News and Insights
Visit regularly for up-to-date information on relevant news, firm announcements and additions to our AZ Health Law Blog.
Written by James R. Taylor and Andres A. Sanchez
On Friday, April 24, 2020, the United States Department of Health & Human Services (“HHS”) announced the start of the remaining distributions from the $50 Billion General Distribution portion of the Provider Relief Fund. HHS distributed the initial $30 Billion on April 10th and 17th to eligible Medicare providers. Unlike the initial distributions that were sent directly to eligible providers, the remaining $20 Billion will be distributed through an application process, with the goal of a final allocation of all General Distribution funds proportionate to a provider’s share of 2018 net patient revenue.
Although some providers that are subject to cost reporting may automatically receive a second distribution from HHS, most providers will need to apply for the additional funding through the General Distribution Portal, accessible at: https://covid19.linkhealth.com/docusign/#/step/1. The application requires the provider to disclose the following financial information:
- “Gross Receipt or Sales” or “Program Service Revenue” as submitted on the federal income tax return;
- Estimated revenue losses in March 2020 and April 2020 due to COVID-19;
- A copy of the provider’s most recently filed federal income tax return;
- A listing of the TINs any of the provider’s subsidiary organizations that have received relief funds but which do not file separate tax returns.
Similar to the first distribution, recipients of a second distribution are required to agree to a set of Terms and Conditions. While largely similar to the initial Terms and Conditions, the second batch contains the following additional requirements:
- Recipient shall submit general revenue data for calendar year 2018; and
- Recipient consents to HHS publicly disclosing the Recipient’s Relief Fund Payments. Additionally, the “Recipient acknowledges that such disclosure may allow some third parties to estimate the Recipient’s gross receipts or sales, program service revenue, or other equivalent information.”
In its announcement, accessible at https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/index.html, HHS issued the following notice to providers:
“The Terms and Conditions also include other measures to help prevent fraud and misuse of the funds. All recipients will be required to submit documents sufficient to ensure that these funds were used for healthcare-related expenses or lost revenue attributable to coronavirus. There will be significant anti-fraud and auditing work done by HHS, including the work of the Office of the Inspector General.”
We are pleased to announce today that Chambers USA ranked Milligan Lawless, P.C. and 3 of our attorneys among the best in Arizona for 2020. Among Arizona law firms, Milligan Lawless achieved a Band 1 ranking, Chambers USA’s highest recognition, in the Healthcare practice area.
The firm received the following “Leading Individual” rankings for Phoenix attorneys:
- Bryan S. Bailey – Healthcare, Band 2
- Steven T. Lawrence – Corporate/M&A, Band 3
- Robert J. Milligan – Healthcare, Band 1
Chambers USA is an annual ranking that assesses each law firm and attorney on technical legal ability, professional conduct, client service, commercial awareness/astuteness, diligence, commitment and other qualities most valued by their clients. Additionally, independent interviews with clients and confidential submissions of law firms are part of the Chambers research and evaluation process.
On April 22, 2020, Governor Ducey issued Executive Order 2020-32 removing current restrictions on conducting elective surgeries, starting on May 1, 2020. Hospitals, healthcare facilities and providers (including dental surgery providers) may apply for an exemption to resume elective surgeries from the Arizona Department of Health Service (“ADHS”) if they demonstrate they have:
- A continuing supply of PPE that will support the hospital, healthcare facility or provider for more than 14 days and that is not reliant on the state or a county health department; and
- Adequate staffing and bed availability with no greater than 80% of total bed capacity occupied, if it is a hospital; and
- Implementation of a robust COVID-19 testing plan to test all at-risk healthcare workers and each patient prior to the scheduling of an elective, non-essential surgery or during the pre-operative time period; and
- Implementation of a process to identify, inventory and document the availability of PPE, test collection kits, and the availability of a lab that can run the COVID-19 diagnostic test; and
- Implementation of a universal symptom screening process for all staff, patients, and visitors prior to entry into the facility; and
- Implementation of an enhanced cleaning process for patient and waiting areas; and
- Implementation of policies and procedures for appropriate discharge planning of patients, including pre-discharge diagnostic COVID-19 testing for patients transferring to a nursing care institution, residential care institution setting, or Group Home for the Developmentally Disabled; and
- Implementation of policies and procedures that prioritize elective, non-essential surgeries based upon urgency following the Centers for Medicaid and Medicare Services (CMS) Adult Elective Surgery and Procedures Recommendations.
