1. A Newsletter from Shumaker, Loop & Kendrick, LLP Fall 2010
4 Tax Breaks for 6 Dodd-Frank Act 11 E-Discovery 14 Workout of 17 Recent
Small Businesses Update Commercial Developments in
22 SLK News
Loans Health Care Reform
The Risks and Rewards when
Implementing Electronic Medical The 15 core criteria for physicians
Records Systems 1. Use computerized physician order entry
2. Implement drug and allergy interaction
checks
There’s No Such Thing As Free Money
3. Generate and transmit permissible
n 2009, President Obama signed the American Recovery
prescriptions electronically
and Reinvestment Act (“ARRA”) designed to stimulate 4. Record demographics
the American economy. Part of this bill is the Health
5. Maintain an up-to-date problem
Information Technology for Economic and Clinical
list of current and active diagnoses
Health Act, or the HITECH Act. The HITECH Act is
in part designed to stimulate the healthcare industry 6. Maintain an active medication list
into switching from a paper-based medical records
By Erin Smith Aebel 7. Maintain an active medication allergy list
system to an electronic medical records (“EMR”)
system. $17.2 billion in Medicare and Medicaid 8. Record and chart changes in vital signs
incentives have been allocated to eligible providers 9. Record smoking status for patients
who are “meaningful users” of EMR technology. For thirteen years old or older
example, starting in 2011, physicians, hospitals and healthcare
providers who are “meaningful users” of certified EMR 10. Implement one clinical decision
technology will receive up to $44,000, which will be paid out support rule
over a five-year period in the form of medical incentive 11. Report ambulatory clinical quality
payments. The maximum payment in the first year is $18,000 measures
(2011 and 2012) and bonus payments decline each subsequent
year, to be phased out in 2016. 12. Upon request, provide patients with an
By Douglas Cherry electronic copy of their health information
On July 13, 2010, the Department of Health and Human Services
(“HHS”) published its final rules on “meaningful use” and 13. Provide clinical summaries for patients for
EMR standards. During the first year (Stage I) of adoption,
each office visit
physicians must comply with fifteen, and hospitals fourteen, 14. Capability to exchange key clinical
core objectives. Eligible providers must use certified EMR information electronically
software, which must include the ability to send compliant
15. Protect electronic health information
electronic prescriptions to pharmacies. Providers must be able
through the implementation of appropriate
to electronically exchange health information with labs, hospitals, techniques
providers and payees. Providers must also be able to submit
clinical quality measures. Physicians must also choose five from Physicians must also choose five from a list
a list of ten additional criteria to implement in 2011-2012. of ten additional criteria to implement in
2011-2012.
continued on next page >
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2. Electronic Medical Record Systems, continued
In January 2011, clinicians may begin the Providers must be able to electronically
ninety day process of using a certified exchange health information with labs,
record per meaningful use requirements. hospitals, providers and payees.
Attestation begins in April 2011 and CMS
payments in May 2011. If a healthcare
provider is considering applying for these
stimulus funds, there are other legal and
practical considerations that go beyond
complying with the “meaningful use”
regulations.
Implementation of EMR Systems and
the Unique Nature of Software Projects
The implementation of EMR systems
frequently involves complex software and
project management considerations.
Software projects often go over budget
and fail to meet deadlines, sometimes by
several hundred percent. Resulting or implemented by the same vendor for Certain steps, or disciplines, in software
damages could easily run into the millions similar healthcare providers a great many system creation are designed to prevent
of dollars. times before, chances are low that the errors, inconsistencies, and the need for
Healthcare organizations and physicians project will spin out of control in both later changes. These include a thorough
typically consider "off the shelf" software time and expense. As the amount of initial analysis of the client's needs,
or SaaS (Software as a Service) models to customization or the size of the system rigorous workflow and software design,
handle separate business functions. Often, increases, the risk escalates. effective training, strict standards,
its physicians and administrators want enforced methodology, and multiple
Software system construction is unique
to integrate, control, and track all levels of testing. When any of these are
because software is intangible and
functions -- from scheduling to billing to neglected to focus on system
problems can be elusive. For example, if
patient follow-up -- using one software "production," the resulting EMR system
the first floor of a proposed office building
system. This is typically accomplished by may be riddled with errors.
is too small to support larger upper stories,
selecting a core product, adding some the flaw is obvious and can be addressed Trying to implement these disciplines
specialized programs, and creating quickly. But flaws in the early design of later in the project may actually create
enough custom software to make the parts software are often not necessarily evident more errors and inconsistencies, and the
operate together. When a core product and may not be fixed until it is too late. project may deteriorate into chaos as the
cannot be found, it must be custom- Any deviation from rules and procedures "to do" list grows along with the budget
designed or several products must be for good software selection, design, and project staff. The project enters into
integrated. It is the authors’ configuration, and testing can harm the a spiral of endless complications and goes
understanding that there is currently no project substantially. Mistakes made early out of control. For example: data entered
“one-stop” solution that addresses all in the project tend to do more damage into the system cannot be retrieved, data
facets of the healthcare process or of the than those made later. Projects that move is retrievable but corrupt, patient
core criteria listed above. rapidly (and cheaply) through early phases payments/information are lost, or billing
As a general rule, the more customized may be most at risk. What appears to be is inaccurate. At that point, the healthcare
the software or the more integration early success may actually be a sign of provider suffers losses not only from
required, the greater the risk that creating poor project management. having a poor system, but also from
the new EMR system will be problematic. resulting damage to its business and
If a system has been successfully created reputation.
