Restrictive covenants are commonplace in the healthcare space. Doctors and hospitals routinely enter into non-compete and non-solicitation agreements in an effort to retain talent, among other reasons. However, in May of 2022 the New Jersey Assembly proposed legislation that may serve to significantly limit the scope of restrictive covenants, both within the healthcare space and beyond

Assembly Bill A3715 seeks to limit the reach of restrictive covenants in New Jersey, finding that “Post-employment contracts and severance agreements that restrict or prohibit competition, also known as ‘restrictive covenants,’ ‘covenants not to compete,’ ‘no-poach agreements,’ or ‘non-compete agreements,’ impede the development of business in the State by driving skilled workers to other jurisdictions and by requiring businesses to solicit skilled workers from out-of-State.” The bill defines a “restrictive covenant” as an “agreement between an employer and an employee arising out of an existing or anticipated employment relationship, or an agreement between an employer and an employee with respect to severance pay, under which the employee or expected employee agrees not to engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended.”

A3715 seeks to codify New Jersey’s common-law precedent that a restrictive covenant must be narrowly tailored to the employer’s legitimate business interests, cannot be unduly burdensome on the employee, and cannot run afoul of public policy or the general public interest. Notably, the bill limits the duration of restrictive covenants to twelve months, places requirements on when an employee must be notified of the restrictive covenant, provides that an employer cannot prohibit the employee from seeking employment outside the State of New Jersey, and provides that an employer cannot prevent an employee from providing a service to the employer’s customer or client, as long as the employee does not initiate or “solicit” the customer or client, among other significant protections.

This proposed legislation stands in contrast to the current controlling case regarding a court’s interpretation and enforcement of a restrictive covenant. In 2005, the Supreme Court of New Jersey, in Community Hospital Group, Inc., v. More, M.D., upheld a hospital’s restrictive covenant contained in an employment agreement, finding that the hospital had “legitimate protectable interests” for enforcing restrictive covenants contained in such agreements.

In Community Hospital, the Supreme Court considered whether “the restrictive covenant was necessary to protect the employer’s legitimate interests in enforcement,” which is one of the requirements to enforce a restrictive covenant. The Court noted that the employer’s legitimate protectable interests included “(1) protecting confidential business information, including patient lists; (2) protecting patient and patient referral bases; and (3) protecting investment in the training of a physician.” The Court held that a two-year non-compete agreement between the hospital and Dr. More, where Dr. More could not practice neurosurgery, was reasonable.

Also of note, A3715 would empower the court “to void any agreement,” but is silent as to the court’s current ability to blue-pencil the agreement to conform it to the law. Accordingly, entities seeking to utilize restrictive covenants in their agreements may no longer be able to rely on a court modifying, rather than completely striking, an overly broad restrictive covenant. This would mark a significant divergence from current practice and place into question whether the parties would be permitted to contract to give the court such a right.

Whether Bill A3715 will be passed or not – and in what form – remains unclear, but the enforceability of non-compete agreements is likely to remain a hotly litigated issue, and selecting competent counsel when challenging or defending such agreements is critical.

The U.S. Supreme Court’s decision in Dobbs v. Jackson Women’s Health Clinic that overruled the nearly 50-year-old precedent of Roe v. Wade, which had recognized a constitutional right of a woman to terminate a pregnancy, opens the way for greater restrictions on abortions at the state level. Before the Dobbs decision was released, Texas had enacted the Texas Heartbeat Act, a law more commonly known as SB8, which requires physicians to test for a detectable fetal heartbeat in any pregnant woman seeking an abortion and prohibits physicians from performing the procedure if a fetal heartbeat is detected. SB8 does not provide for public enforcement through a criminal prosecution of physician or patient for violating these restrictions. Instead, SB8 authorizes “any person” to bring a civil action against any person who: (1) performs or induces an abortion in violation of the Act, or (2) engages in conduct that aids or abets the performance of an abortion, including paying for or reimbursing the costs of an abortion through insurance or otherwise “regardless of whether the person knew or should have known” that the abortion would be performed in violation of the Act, or (3) intends to engage in conduct prohibited by the other two provisions.