ADHS will be implementing a process to request an exemption. Exempt hospitals, facilities and providers are not eligible to request or receive PPE distributed by ADHS or county health departments. The Governor’s Executive Order is available: here.
Written By: Steve Lawrence & Miranda Preston
In response to the COVID-19 pandemic, federal, state and local governments and health authorities have issued declarations of emergency, proclamations and orders intended to slow the spread of the virus. Many of these actions have resulted in businesses cancelling or postponing events and closing or limiting business operations indefinitely. Major events throughout the World have been cancelled or postponed, including the 2020 Summer Olympics, nearly all professional and amateur sporting events in the United States, the Coachella and South by Southwest music festivals, and many others. As a result, many businesses will be forced to analyze whether they can perform under contracts they signed before the COVID-19 outbreak.
When unforeseen circumstances arise after a contract is signed, there are certain legal doctrines that may excuse non-performance or delay in performance of a party’s contractual obligations. These doctrines include the application of contractual force majeure clauses and the related doctrines of impracticability of performance and frustration of purpose. This article addresses the application of these concepts where a party’s performance is impacted by the COVID-19 pandemic.
What is Force Majeure? If the parties included a force majeure clause in the contract, certain circumstances may excuse performance under the contract. Merriam-Webster defines “force majeure” as: “(1) superior or irresistible force; and (2) an event or effect that cannot be reasonably anticipated or controlled.” In a contract setting, “force majeure” generally refers to a clause that excuses or delays a party’s performance due to unforeseen events outside the control of the parties. Force majeure provisions are generally found in the boilerplate section of a contract and, prior to the pandemic, were rarely the subject of negotiation among the parties. Given the sudden halt to the global economy caused by COVID-19, there has been a recent surge of interest in force majeure provisions.
The types of events that may constitute a force majeure event vary significantly from contract to contract. Some of the more commonly encountered clauses define force majeure events to include natural disasters (such as floods, earthquakes and hurricanes), war, terrorist acts or government action (such as eminent domain or change in laws). “Acts of God,” are also frequently included as force majeure events, or even a catch-all provision such as “events beyond the reasonable control” of the parties. The words “epidemic” or “pandemic” are rarely included as force majeure events.
To Prevail in a Force Majeure Claim. To claim that an event of force majeure exists, there must be: (1) a force majeure provision in the contract; and (2) the force majeure event (here, the circumstances of COVID-19) must be a cause of the party’s inability to perform. The ability to delay or excuse performance will depend on the specific terms of the force majeure clause as applied to the facts surrounding the contractual arrangement. Courts generally do not liberally enforce force majeure clauses. However, the unprecedented circumstances of COVID-19 appear to be ripe for parties to debate whether contract performance should be excused.
Type of Force Majeure Clause: Broad or Specific. The ability to succeed in a force majeure claim may depend on whether the force majeure language in the contract is broad or a specific. Broad force majeure provisions contain general language excusing performance for events that are “beyond the reasonable control of the parties,” and do not specifically reference “pandemics” or an “epidemic.” Under a broad force majeure clause, whether COVID-19 is a “force majeure event” will depend on an interpretation of the provision itself. Courts will be forced to analyze whether the circumstances of COVID-19 constitute an “Act of God” or an “event beyond the reasonable control of the parties.” Interestingly, the COVID-19 pandemic includes both a worldwide virus and governmental action in response. Specific force majeure provisions include a specific list of events, the occurrence of which would excuse or delay party’s performance. To potentially excuse performance as a result of COVID-19, the clause must specifically include “pandemic” or “epidemic” as a force majeure event. If pandemics or epidemics are listed as force majeure events, and if the party can demonstrate the COVID-19 pandemic caused their inability to perform, a specific form of force majeure clause is more likely to excuse the party’s performance than a broad, general clause.