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3. It is important to consult legal counsel • A good contract, which clarifies • If multiple vendors are used, then an
early in the process to discuss and expectations in the software implemen- overall project plan or project charter
strategize important safeguards and tation process, is key. It will clearly define should be documented and agreed upon
preventive measures to avoid the traps all parties’ responsibilities and contain a by all. The plan will articulate scope and
associated with the implementation of clear and measurable list of project approach, and clearly define measures of
these types of projects. The attorney deliverables (tangible outcomes) and success in order to manage expectations
should have a thorough understanding milestones. It will also detail the function for the overall project.
of the software process, familiarity with and performance of deliverables, rather • It is not realistic to agree to a deliverable
applicable law (including the Uniform than using vague and immeasurable timeline without the vendor first
Commercial Code) and litigation technological terms. If deliverables or understanding the project requirements.
experience in software performance milestones are not met, the penalties
• Always allow for timeline flexibility.
disputes. This involves the ability to should be explicitly laid out in the
Most software projects go over time.
identify the reasons a software project agreement. Payment should not be
can fail, which include bad project upfront, but should be staggered • Understand that changes in require-
management techniques, inadequate throughout the project life-cycle based ments are inevitable. “Scope creep” (the
gathering of requirements, poor project on client approval of deliverables. Be change in a project's scope after the project
implementation, and a lack of testing wary of one-page flat-fee proposals work has started) should be managed
plans or technical expertise. before requirements are gathered, or a with change orders and careful processes.
contract that does not account for change • Involve all members of the healthcare
Preventative Measures to Avoid
orders or acceptance procedures. team in the process.
Common Pitfalls
• “I paid for it, so I own it” is a common • Enter the implementation process with
To avoid these issues and problems, misconception in the realm of software a mindset that the EMR system should
project planning should be carefully copyright (and intellectual property in not just “computerize” current business
strategized: general). Ownership of intellectual processes, workflows and procedures, but
• The organization should assign or property, by default, will lie with the should improve them. The flow of
engage a project manager (PM) with a third party vendor, unless specific information in most hospitals and doctors’
clear understanding and broad language to the contrary is included in offices is not as efficient as it could be.
knowledge of EMR applications. This PM the agreement. Do not spend hundreds Before the implementation occurs,
should work closely with the vendor PM. of thousands of dollars on a software workflows should be carefully analyzed
Both PMs should have experience with system to later discover that you only for deficiencies and improvements.
multi-department and multi-vendor have a non-exclusive license to use the Everyone from the administrators to the
implementations. If the PM skill is not software with no right to modify the staff should be open to changes, as the
available in-house, the organization system without the vendor’s approval new EMR system will surely impact nearly
should consider engaging a third-party (which may be contingent on further every business process. No software can
consultant PM to plan and manage the payment). match all of your current methods exactly.
effort. If a PM is only temporarily • Often counsel is consulted late in Taking the foregoing steps, which include
engaged, then he or she should mentor contract negotiations as an effort to get a well-defined project plan and detailed
an internal resource so that the knowledge a “legal signoff” of the contract. The agreement, are important to make sure
is retained, as post implementation approach is problematic as any that your EMR project is on time and on
struggles are common. recommended changes to a contract late budget.
• Careful vendor selection, using a in the negotiations can raise red flags or
planned request for proposal process, is slow the process. Counsel should be For additional information, contact Erin Smith
critical. There are many resources involved as early as pre-contract Aebel at eaebel@slk-law.com or Doug Cherry
available regarding vendors, such as activities, such as vendor or third-party at dcherry@slk-law.com.
feedback from prior implementations. consultant selection.
3

4. New Legislation Provides Tax Breaks for
Small Businesses
n September 27, 2010 of qualifying depreciable business shareholder level may want to delay
President Obama property to include certain leasehold doing so until 2011. Normally, a C
signed into law the improvements, restaurant property and corporation that converts to an S
Small Business Jobs Act retail improvement property. corporation is subject to a special “built-
of 2010 (the “Act”), in gains” tax on any asset that has a value
The Act also extends additional first year
which contains a in excess of its adjusted tax cost basis at
depreciation for 50% of the cost of certain
number of tax breaks the time of conversion if the corporation
property, most notably computer
and incentives for small sells the asset during the ten year period
software, leasehold improvements and
businesses designed following conversion. For conversions
MACRS property with an applicable
to spur job growth. during 2009 and 2010, the built-in gains
recovery period of 20 years or less. The
tax period was shortened from ten years
The Act seeks to encourage business special first year depreciation deduction
to seven years. For conversions occurring
investment by increasing and expanding expired at the end of 2009, but the Act
in 2011, however, the period is shortened
the election to fully deduct the cost of extends the same to property acquired
to five years.
certain depreciable business assets placed and placed in service in 2010.
in service in 2010 and 2011 under IRC Other noteworthy provisions of the Act
In addition, the Act assists small business
Section 179. Under prior law, a business allow for exclusion from taxable income
owners by allowing persons subject to
could elect to fully deduct the cost of of 100% of the gain on the sale of certain
self-employment tax to deduct the cost
certain depreciable assets placed in service small business stock, as defined under
of health insurance for themselves and
in 2010 up to a IRC Section 1202; the removal of cell
their dependents for purposes of
maximum of phones from the definition of “listed
determining net earnings from self-
$250,000. The property” under IRC Section 280F and
employment. Previously, the cost of health
deduction was an increase in deductible start-up
insurance was only deductible for
reduced dollar for expenditures incurred in 2010 and
purposes of computing adjusted gross
dollar to the extent thereafter from $5,000 to $10,000.
income, not for purposes of computing
the total amount of
self-employment income subject to self- Of course, in this era of fiscal restraint,
qualifying property
employment tax. every tax break is accompanied by one
placed in service
or more provisions to offset the loss in
By Tom Cotter exceeded $800,000 Small business owners also benefit from
revenue. The most significant revenue
during 2010. In the provisions of the Act that provide (1)
raiser in the Act is yet another increase
2011 the maximum the general business credit for certain
in the reporting requirements for business.