SB8 provides for injunctive relief if it would prevent the violation of the Act and statutory damages of not less than $10,000 for each abortion performed in violation, or for which there was aiding and abetting in the performance.  Costs and attorney’s fees are available to a prevailing party. The Act severely limits possible defenses to this civil action.

Venue for the civil enforcement action can be the county where all or substantially all the events took place, the county of residence for any defendant, the county that is the principal place of business for any defendant that is not a natural person, or the county of residence of the claimant if a resident of Texas.

SB8 does not explicitly address at least two important aspects. There is no requirement that the claimant be a resident of the State of Texas or have some connection or relationship to the woman undergoing the termination of pregnancy procedure.  Secondly, there is no provision requiring that the abortion or attempted or aided abortion take place in the State of Texas. There is no restriction to the borders of that state.

“Copycat” versions of the Texas civil enforcement legislation were enacted by Idaho on March 23 and by Oklahoma on May 3. In contrast to the other two statutes, the Idaho law excludes cases of rape and incest from the abortion ban.

Reaction to the groundswell of legislative action post-Dobbs to restrict abortion access on a state level has included traveling to locations where such restrictions have not been set in place.  This includes a large number of not necessarily contiguous states and other countries such as Mexico and Canada. Financial support to Texas women for the travel and lodging expenses and costs of childcare are being provided by a variety of sources in Texas, including many prominent businesses. Those supportive efforts were met by Texas legislators warning companies that they may be banned from doing business in Texas.

The attempt at extraterritorial jurisdiction presents thorny questions, some of which are of constitutional dimension. Among these is the guarantee to American citizens to travel within the country. The right of a citizen of one state to travel into or through another state has been recognized as a federally guaranteed fundamental right since 1823.  This was reinforced in cases interpreting the Fourteenth Amendment. These restrictive abortion laws invoke the legacy of the Fugitive Slave Act of 1850 pursuant to which a private citizen assisting a runaway slave seeking freedom was subject to penalties. At that time in our country’s history, a black person was not considered a citizen. Moreover, in connection with civil claims there is a threshold question regarding the due process limits on long-arm jurisdiction in this context.

These constitutional issues with a determination of the presence or need for state action, as well as the conflict-of-laws choices that will have to be made, will present challenging litigation to be undertaken in the coming years. But at present the restrictions, penalties, and bounties have an undeniable chilling effect on the exercise of a woman’s ability to make choices concerning her reproductive health and the willingness of healthcare providers to assist them because of prosecutions, civil money damages judgments, and professional licensure discipline resulting from enforcement of the laws of a state banning abortion.

That chilling effect is present not only in states which have not enacted restrictive abortion laws post-Dobbs but has also reached beyond our national borders. The July 22, 2022 issue of CMAJNews reported that the Canadian Medical Protective Association (CMPA) would not be providing legal assistance concerning criminal charges or civil actions against Canadian physicians providing abortion services to Americans, whether or not provided in Canada. The CMPA is a membership-based, not-for-profit organization providing legal representation, liability protection, and risk-management education for Canadian physicians. It is not an insurance company but rather a mutual defense organization. It was established by an Act of Parliament in 1913. The environment for abortion-related legal cases in the aftermath of Dobbs and the various state legislative restrictions is described as “uncharted territory.” The CMPA has counseled its membership to seek additional liability protection and independent legal counsel before providing abortion services.

The full ramifications of these state abortion laws and Dobbs remains to be worked out.

The July 16, 2022 issue of the well regarded journal Lancet considers a persisting issue concerning editorial peer review. Done on a double-blinded basis as to the identity of author and reviewer, it has traditionally been undertaken without compensation. Peer review of medical journal articles is important. It is intended to provide an assessment of articles submitted for publication that is unbiased, independent, and critical in determining the acceptability and validity of submitted manuscripts. It has become an essential component of the scientific process and medical publishing. Although there has been some debate in the medical profession as to whether there is evidence to support the use of editorial peer review as a mechanism to ensure the quality of biomedical research, nonetheless, peer review has continued to be regarded as the gold standard for evaluating and selecting quality publications. Moreover, the U.S. Supreme Court in its landmark decision of Daubert v. Merrill Dow Pharmaceuticals, Inc. identified one of the factors to be used in determining the reliability and admissibility of an expert opinion as whether the subject matter had been subject to peer review and publication. The New Jersey Supreme Court has taken a similar position in the more recent decision in In re Accutane Litigation.