Force Majeure Alternatives. Even if a contract does not contain a force majeure provision, a party’s performance may be excused by the events of the COVID-19 pandemic under the related doctrines of impracticability of performance, frustration of purpose or impossibility. The doctrine of impracticability of performanceapplies when certain events occurring after a contract is made constitute an impediment to performanceby either party. The frustration of purpose doctrine deals with the problem that arises when a change in circumstances makes one party’s performancevirtually worthless to the other. In that case, performance remains possible, but the expected value of performance to the party seeking to be excused has been destroyed by a fortuitous event. The doctrine of impossibility of performance applies when performance of the agreement is strictly impossible. Arizona is among the jurisdictions recognizing a more modern definition of impossibility that includes cases of physical impossibility, as well as cases of extreme impracticability. Courts analyzing these theories often assess whether the event causing the non-performance was something that could have been anticipated. Without a force majeure provision in a contract, though, courts may be called upon to apply these doctrines.
Arizona Law. There are relatively few Arizona cases that interpret either a broad form or specific form of force majeure provision. The Federal District Court was called upon to interpret a force majeure provision and apply Arizona law in B.F. Goodrich Co. v. Vinyltech Corp., 711 F. Supp. 1513 (D. Ariz. 1989). Vinyltech entered into an agreement with B.F. Goodrich for the purchase of resin that Vinyltech used to manufacture of PVC pipe. Subsequently, Vinyltech had an opportunity to buy the resin at a lower price and sought to cancel its prior orders with Goodrich, and be excused from performance the contract. Vinyltech claimed that the change in market conditions (i.e., the price for the resin) was beyond its control and economically precluded it from continuing to purchase resin from B.F. Goodrich. The contract contained a force majeure clause that included a list of specific force majeure events, as well as a catch-all force majeure event allowing the parties to be excused from performance and relieved from liability under the contract for “any other cause or causes of any kind or character reasonably beyond the control of the party failing to perform . . . .”
Having not found any Arizona case law directly interpreting a force majeure provision, the Court examined the doctrine of impracticability, which does not typically affect discharge as a result of mere market shifts or financial inability. As a result, the court concluded that, “Arizona courts would likely find that the force majeure provision does not contemplate or incorporate market shifts or financial inability.”
Interestingly, Vinyltech also argued that the doctrine of frustration of purpose ought to apply to this situation. Under Arizona law, however, commercial frustration has not been treated as a blanket remedy for parties looking to discharge a contractual obligation on the basis of changes in price or market conditions, stating “Vinyltech cannot now contend for purposes of its commercial frustration argument that a change in prices or market conditions was not a reasonably foreseeable event.” The Court granted summary judgment in favor of B.F. Goodrich.
The lesson of the B.F. Goodrich case is that mere change in economics or the market are not likely to be found within a broad form of force majeure provision under Arizona law. The question remains, however, what if there is a change in the market or the price of goods in a contract that is directly caused by the circumstances of COVID-19? Courts will be facing this question in the aftermath of the COVID-19 pandemic.
Practical Tips. Given the current circumstances, either side of any contract may have difficulty performing to the terms of the agreement. We recommend the following as an action list to consider as you plan your next steps.
- Review your Current Contracts Closely. Does your contract have a force majeure provision? Is the language broad, or does it specifically refer to an epidemic or pandemic? Does the force majeure clause excuse performance all together, or simply suspend the contract until the force majeure event is over?