amount that could types of expenditures under IRC Section
Generally speaking, any trade or business
be deducted under IRC Section 179 was 38 will not be subject to alternative
that pays more than $600 in the aggregate
scheduled to decrease to $25,000, with minimum tax for the 2010 tax year and
to one payee in the course of its trade or
the dollar for dollar phase out beginning (2) the carry-back period for general
business during the tax year must file an
at $200,000. business credits determined in the 2010
information return with the IRS
tax year is increased from one to five
The Act increases the maximum amount identifying the payee and the total
years.
deductible under IRC Section 179 to amount paid. Usually this is
$500,000 in 2010 and 2011, and increases Those considering converting a so-called accomplished on an appropriate Form
the phase out threshold to $2 million. In “C corporation” that is subject to tax at 1099. Earlier this year, an important
addition, the Act expands the definition the corporate level to a flow-through “S exception to this filing requirement was
corporation” that is taxed only at the eliminated by the health care reform
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5. legislation, which made the reporting
requirement applicable to payments made
to corporations. This will substantially • That there are millions of private businesses in the United
increase the paperwork burden imposed States.
on businesses, and has generated
considerable controversy. • A large number of these are owned by individuals who
expect to retire or dispose of their business management
The Act further expands the reporting responsibilities in 10 years or less; and
requirements for payments exceeding
$600 in the aggregate during the tax year
• Most of these individuals have no clearly defined business
by extending it to those engaged in rental
succession plan or exit strategy.
real estate activity. The new reporting A business owner may have several options for business succession
requirement is applicable to payments planning. One of these is sale of the business to some or all of the
made in 2011 and thereafter. Theoretically, business’s employees.
the reporting requirement will improve From the Owner’s perspective, a sale to employees may be beneficial
enforcement and compliance with the tax because:
laws and raise the additional revenue
needed to offset the tax breaks afforded • Employees are the best market for the business. They are
small businesses by the Act. likely to be motivated purchasers;
For additional information, contact • There is an opportunity for continuation of corporate culture
Tom Cotter at tcotter@slk-law.com. and business values – continuity of operation; sale to employees
keeps the business rooted in the community; and
• Management transition can be thoughtfully conducted over
a period coinciding with a gradual or installment sale.
Two forms of business succession by sale to employees are favored in public
policy and under federal income tax law the employee stock ownership plan
(ESOP) and the employee cooperative.
ESOP’s are fairly well known. They are subject to precise regulation and
require legal counsel with particular training, skills and experience in the
applicable corporate and tax issues.
Employee cooperatives are less well known and understood as a vehicle for
business succession, but they should always be on the “choice of entity”
list for a business owner who is looking for an exit strategy. Employee
cooperatives are less expensive to implement and maintain than ESOP’s,
and they are more flexible in design and operation. They are not regulated
as are ESOP’s, but they, too, require legal counsel with particular skills and
experience in the corporate and tax matters that are unique to cooperatives.
Shumaker attorneys can provide creative and well-informed counsel in the
design and implementation of ESOP’s and employee cooperatives.
5

6. Brief Overview of the Dodd-Frank Act:
Updating Financial Regulation
n July 21st of this year,
President Obama
signed into law the
Dodd-Frank Wall
The Act grants to the FDIC authority to
Street Reform and liquidate failing bank holding companies
Consumer Protection and related affiliates of banks.
Act (the “Act”). As
most commentators
have noted, the Act
constitutes the most
significant change to
the regulation of financial institutions
since the 1930s. This Act mandates
significant studies and the promulgation
of regulations, by some measures up to
240, necessary to implement the
legislation. Significant discretion has been
shown to the banking regulators and the
Securities and charter financial institutions as well. The
Exchange one casualty among the banking
1. Banks and Other Financial
Commission, regulators is the Office of Thrift
among others, to
Institutions Supervision (“OTS”), the regulators of
fully implement the “thrifts.” It will be eliminated with its
legislation, and it The Act generally maintains the existing principal duties transferred to the OCC
will be years before structure for banking regulation, unlike for federally chartered thrifts, the FDIC
we fully under- some of the original proposals that for state chartered thrifts and the Federal
stand its impact. discussed extracting retribution from the Reserve for holding companies of these
Federal Reserve and other regulators for institutions. While existing thrifts will be
By Tom Blank
Due to the length having “failed” to properly monitor and grandfathered and allowed to continue
(over 2,300 pages) address the problems that existed in to exist, commentators speculate that due
and complexity of financial institution oversight. The Federal to the increased penalties for violation of
the Act, this article Reserve will continue to regulate bank the qualified thrift lender test and other
will merely highlight a number of the holding and financial holding companies, tighter restrictions, many of these
more important provisions and will be as well as state “member banks,” the institutions will convert to national banks.
divided into sections referencing changes FDIC will continue to insure the deposits In addition, many commentators have
impacting banks and bank holding of financial institutions and regulate and suggested that the other regulators will
companies, securities reform, and oversee “non-member” state chartered penalize former OTS-chartered
corporate governance and compensation banks and the OCC will continue to be institutions due to the perceived “lax”
reforms impacting public companies. responsible for the examination and regulation previously imposed upon them
oversight of national banks. State banking by the OTS.
regulators still will have the authority to
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7. The Act also creates the Financial created as a truly independent entity, but Interestingly, the Act, notwithstanding its
Stability Oversight Council which was in the end, the Bureau was housed under breadth, did not deal with the resolution
established to protect the United States the Federal Reserve. Because of the fact of Fannie Mae or Freddie Mac. Many
financial system from systemic risks. that significant consumer protection have deemed this to be the greatest failing
The Council will consist of 15 members legislation already exists and is enforced of the Act noting that the projected
representing banking, securities and by various bank regulatory entities, there exposure for these entities now owned
insurance regulators with the Secretary was some question whether the new by the government ranges as high as $500
of the Treasury serving as Chairperson. entity, with its proposed initial $850 billion. Apparently, attempting to reign
The principal goal of the Council is to million budget, was necessary. There is in these entities was not something that
provide oversight for the entire financial some concern that the creation of the was politically possible in the effort to
system of the United States. In addition Bureau will burden consumer lenders have the legislation passed this year.