Reviewers serve at least two functions. First, the reviewers help editors determine whether a submitted paper is suitable for publication by providing their own expert opinion on the subject matter. The second function is the opportunity to provide the authors with constructive feedback about how to improve the manuscript to make it acceptable for publication.

Not surprisingly, undertaking peer review responsibilities is time-consuming. Notwithstanding any philanthropic urge to contribute to biomedical research, difficulties in recruiting reviewers have been frequently noted. This has been the experience even with journals that provide some prestige from the affiliation. Accordingly, the notion of paying for people to participate in the peer review process has been discussed.

Lancet’s July 16 issue presents published correspondence providing differing perspectives on the question of whether peer reviewers should be paid. These perspectives were stimulated by a letter to the journal published in April 2022 advocating for such action, at least on a trial basis. The proposition advanced was that paying for reviews could increase the potential pool of reviewers, provide motivation to review, and to do so in a timely manner.

Support for this approach was presented in two responding letters. The first correspondent noted that peer review activities were usually added to routine commitments in universities, hospitals, and other professional activities. Accordingly, the reviews were commonly done in personal downtime with occasional postponements contributing to delayed publication. Paying for peer review would permit conditions to be met before payment. Editors and publishers could insist on a tight timeline to avoid delays that make the peer review process frustrating as well as requiring greater consistency, professionalism, objectivity, and comprehensiveness of the review. The authors of the other correspondence addressed exploitation of academia to do peer review as free labor, noting: “Lines on a curriculum vitae are not remuneration.”

A contrary perspective was provided by a third correspondent, asserting that using money to lure reviewers would exacerbate inherent and structural biases in the publishing systems. In addition, paying fees would likely result in increased subscription costs. The commenter also posed the question and consequences of whether the payment would be due regardless of whether a manuscript was accepted or rejected, and also presented the prospect of “new commercial peer review agencies, cronyism, or nepotism.”

The standing and prestige of a journal depends on the validity, usefulness, and quality of the articles published. Although imperfect, the peer review process contributes to achieving that goal. Finding competent peer reviewers remains a challenge.

As reported in mid-July by the Associated Press, the federal government – the FBI and Justice Department specifically – recently upended the activities of a North Korean government sponsored hacking group that has targeted U.S. hospitals.  Following a cyberattack last year, a Kansas hospital contacted the FBI after paying a ransom to cybercriminals that attacked its system with ransomware. The FBI subsequently traced the payment and was able to recover the entire ransom payment. This serves as a reminder that U.S. hospitals should promptly report to the FBI and their local Cybersecurity and Infrastructure Security Agency (CISA) office immediately (i.e. within 24 hours) any ransomware attacks or payments made in response to those attacks.

On July 20, 2022, the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) issued a Special Fraud Alert for telemedicine, telehealth, and telemarketing services. During the pandemic, the OIG has responded to the expansion of telehealth services by aggressively pursuing fraud investigations against providers. Using these as examples, the OIG Alert identifies suspect arrangements that they will target as creating a risk of fraud and abuse, including the following:

  1. The purported patients for whom the practitioner orders or prescribes items or services are identified or recruited by the telemedicine company through various sources that advertise free or low out-of-pocket cost items or services.
  2. The practitioner does not have sufficient contact with or information from the purported patient to meaningfully assess the medical necessity of the items or services ordered or prescribed.
  3. The telemedicine company compensates the practitioner based on the volume of items or services ordered or prescribed, which may be characterized to the practitioner as compensation based on the number of purported medical records reviewed.
  4. The telemedicine company only furnishes items and services to Federal health care program beneficiaries and does not accept insurance from any other payor.
  5. The telemedicine company claims to only furnish items and services to individuals who are not Federal health care program beneficiaries but may in fact bill Federal health care programs.
  6. The telemedicine company only furnishes one product or a single class of products (e.g., durable medical equipment, genetic testing, diabetic supplies, or various prescription creams), potentially restricting a practitioner’s treating options to a predetermined course of treatment.
  7. The telemedicine company does not expect practitioners to follow up with purported patients nor does it provide practitioners with the information required to follow up with purported patients.