- Procedural Issues. If you intend to claim that there are force majeure provisions in your agreement that allow you to be excused from performance, are there any applicable notice provisions? Are there any other procedural measures to consider? Does the force majeure provision only carve out the time when the event of force majeure applies or does it allow for termination of the agreement all together?
- If Your Contract Does Not Have a Force Majeure Provision. If your agreement does not include a force majeure clause (or if it does, but the clause would not apply to excuse a party’s performance as a result of the effects of the COVID-19 pandemic), examine alternate theories of excuse or delay of performance under the doctrines of frustration of purpose, impossibility, and/or impracticability.
- Considerations for New Contracts. Consider whether to include a broad or specific form of force majeure clause in any new contract. Given the likelihood of continuing or repeat circumstances like the COVID-19 pandemic, consider whether a right of termination would be appropriate if a force majeure event exists, or merely suspension of performance.
If you have any questions regarding your contractual obligations, the business transactions team at Milligan Lawless is here to assist. Please contact Steve Lawrence at 602-792-3635 or firstname.lastname@example.org, or Miranda Preston at 602-792-3511 or email@example.com.
 Restatement (Second) of Contracts § 265 cmt. a (1979).
 7200 Scottsdale Rd. Gen. Partners v. Kuhn Farm Mach.,184 Ariz. 341, 345 (Ariz. App. 1995).
 See A.R.S. § 33-801(6) (providing a definition of “force majeure” for purposes of Arizona law regarding mortgages).
On April 10, 2020, the United States Department of Health & Human Services (“HHS”) commenced “Provider Relief Fund” distributions to Medicare providers (“Recipients”). The initial distributions totaled $30 Billion out of a total $100 Billion appropriated by the CARES Act for a Public Health and Social Services Emergency Fund. The initial grant distributions went to each Recipient based on the Recipient’s share of the total Medicare fee-for-service reimbursements (excluding Medicare Advantage payments) in 2019.
Distributions are being direct deposited to eligible Recipients via Optum Bank. Within 30 days of receiving a payment, a Recipient is required to sign an attestation confirming that they have received the funds and agreeing to the Relief Fund Payment Terms and Conditions. The full text of the Term and Conditions is located here.
The Terms and Conditions impose the following requirements and restrictions:
- The grant funds can only be used for the prevention, preparation and response to the coronavirus. A Recipient can only be reimbursed for healthcare related expenses or lost revenues attributable to the coronavirus.
- The Recipient cannot use the grant funds to reimburse expenses or losses that are reimbursed from other sources, or that other sources are obliged to reimburse.
- The Recipient is required to submit reports to ensure compliance with all Terms and Conditions. The form and requirements of the reports will be specified at a future time by the HHS Secretary.
- Any Recipient that receives more than $150,000 total in funds from any act primarily making appropriations for the coronavirus response will also be required to submit a report to the HHS Secretary and the Pandemic Response Accountability Committee detailing, among other things, the total amount of funds received; a list of all projects or activities for which funds were expended, including the name, description, and the estimated number of jobs created or retained; as well as information on all sub-contracts or subgrants awarded by the recipient, its subcontractors or subgrantees.
- All Recipients are required to keep records and cost documentations for the award, to be submitted at the request of the HHS Secretary, and to cooperate in all audits to ensure compliance with the Terms and Conditions.
- A Recipient agrees that for all care for a possible or actual case of COVID-19, they will not seek to collect from patient’s out-of-pocket expenses greater than what the patient would have been required to pay if the care had been provided by an in-network recipient.
- Additional restrictions include a ban on the use of funds for executive pay at a rate in excess of Executive Level II of the Federal Executive Pay Scale, funding gun control advocacy, lobbying, abortions, embryo research, promotion of the legalization of controlled substances, etc.
HHS has announced the remaining $70 Billion will be used for targeted distributions focusing on “providers in areas particularly impacted by the COVID-19 outbreak, rural providers, providers of services with lower shares of Medical reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans.”