to the Council, the Act grants to the and further contract the lending in this
Finally, the Act permanently increased to
FDIC authority to liquidate failing bank sector resulting in some parties leaving
$250,000 per account the deposit
holding companies and related affiliates this service entirely.
insurance provided through the deposit
of banks with significant procedural
The Federal Office of Insurance (“FOI”) insurance fund. Interestingly, the increase
limitations.These two provisions were
was created as a new entity housed was made retroactive to January 1, 2008,
included in the Act in an effort to avoid
within the Treasury Department to which will mean that depositors who lost
the type of situation created by American
review insurance matters other than money in institutions resolved prior to
International Group (“AIG”), which had
health, long-term care and crop the implementation of this increase by
many different component parts and
insurance. Initially, this Office of the FDIC in October 2008 (such as
many different regulators, with no one
Insurance is intended to engage in IndyMac) will be protected.
seemingly in charge of the entire
information gathering and monitoring
organization.
the insurance industry in the country as 2. Securities Reform
One of the more meaningful actions a whole. The Office is required to deliver
taken in the Act is the creation of the a report to Congress within 18 months. One of the provisions in the Act that
Bureau of Consumer Financial Many had pushed for the creation of a probably has received greatest press is
Protection, an autonomous agency federal oversight of insurance, which is the so-called “Volker Rule” named after
within the Federal Reserve. This Bureau currently regulated at the state level. It Paul Volker, former Chairman of the
has been established to consolidate is unclear whether the creation of the Federal Reserve. The intent of this Rule
examinations for consumer compliance FOI is a precursor to the federal is to limit the ability of banks and financial
for banks with $10 billion or more in regulation of insurance intending to institutions to participate in proprietary
total assets and certain other entities preempt state authority. trading. While this is likely to impact only
including mortgage brokers. The rules the most significant financial institutions
The Act also reforms mortgage
created by this Bureau will apply in the country, it will have a meaningful
underwriting and provides certain anti-
generally to all banks, regardless of size, impact upon those entities. Banks will be
predatory lending restrictions. The intent
with enforcement for smaller banks left allowed to invest only up to 3% of their
of this portion of the Act is to require
to bank regulators. While payday “Tier 1” capital in hedge funds, and may
lenders to ensure that a borrower is able
lenders, check cashers and certain other not own more than 3% of any one fund.
to repay a home loan by verifying the
non-bank financial firms will be To some extent, this provision attempts
borrower’s income, credit history and
regulated by the Bureau, auto dealers to turn back the Gramm-Leach Bliley
job status (what a novel concept) and
and pawn brokers escaped such legislation which effectively abolished
ban payments to brokers for steering
oversight. Commentators have noted the Glass-Steagall Act in 1999. This activity
customers to more highly priced
that the impact of the Bureau could be has provided significant revenue to the
products.
one of the more significant aspects of largest financial institutions in the country
the Act. The creation of the Bureau was and there is some belief that this limitation
one of the more contentious issues
contained in the legislation. For a while,
it appeared that the Bureau would be
continued on next page >
7

8. Dodd-Frank Act, continued accredited investor. The Act now compensation plans, and an additional
specifically excludes the person’s primary 650 companies whose “say on pay” votes
residence in that measure. Additionally, were mandated due to the fact that they
will cause those institutions to segregate the Act mandates that the SEC review the had participated in the Troubled Asset
proprietary trading into different entities. definition of accredited investor within Relief (“TARP”) Program. The Act will
Derivatives regulation is another aspect four years from the adoption of the Act mandate that companies both take the
of the Act that will impact larger financial and every four years thereafter. There is vote and address in its proxy statement
institutions. First, the Act forces to an significant concern that the SEC will move what action they will take if a majority
over-the-counter clearing market a to drastically increase the minimum net of the shareholders vote against a pay
significant portion of the derivatives worth and income tests provided in package.
industry in an effort to be more Regulation D, which have not been
transparent and stable. It also requires a The standards for independence on
significantly modified since its original
separation of certain derivative or swap compensation committee members has
adoption in 1982.
activities from the bank itself into a non- been heightened and is similar to that
depository affiliate. Finally, in the securities areas, and of provided for audit committees. The
interest to brokers, dealers, registered committee itself, as opposed to
Securitizations also have been dramatically investment advisors and trust companies, management of the company, is required
impacted by the Act. Recognizing that the SEC is obligated to undertake a study to retain any outside compensation
securitization of various assets, some of reviewing the standard of care for persons advisors. The Act provides that any
which proved to have little or no value, providing “personalized investment Exchange (NYSE, NASDAQ, etc.) will be
was a significant contributing factor to advice” to “retail customers.” The SEC’s required to delist a company that fails to
the economic meltdown, the Act would task is to determine whether the conform to these practices within one
require banks to maintain at least 5% of “fiduciary standard” typically applied to year.
the credit risk for any securitizations. This fiduciaries and RIAs should be imposed
provision known as “skin in the game” Clawbacks have been expanded.
upon brokers and dealers as opposed to
is intended to make certain that Originally a result of the Sarbanes-Oxley
the “suitability standard” which currently
institutions are not able to make a quick Act (“SOX”) and reinforced under TARP,
is imposed. Not surprisingly, this proposal
buck by securitizing worthless assets and Clawbacks will now be required of all
has garnered significant comment to
moving on. Finally, the Act imposes strict executive officers, as opposed to only the
the SEC.
new standards limiting the conflict of CEO and CFO as required under SOX.