This list is not exclusive and non-identified arrangements with similar characteristics also may be targeted. Therefore, the OIG Alert encourages careful evaluation of any telemedicine arrangement with experienced professionals to avoid risks or mitigate potential violations.

The American Medical Association (AMA) website reported on AMA President Jack Resneck Jr., M.D.’s July 19, 2022 testimony before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations on the impact of the SCOTUS Dobbs decision on physicians and patients. Dr. Resneck highlights how, in the AMA’s view, physicians are now placed in the unenviable position of attempting to meet their ethical duties to their patients, while also attempting to comply with potentially conflicting state laws. Read the AMA’s statement and details of Dr. Resneck’s testimony on the AMA website.

On the heels of last month’s decision by the U.S. Supreme Court reversing cuts by the federal government to hospitals reimbursed under the federal 340B program, this past Friday the Department of Health and Human Services (HHS) released its anticipated 2023 Hospital Outpatient Payment proposed rule. As discussed by Nick Hut of the Healthcare Financial Management Association in a recent article on the HFMA website, the overall impact of this proposed rule is unlikely to please most hospitals, as any gains in 340B reimbursement (which were left out of the proposed rule but are anticipated to be included in the final rule) may end up being offset with decreases in other general outpatient payments. We will continue to monitor related developments and will keep you apprised. The HFMA’s analysis of three key takeaways for hospitals following the release of the HHS proposed rule can be found here.

On June 10, 2022, the Appellate Division of the Superior Court of New Jersey filed an opinion in Petro v. Platkin, which has been approved for publication and thus will have precedential effect. The unanimous panel affirmed an Order entered by Judge Robert Lougy on April 1, 2020, dismissing the complaint challenging the validity of the New Jersey Medical Aid in Dying Act, often referred to by the acronym MAID, which authorizes a physician to prescribe medication to be self-administered by a patient for the purpose of ending the patient’s life. The trial court had ruled that the plaintiffs did not have standing to bring the challenge. The group of plaintiffs were composed of a terminally ill patient, a physician, and a pharmacist. Nonetheless, Judge Lougy addressed the merits of plaintiffs’ asserted unconstitutionality of the MAID on various grounds. He found them without merit.

In his opinion for the Appellate Division, Judge Natali agreed with the ruling as to lack of standing. He supported this conclusion with references to People ex rel. Becerra v. Superior Ct., and Lee v. Oregon, cases in which healthcare professionals lacked standing to challenge similar legislation in California and Oregon.

In addition, the court provided an “extensive amplification” of the lower court opinion “because of the significant issues raised related to the treatment of terminally ill patients as permitted under the Act.” The plaintiffs’ theory of the case asserted the following violations: (1) the New Jersey constitutional right to defend life; (2) equal protection; (3) the rights of health care providers under the Advance Directives Act; (4) the Free Exercise Clause of the United States Constitution; (5) the common law; (6) federal statutes regulating disposal of controlled substances; (7) the physician’s right to practice medicine (8) the duty to warn pursuant to N.J.S.A. 2A:62A-16; (9) the Administrative Procedure Act because of a total lack of agency regulation; (10) the Contracts Clause of the United States Constitution; and (11) the requirement to not falsify records.

The forty-four-page opinion reviews the legislative history and structure of the MAID and evaluates the various alleged constitutional and non-constitutional defects. It quickly but comprehensively rejected these claims. An important component of this analysis is an emphasis on the voluntary nature of participation in the MAID, whether by healthcare professional or patient.

