disclosures of medical information, the California legislature can make a better decision about possibly revising the CMIA.

California Health Care Bills Pass Legislative Hurdle

The Senate Health Committee yesterday passed out two bills that will help implement federal health care reform at the state level. They are the California Senate’s first measures to address the skyrocketing rate increases in the individual health insurance market (SB 890), and establish a health care exchange (SB 900).

SB 890 would stabilize the individual health insurance market and help Californians buy the best type  of insurance suited to their needs. It would also be broader in scope than the recently enacted federal law.


By standardizing the individual insurance market, SB 890 would allow consumers to clearly compare health plans based on similarity, coverage and price. Currently, anyone who wants to purchase an individual insurance policy is presented with more than 100 options, causing confusion and making it almost impossible to make an appropriate choice.


Consumers would be given the freedom for the first time to switch to an equal or lower priced plan after one year, either within their health plan or to another health plan. Currently, consumers can only switch plans after 18 months, and only within their plan.


SB 900 would establish the California Health Insurance Exchange. A main feature of federal health reform legislation is the establishment a state level health insurance exchanges that will enable individuals to comparison shop for health coverage, facilitate their enrollment in coverage, and administer tax subsidies for low- to moderate-income people.


SB 900 would require insurers to offer five plan levels -- Platinum, Gold, Silver, Bronze and Catastrophic. This would give people a broader choice of individual plans that is more extensive than federal law, which only requires plans to offer a Silver and Gold plan.

California Strategic and Operational Plan for HIE Complete

Healthcare Transactions Weekly is happy to report that its recommendations for amendments to California's submission to the Office of the National Coordinator (ONC) for HIE funds were included in the final Strategic and Operational Plan for HIE submitted to ONC on April 6th.

The original comments and their incorporation to the HIE Plan can be viewed on the CHHS website pages 12 and 13.

Unexpected Boon for HSAs: Medicare Surtax Shields

HSAs have always shielded their owners from tax on ordinary income, investment income, and spending on medical expenses. Despite talk in early legislative sessions about extinguishing HSAs, the tax benefit of HSAs is now broader than before. While a significant portion of the Patient Protection and Affordable Care Act is funded by a 3.8% Medicare surtax, HSA holders are well equipped to avoid the additional tax.

Normally, HSA contributions are exempt from payroll taxes, like Medicare tax. In the case of high income individuals, however, the contribution limits of around $6000 cap the available tax benefit. Now, however, the tax shield is more effective because there are more taxes to protect against. High income individuals with investment income can shield a potentially unlimited amount of investment income from the Medicare tax, so long as the legal ownership of the investment is within the confines of an HSA trust account. 

The following description of how the surtax functions is excerpted from U.S. Trust Tax Alert 2010-2. 

 This surtax of 3.8% will be imposed on certain individuals, trusts and estates. The surtax will be imposed on individuals with “net investment income” to the extent that modified adjusted gross income exceeds: 

o $250,000 for taxpayers who are married filing jointly or surviving spouses; 

o $125,000 for taxpayers who are married filing separately; and 

o  $200,000 in all other cases. 

These amounts (e.g., $250,000 for a married couple) are not indexed for inflation.

Example: Assume the same facts as Example 1, and that husband and wife have net investment income of $100,000.  Their modified adjusted gross income exceeds the threshold by $300,000 (i.e., $550,000 minus the $250,000 threshold).  Accordingly, the Medicare surtax will be assessed only against the $100,000 of net investment income, resulting in $3,800 surtax.  

Patient Protection and Affordable Care Act Opportunities

Reading the healthcare reform legislation can be frustrating if you are not a government entity, nonprofit, or provider. As discussed at e-CareManagement this week, readers are likely interested in how they may participate in some of the demos and projects in HR 3590, Patient Protection and Affordable Care Act  (PPACA). The problem is that many of the ideas for implementing the innovations contained in the bill do not exist in the government/nonprofit/provider context. My suggestion for implementers of technology would be to pursue the following analysis:

Step 1: What types of entities are eligible project participants? If your entity isn't  eligible, go to step 2.

Step 2: Will the project be administered in a manner that provides opportunities for subcontractors? If so, go to step 3.

Step 3: Determine whether your organization is suited to be a subcontractor to an eligible entity.  

Here's an example using Section 4206 on "Individualized Wellness Programs". Maybe you can be on the receiving end of "appropriation of such funds as may be necessary".

Step 1 – Eligibility. The recipient of funds under Sec. 4206 must be a “community health center” funded under 42 U.S.C. 245b, which is found under “health center” at 42 U.S.C. 254b. To qualify, you must fit within one of the trendy categories of “health services” listed there, or certain exceptions. If you don’t qualify, go to Step 2.

Step 2 – Administration. The Secretary of HHS will dole out grants for 4206 directly to the “community health center”. The health center will likely have ties to state government because one of the two factors for determining criteria is comments received from state officials.  Sec. 254(b)(3)(B). Under open government protocols followed these days by most states, you will be able to find out which wellness programs your state is endorsing doing by looking at the state department of health web site.

Step 3 – Subcontracting Options. Section 4206 is a new program, so there aren’t any established entities with subcontracting processes to use as an example. But if you look at the pattern established with HITECH Act funds in California, for example, we aer just now getting through the public comment process of its operational plan for ARRA funds earmarked back in February 2009. Consulting firms have been facilitating the process and design of the solutions, and will likely continue to do so.

Here's a table showing the eligible entities and administrative processes for Sections 4206, as well as Section 3510 on Navigators and 4202 on Community-Based Wellness.

Mensa kids on Provigil can get 'er done

The topic of this blog is healthcare transactions, having much to do with the way that incentives are organized in the healthcare industry. Attorneys get trained for years to criticize deals designed by other people, and healthcare at this point is running the gauntlet. But maybe the lawyers interpreting the new regulations should do a bit of navel-gazing themselves.

One of the chief concerns among would-be health system reformers is that the fee-for-service model creates perverse incentives. E.g., doctors get paid more when they do more, and more care tends on average to be worse care. The same concern applies in the legal setting. Lawyers looking at a deal who get compensated based on billable hours have an economic incentive to spend more time. The additional time spent can be helpful, or it can raise issues that are a harmful distraction from business fundamentals.

A refreshing approach is articulated at http://www.clientrevolution.com/, where Shepherd Law Group CEO observes the following:

"While many lawyers claim they cannot offer fixed prices because they cannot figure out what a particular matter costs, lawyers do not need to know if they are making money on every particular matter. They simply need to know their law firm is keeping revenues above expenses and operating overall at a profitable level. Their focus should be on bringing in as many new matters as possible."

This approach gives up the kinds of metrics and controls that accountants would consider to be essential safeguards. "Bringing in as many new matters as possible" sounds like a recipe for a client service shortfall, but then again maybe Mensa kids on Provigil can get 'er done. Or in corporate-speak, maybe a professional services firm is unlike other kinds of businesses, because the professional has instincts for when value is being delivered and a capacity to develop relationships that are intrinsically valuable. Time will tell the fate of Shepherd Law Group and its ilk.