interest of credit rating agencies. The Act requires that an executive repay
3. Corporate Governance and his or her employer or former employer,
Previously, Standard & Poor’s, Moody’s
and Fitch were paid by the varying Compensation Reforms on a three-year lookback standard, for
investment bankers seeking ratings for any “material noncompliance” with
instruments that they were in the process In addition to specific actions affecting financial statement preparation as
of selling. This conflict of interest is financial institutions as noted above, the opposed to the higher “misconduct”
deemed also to have contributed to the Act implements a number of corporate standard imposed under SOX. In the area
financial meltdown due to the seemingly governance and compensation reforms of compensation disclosure, the Act
generous ratings provided to now for all public companies. First, all public mandates disclosure of median pay of all
seemingly worthless assets. companies will now be required to have employees compared to that of the CEO
advisory (non-binding) votes taken at and requires that the proxy statement or
The Act also modifies the definition of an their annual meeting concerning pay annual report contain a chart comparing
accredited investor for purposes of private packages. In 2010, there were executive compensation to stock
placement offerings. Previously, the approximately 80 companies who sought performance over a five-year period.
definition included the individual’s shareholder advisory votes regarding Some commentators have noted that this
principal residence in determining if he could result in a short-term, as opposed
or she met the minimum $1 million net to longer-term, outlook for a company’s
worth threshold to constitute an compensation practices, which may not
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9. be desirable. Finally, the SEC recently
adopted regulations that would allow
persons with a greater than 3% ownership
of a public company that have maintained Supreme Court Decides
that ownership position for three years
or more to place nominees in the
the Bilski Case
company’s proxy statement. This proxy By Michael Myers
access rule was to have become effective
for larger companies in 2011 and for all
smaller reporting companies beginning
within three years. However, due to a
lawsuit filed by the Business Roundtable
and the Chamber of Commerce, the SEC
on October 4, 2010 stayed the
implementation of this new rule. It is
unclear when this matter will be finally
determined, but commentators feel that
the rule will not be in place for the 2011
proxy season.
As noted in the introduction to this article,
many of the provisions of the Dodd-Frank
Act will be subject to interpretation,
regulation and rule making for many
years. However, as you can see from this
brief review, the Act will have a significant Laws of nature, physical phenomena, and abstract ideas are
impact upon the financial system in the well established as ineligible for U.S. patent protection.
United States. As is true with any A process, however, is eligible for protection. But, what if
legislation enacted in response to a the process is a business method, specifically a computerized
perceived systemic failure (such as SOX), method of hedging risk in the commodities market? Many
the Act may be deemed to have gone too had hoped that the U.S. Supreme Court would take this
far in some instances, while avoiding opportunity to throw out these types of computerized methods
dealing with the Fannie Mae and Freddie and conclude they are no longer eligible for patent. Instead,
Mac looming issue. Please note that there the Court concluded that the recognized standard for patenting
are a number of additional provisions of software — that is, whether the process is tied to a machine
the Act not addressed in this article due or changes an article into a different state or thing, also
to their complexity and limited known as the “machine-or-transformation (MOT) test, — ”
applicability. Stay tuned for what the
isn’t the sole test for deciding whether these business
methods are eligible for patent consideration.
regulations and rule makings do for the
implementation of the Dodd-Frank Act. Thus, the Court appears to have broadened the standard for
business method patent eligibility. Although Bilski’s invention
For additional information, contact was ultimately judged a mathematical formula and hence,
Tom Blank at tblank@slk-law.com. an unpatentable abstract idea, the Bilski holding should
reaffirm the business of business method patents.
9

10. Single Member LLCs in Florida
Lose Asset Protection Feature
A
reason many have judgment. This rule is codified in to that risk. Until that time, those seeking
chosen to form limited modern statutes that provide for the to organize closely-held businesses and
liability companies over assignee of corporate shares to succeed real estate ventures as Florida LLCs would
corporations to hold to all of the rights of the shareholder, do well to consider alternatives such as
their assets has been the including voting rights, and creditor Florida limited liability limited
asset protection feature. rights statutes, such as Fla. Stat. 56.061. partnerships, which benefit from statutes
Prior to the Florida making a charging order the exclusive
Supreme Court’s June In Olmstead, the Court was faced with remedy for a judgment creditor, or
2010 decision in the issue of providing the Federal Trade organizing LLCs under other states’
Olmstead et. al. v. FTC, Commission with access to the statutes that expressly provide that a
35 Fla L. Weekly S 357 defendant’s assets to allow for the charging order is the exclusive remedy,
(2010), under Florida law a judgment recovery of profits from his fraudulent such as Alaska, South Dakota or Nevada.
creditor of a member of an LLC who activities. The defendant’s assets were
desired to satisfy the judgment from his embedded in LLCs in which the For additional information, contact Ed
debtor’s LLC interest could obtain only defendant was the sole member. Unlike McGinty at emcginty@slk-law.com.
a “charging order” against the debtor’s the Florida partnership and limited
LLC interest. The charging order is a lien partnership statutes, the relevant Florida
on the interest and requires distributions LLC statute did not expressly state that
from the LLC to be redirected from the a charging order was the exclusive
member to the remedy for a judgment creditor with
judgment creditor respect to a LLC interest. Consequently,
until the judgment the Court ruled that a charging order
is satisfied. The was not the exclusive remedy. The Court
creditor could not ruled that an LLC was a type of Shumaker attorneys have extensive
take ownership of corporate entity and that an ownership experience in representing clients in
and sell the interest interest in an LLC is personal property defending or pursuing claims of
to satisfy the reasonably understood to fall within the investment fraud.
judgment. The scope of “corporate stock,” allowing the
FTC to take ownership and control of For additional information, contact
charging order
By Ed McGinty the single-member LLC. This ruling is Michael Taaffe at
remedy originated
inconsistent with the general theory of mtaaffe@slk-law.com or
in common law to
protect non-debtor the Florida LLC Act and with the Florida Peter Silverman at
partners from being forced unwillingly Income Tax Code and the Florida UCC. psilverman@slk-law.com.