This ruling is consistent with long-standing New Jersey law regarding an individual’s right to autonomy and privacy in the making of end-of-life decisions that can be traced back to In re Quinlan, a case later recognized by the Supreme Court of the United States as “seminal” in the development of this area of the law. The Legislature recognized that legacy in setting forth the intent and purpose of this law.

It would seem unlikely that the New Jersey Supreme Court will accept the case for further review, let alone reverse the outcome. It is uncertain how the current U.S. Supreme Court might react. The Quinlan rationale was initially based on a constitutional right of privacy although later supplemented with reliance on common law informed consent principles. In Dobbs v. Jackson Women’s Health Organization, the Supreme Court overturned Roe v. Wade. This decision potentially undermines the right of privacy, especially given comments in Justice Thomas’ concurring opinion, regardless of the disclaimers in Justice Alito’s opinion for the majority. This looming development casts assessment of the Petro case in a different light.

Following the historic U.S. Supreme Court decision in Dobbs v. Jackson Women’s Health Organization overturning Roe v. Wade and Planned Parenthood v. Casey, attorneys and legal scholars are anticipating an avalanche of legal and practical issues emanating from the fact that there is no longer a federal constitutional right to obtain an abortion. Vesting individual states with the power to regulate abortion, below are three key issues to consider:

 

  1. Childcare and Family Leave

Dobbs leaves open issues related to childcare and family leave.  Although women, including those who choose to have an abortion, continue to be afforded workplace protections such as medical leave under the Family Medical Leave Act (FMLA), the opinion does not consider the impact of unpaid maternity leave on the workforce. The FMLA only provides parents with job protection for twelve weeks without guaranteed pay during that time. Childcare is prohibitively expensive for many families and without guaranteed pay, families may experience a decline in their earnings that may ultimately result in workers leaving the workforce. Additionally, women who are balancing their physical and mental health with their economic security and caretaking obligations may feel compelled to return to the workforce prematurely. Either way, families may unexpectedly face the difficult choice between rushing back to work to support their family or not returning at all to avoid mounting childcare costs. As a general matter, however, women who choose to have an abortion can still qualify for medical leave under the FMLA, Pregnancy Discrimination Act (PDA), or Americans with Disabilities Act (ADA).

 

  1. Health Insurance Coverage

The Dobbs decision leaves the regulation of abortion services to the various states. Health insurance coverage issues springing from the decision will therefore turn not on where an abortion is performed, but on state laws governing the group or individual plan that would cover the medical expenses of the insured. Group health plans, particularly those sponsored by multi-state employers, may provide coverage under plans issued by insurers where the contract situs is another state. It continues to be true that insurance plans issued in other states may provide different levels of requirements, or none at all, regarding coverage of abortions. States with legislatures disfavoring abortion may go further in prohibiting insurance coverage for abortion care or other healthcare services the state legislatures view with disfavor.

Other group health plans may be provided through self-insured ERISA plans, under which state laws that would otherwise relate to the plan are largely preempted. While it appears that a state law prohibiting coverage of abortions may not survive a challenge on the basis that it is a state law that relates to the self-insured ERISA plan, an exception to ERISA preemption applies to “generally applicable” criminal laws. Many employers have, in the wake of the Dobbs decision, announced policies of reimbursing travel for employees and their dependents to go out-of-state for abortion services. Some states have made “aiding and abetting” an abortion a criminal act. It remains to be seen whether a state will attempt to pursue criminal charges against an employer reimbursing such travel-related costs as “aiding and abetting” an abortion, and therefore argue that the criminal law is saved from the ERISA preemption of state laws.

There are currently more questions than answers concerning the impact of the Dobbs decision on group health plans maintained by employers. Initially, it seems that the greatest challenges in this area will be faced by employers whose plans have historically covered abortions, and who wish to continue to provide this benefit for their employees who live in states that will restrict abortion access in view of Dobbs. Such employers should proceed with caution in this area and, at least, consider: (1) reviewing the provider network in their group health plan and expanding it, as necessary, to provide reimbursement for services provided by out-of-state and currently out-of-network providers of abortion services; (2) if feasible to do so, changing from an insured group health plan to a self-insured plan not subject to the restrictions imposed on a carrier to pay for abortion services performed in a state in which such services could not be covered under an insured plan.