into partnership with a creditor of a It is unlikely that the Court’s intention
was to expose multi-member LLCs to
Peter’s recent case was highlighted
debtor-partner. in The New York Times at
this type of remedy for creditors of
By contrast, a judgment creditor of a members. But until the law is clarified http://www.nytimes.com/2010/10
shareholder of a corporation can take and fixed by subsequent case law or, /10/business/10whistle.html?r=2&
ownership of and sell the debtor’s shares preferably, legislative correction, the hpw=&pagewanted=all
of the corporation to satisfy the holding nevertheless does expose them
www.slk-law.com

11. E-Discovery Update:
Emerging Principles Regarding
Document Retention and Preservation
There is no requirement that an organization
save all types of ESI, nor is it cost-effective
or strategically wise to do so.
lectronically stored that should be considered in
E
information (ESI) is an developing defensible document
important and valuable retention and preservation policies.
source of evidence. You should also keep in mind the
More than 90% of an following principles:
organization’s
documents are created, 1) "Disk space is cheap…let's save
edited, accessed, everything" is a common
communicated, and misconception
stored electronically By Dawn Floyd
A defensible document retention policy
without ever being
is grounded in principles of good-faith
printed. With this trend
preservation. Unless required by
towards the paperless office, there is more
contract or statute, there is no
to discover in an organization’s network
requirement that an organization save
of servers and computers than in its dusty
all types of ESI, nor is it cost-effective
filing cabinets. How do you retain and
or strategically wise to do so. Instead
manage ESI? What ESI are you obligated
of a save-all mentality, you should take
to keep? Once you anticipate litigation,
what are your obligations to preserve
ESI? These are a few important questions By Douglas Cherry
continued on next page >
11

12. E-Discovery Update, continued litigation.” The Pension Committee of the FASB Proposes Expanded
University of Montreal v. Banc of America Disclosures Regarding Loss
Securities, LLC, 685 F. Supp. 2d 456, 466 Contingencies
a proactive approach to document
(S.D.N.Y. 2010). At this point, you should
retention with a focus on what information
immediately contact counsel, suspend Companies with audited financial statements
should be retained, where and why it
any document retention policy and put will want to stay alert this autumn for an
should be retained, and for how long.
in place a “litigation hold” to ensure the anticipated final revision of the standards
Consider that everything you keep may
preservation of relevant documents. Id. governing disclosure of “loss contingencies.”
be potentially discoverable if relevant to
Also, you should identify all key players Seeking to improve corporate financial statement
a lawsuit. For instance, the informal, terse
and ensure that their electronic and disclosure regarding potential losses that could
and blunt nature of emails or online posts
paper records are preserved, cease the arise from pending lawsuits, regulatory actions
can be a gift to opposing attorneys and a
deletion of email, preserve the records and other situations deemed to constitute “loss
scourge on your organization. Also, it can
of former employees that are in your contingencies,” the Federal Accounting Standards
be very costly to have to search through
possession, and preserve backup tapes. Board (“FASB”) has spent several years exploring
years (or even decades) of electronic
Id. at 471. revisions to what was originally known as
documents to respond to litigation
discovery requests. Standard No. 5, and is now codified at Accounting
5) Failure to preserve relevant ESI can Standards Codification Topic 450. A discussion
have significant consequences draft issued in June 2008 caused considerable
2) A good document retention policy
can save money and headaches down Failure to preserve relevant ESI can lead consternation in the legal and business
the road to being found negligent and/or grossly communities about the expanded scope of
negligent, may result in monetary disclosure. In the ensuing time, it appeared from
With the short timetables that often come internal FASB discussions that the final FASB
sanctions, and may result in an adverse
about from litigation, the urgent demands proposals would be lessened. The latest exposure
jury instruction regarding spoliation of
on the parties and their information draft issued on July 20, 2010, however, revived
evidence. Id. at 496-97. Sanctions may
technology departments may be the debate. For example, the FASB proposal calls
be imposed if you engage in careless
significant. A good document retention for disclosure of accrual amounts in the aggregate
and indifferent collection efforts after
policy can help you quickly and efficiently through tabular reconciliation, remote
the duty to preserve arises, regardless
locate documents relevant to any litigation. contingencies that are potentially severe, and
of whether there was an intentional
destruction of evidence. Id. at 463. certain insurance coverage. By the August 20,
3) Parties are obligated to produce ESI 2010 comment deadline, the U.S. Chamber of
Developing and maintaining defensible Commerce and the Association of Corporate
ESI is a category of information
document retention and preservation Counsel, among other notable commentators,
discoverable by an opposing party,
policies can be accomplished through a severely criticized the proposal, which was
regardless of how much ESI exists. If a
team approach involving outside originally scheduled to take effect for issuers
party has any ESI relevant to litigation it
counsel, inside counsel, management, with fiscal years ending after December 15, 2010.
must be produced, even if the information
and information technology personnel. Commentators have recommended, among other
exists in another form such as paper. The
Legal counsel can be particularly useful things, that the FASB delay the effective date;
law does recognize some exceptions to
in strategizing and assisting with the however, if a final Standard revision is adopted
production of certain ESI, including where
development of a document retention and effective according to the FASB’s proposal,
production would result in undue burdens
policy, determining when the duty arises companies will have considerable work to review
and costs. However, this ESI must still be
to preserve documents (either by statute, internal practices in light of the new disclosure
preserved.
contract or for litigation), drafting a requirements, which will potentially affect the
party’s written litigation hold notice, audit response procedures between a company’s
4) If you think you might be sued, stop
and ensuring that the party is meeting lawyers and its auditors.
document deletion (including email)
its preservation obligations under the
and start preserving
law of the relevant jurisdiction. For additional information, contact Regina
Courts have different standards as to when Joseph at rjoseph@slk-law.com.