 

  1. Bioethics

Abortion has long been a bioethics topic that is polarizing and divisive. The bioethical analysis is built upon four well-established principles: (1) respect for a patient’s autonomy; (2) nonmaleficence or the “do no harm” concept; (3) beneficence involving providing helpful care; and (4) justice. While vigorous debate of all these principles is likely to resume in light of Dobbs, principles of “justice” present a particularly compelling concern. A significant component of a “justice” analysis involves an assessment of the fair distribution of benefits and burdens. This is sometimes referred to as “health equity,” which the Centers for Disease Control and Prevention (CDC) defines as a fair and just opportunity to attain their highest level of health. The CDC has recognized that achieving “health equity” requires: (1) focused and ongoing societal efforts to address historical and contemporary injustices; (2) overcoming economic, social, and other obstacles to health and healthcare; and (3) eliminating preventable health disparities.

Without access to legal abortions, the death rate linked to pregnancy and childbirth is likely to increase. Minority groups have made significant use of abortion services and losing access to abortion in their home state is likely to have a disproportionate impact on minority groups living in those states. Low-income families could also be hard hit by eliminating access to abortion services because of the expenses involved in traveling to a state where abortion services are legal and available. Furthermore, the extra-territorial enforcement of laws implicates not only the principle of justice but also infringes the constitutional right of interstate travel first recognized in Shapiro v. Thompson, 349 U.S. 618 (1969).

Among the numerous decisions making headlines by the U.S. Supreme Court in recent weeks was a lesser noted decision impacting the Medicare reimbursement to healthcare facilities across the country. In a rare unanimous decision, the Court held that the federal government improperly lowered drug reimbursement payments to hospitals and clinics that serve low-income communities.

Under the Medicare statute, the U.S. Department of Health and Human Services (HHS) must reimburse hospitals for certain outpatient prescription drugs that the hospitals provide to Medicare patients. The total reimbursement to hospitals for these prescription drugs amounts to tens of billions of dollars every year. Under the law, HHS may set the reimbursement rate one of two ways: (1) if HHS has conducted a survey of hospitals’ acquisition costs for prescription drugs, then reimbursement may be set at the average of the hospitals’ acquisition costs, or (2) if HHS has not conducted a survey, then it may set reimbursement rates at the average sales price charged by manufacturers for the drugs (with certain adjustments). In any event, HHS may not vary the reimbursement rates for different groups of hospitals. However, in 2018 and 2019, despite not having conducted a survey, HHS substantially reduced the reimbursement rates for Section 340B hospitals, placing at issue about $1.6 billion annually. In its opinion, the Court addressed whether HHS had sufficient discretion to vary the reimbursement despite having not conducted a survey.

The government argued that 340B hospitals, because of their special status serving low-income communities, are able to buy drugs at a deep discount. Thus, HHS believed that by reimbursing 340B hospitals the same as all other hospitals, it created an incentive for the 340B hospitals to overprescribe the drugs or prescribe more expensive drugs. HHS also argued that by lowering the reimbursement it would save Medicare beneficiaries on their co-payments since they are linked to reimbursement rates. However, the Court was not persuaded by these or the other arguments raised by the government. Instead, the Court held that the government failed to abide by the express requirements of the Medicare statute. It therefore remanded the case back for further proceedings consistent with its opinion.

The decision serves as a significant win for providers of low-income care and is likely to result in significant additional reimbursement for these harmed facilities. Additionally, the Court’s decision should serve as a stern message to HHS that it must act consistent with the Medicare statute if it wishes to cut reimbursement rates, and cannot simply act based on its own perceived good intentions. Providers participating in the 340B drug pricing program should assess their individual reimbursement shortfall, if any, as the outcome of this litigation may result in an opportunity to seek additional reimbursement.