the duty to preserve ESI arises. Most For additional information, contact
commonly, the duty to preserve arises Doug Cherry at dcherry@slk-law.com or
“when a party reasonably anticipates Dawn Floyd at dfloyd@slk-law.com.
www.slk-law.com

13. legalupdate welcome
new Federal Circuit decision may make patent infringement of certain
products easier to prove when the product implements a standard Ryan D. Elliott
covered by a patent. In Fujitsu v. Netgear (decided September 20, Columbus, Associate
2010), three patents covered different aspects of wireless Environmental
communications technologies. Netgear was accused of contributory
and induced infringement—that is, basically, knowingly providing Rachel B. Goodman
a component to an infringing product when the component has no Sarasota, Associate
other noninfringing use. It was asserted that Netgear infringed by Litigation
implementing certain wireless networking functions, like sending
and receiving messages between a router and a laptop, by not obtaining Peter E. Krebs
a license from the patent holders who claimed exclusivity to the Toledo, Associate
communications standards. The standards were adopted to ensure interoperability of Corporate
these types of devices.
Richard D. Rogovin
Netgear dodged a holding of infringement The impact of this case may be especially Columbus, Of Counsel
on most of its products because notice felt in lawsuits involving contributory Corporate, Litigation
letters sent to Netgear prior to the lawsuit and induced infringement involving IT.
were not sufficient to establish the It would seem that infringement in the Nicholas T. Stack
knowledge and intent elements of presence of an applicable standard may Toledo, Associate
contributory and induced infringement, be easier to prove. A litigant may not Litigation
respectively. need to analyze complicated code, for
example, to determine and convincingly
In what may be the most significant portion
argue infringement. If a district court
of its opinion, however, the court held that
construes the patent claims and finds that
a district court may rely on an industry
the reach of the claims includes any
standard in analyzing infringement. The
device that practices a standard, then
court stated that it still agreed that patent
this can be sufficient for a finding of
claims should be compared to the accused
infringement.
product to determine infringement, but if
an accused product operates in accordance
For additional information, contact
with a standard, then comparing the claims
Michael Myers at mmyers@slk-law.com. Shumaker attorneys regularly file
to that standard is the same as comparing
the claims to the accused product. patent applications for clients with
respect to newly developed plant
varieties.
For additional information,
contact Robert Pippenger at
rpippenger@slk-law.com.
13

14. I. THE PROBLEM II. HOW THE PROBLEM IS ADDRESSED legislation rendered Wachovia unable to
Lack of Liquidity in the Banking System defend itself against a run on its deposits.
Self-Knowledge and Succinct Analysis
Results in a Tightening of Credit The takeaway from the Wachovia case
Establishes a Game Plan for the Favorable
and Creates a Severe Recession is that even obtaining forbearance of
Workout of Existing Commercial
short duration from one’s lender can
The unprecedented recession that befell Indebtedness
mean all the difference in preserving the
the American economy commencing in The severe recession obviously presents value of one’s enterprise.
the Fall of 2007 and from which we are the business owner with challenging issues
just beginning to emerge has created relating to both complying with obligations III. You May Have More Influence on
extraordinary problems for all commercial under existing financing documents and Your Banker than You Think
enterprises that rely on the use of credit obtaining extensions of credit. The advice
to conduct business While it would be imprudent to imply
on how to deal with these issues is simple
operations. The that there are magic bullets which will
and direct: Self Knowledge combined with
present calamity make one’s banker go away (he/she will
Realistic and Succinct Analysis.
manifested itself in not), the banking industry is also under
a bank liquidity The best thing a pressured business owner pressure and for many reasons is
freeze which can do at this juncture is to put into practice incentivized to work with a borrower
reduced lending to the ancient maxim: “Know Thyself.” Do who is prudently managing its economic
a trickle. The lack not engage in denial of economic realities. difficulties. Among the reasons are:
of credit in turn Do not panic and delay the tough economic
1. Collateral values are in decline. If a
affected general analysis that will eventually need to be
By Moses Luski bank can “kick the can” down the road,
economic activity, made. If it is determined that financial
wait for collateral values to improve and
reducing the covenants of loan documents are being
avoid negative impacts to its balance
revenue streams violated or that problems making loan
sheets, it may do so.
which businesses rely upon to pay payments are being experienced or will
existing indebtedness, including soon be inevitable, it is essential that 2. The Federal Banking Regulators, in
indebtedness secured by commercial real preparations are made to proactively and a recent policy statement issued October
estate. This destabilizing feedback loop productively reach out to one’s banker. 30, 2009 (see Moses Luski, Mercy for the
has put both prudent and recklessly Time is of the essence in this process. An Vanquished: Federal Regulators
managed businesses under extreme analogous case study which illustrates the Announce New Policy Statement on
economic pressure which in most cases need to take swift action when there is a “Prudent Commercial Real Estate Loan
could not have been anticipated. The sudden downturn in economic activity is Workouts” (February, 2010), available
discussion which follows deals with the the demise of Wachovia, N.A. It has been at http://www.slk-law.com/articles/
workout of loans secured by commercial widely commented that had TARP default.aspx?id=327, have encouraged
real estate. (Troubled Asset Relief Program) been banking institutions, in the case where
enacted a number of days earlier, Wachovia loans are secured by commercial real
might have survived as an independent estate, to engage in loan workouts, even
bank. The short delay in enactment of this though collateral values have decreased
or compliance with financial covenants
www.slk-law.com

15. have deteriorated. Where reasonably
prudent repayment terms can be
arranged, banks are encouraged to work The economics of a business should be
out existing loans secured by
commercial real estate.
realistically and dispassionately analyzed.
3. Commercial bankers may be under
deadline pressures at the end of each
quarter to evaluate their loan portfolios.
If they are surprised by last minute
disclosures or reporting at the very end
of a quarter, they may be less likely to
be predisposed to work with a borrower
to restructure a loan. On the other hand,
if a borrower proactively reaches out to
his banker earlier in the quarter to give
a “heads up” of potential restructuring
issues, a banker is more likely to work
harder to obtain a mutually favorable • Have a management plan ready. help your bank more easily justify the
restructuring. Indicate to the banker, as part of a fully proposed workout plan. Also, when
documented plan, the changes being dealing with less experienced bank
IV. Practical Advice made in current business operations to personnel, an experienced consultant can
weather the storm and how in the interim in effect educate the bank on how to
Armed with the general knowledge
the business can support the existing structure a solution. An attorney or CPA
gained from the discussion above, a
payment schedule or a reduced payment can also assist with this process. At the
borrower seeking to work out a loan
schedule. Alternatively, outline an exit minimum, the attorney should be
with its banker should heed the
strategy showing what preparations are consulted prior to execution of any legal
following practical advice:
being made for a sale of the business. documents to insure the documents
• Faithfully comply with all reporting The latter alternative may be less realistic properly capture the business terms of
requirements such as the provision of in today’s economic climate, but may be the deal and do not overreach to one’s
tax returns and financial statements. a viable approach depending on the line detriment. A CPA must be consulted to
Failure to comply with these of business. This is where the savvy and determine that there are no adverse tax
requirements immediately raises a red expertise of the business owner can “buy” consequences to the proposed workout
flag with the bank officer who is some time for the enterprise and possibly transaction and to suggest whether there
responsible for the loan who may in be its salvation. In essence, sell the banker are more tax-efficient means of structuring
turn flag the loan as potentially troubled. with reasonable projections and realistic the transaction.
planned actions, showing the business
• Approach your banker with any • Personal expenses should be carefully
stands a reasonable chance of weathering
potential loan issues well before the monitored. If personal expenses and/or
the storm.
point of missing payments. Once withdrawals from the business are out of
payments are missed, the bank is less • Consider consulting with a workout control, it will not be looked upon
capable of flexibility with respect to a specialist. There are former bankers who favorably.
potential loan workout. This is where consult with businesses and assist them
the term “Know Thyself” has its highest with developing a plan that can be sold
applicability. If business conditions are to the bank. A capable consultant can
rapidly deteriorating, prior to reaching inject a very useful level of legitimacy to
the point of no return, the economics of the workout process in that it establishes
a business should be realistically and a banker-to-banker dialogue which can
dispassionately analyzed.
continued on next page >
15

16. Know thyself, continued • For owner occupied real estate, the bank • If a business analysis indicates a
might rely on the cash flow of the business borrower’s business cannot be saved,
to provide a long term refinance without then it is probably better to know this
V. WORKOUT TERMS:
requiring a reduction in principal. sooner rather than later and bankruptcy
What to Expect counsel should be consulted.
VII. A Word on Loans that are Part of a
There are numerous ways to restructure • If things appear bleak or out of control,
Commercial Mortgage Backed Security
a loan: (a) Interest Only Period; remember the mantra: “Know Thyself
(CMBS)
(b) Modified Amortization; (c) Reduced and It Will Work Out.” Facing the storm
Interest Payment with accrual of shortfall • If your loan is part of a CMBS, in order with a calm focused demeanor will yield
and excess cash flow recapture; to trigger workout negotiations it may be a better result than disorganized panic.
(d) Restructure into a “good” A Note and necessary to stop loan payments to trigger
a “bad” B Note; and (e) Negotiated what is known as a “special servicing For additional information, contact Moses
Equity Participation where the bank is transfer event.” Once such a special Luski at mluski@slk-law.com.
permitted to recoup deferred interest and servicing event is triggered, one is put in
principal payments upon a sale or contact with a servicer that has authority
refinance event. The complexity of some to make decisions on behalf of the owner
of these structures suggests the need to of the CMBS. Caution: “Please don’t try this
have a capable consultant or other at home.” Cessation of loan payments
professional provide advice on which should only be made with the advice of
structure is more advantageous. legal counsel.
• The typical term for a CMBS loan
VI. What Terms to Expect on a
extension are maintenance of the same
Refinance
interest rate, one year term extension, 5
• Since most real property collateral is percent principal reduction and an
under water, a loan extension will more origination fee of one to two percent.
than likely be offered rather than a long Again, there is no guaranty that these terms
term refinance. The term of the exten- may be achieved in a particular case.
sion will typically not exceed one year.
The interest rate will most likely be VIII. Final Takeaways
increased with a base floor set and a
• In order to successfully negotiate a loan
wider spread from the variable base rate.
workout, a borrower must be able to
The bank may ask for a fee ranging from
frankly communicate to the bank what the
25 basis points to 200 basis points.
problems in the business are and what
Obviously, in any given case, the actual
efforts the borrower is taking to mitigate
terms of the extension will be the result
the problems. If the bank sees that the
of negotiations based on a unique set of
borrower is making significant efforts to
facts so there are no typical terms other
help itself, there is a much greater
than to state it is unlikely that the term
likelihood of bank cooperation.
will be extended for more than one year.
• Sometimes the pressures facing a
• For a Real Estate Investment Property, particular banking institution are so great
the chances for a longer term refinance that it will have little flexibility in
increase greatly if the borrower can inject negotiating a workout. Similarly, if a
equity to bring down the loan to value banking institution sells a portfolio loan
and there is sufficient rental income to to a third party, such party may have less
service the debt. interest in negotiations.
www.slk-law.com

17. 17
Recent Developments
in Health Care Reform
ith new 2. New Claims and Appeal Procedures.
W
Grandfathered Plans
regulations Effective for plan years beginning on
issued on a The Act imposed numerous new or after September 23, 2010, the required
regular basis requirements on the design and operation claims and appeal procedures
and conflicting of group health plans; however, group applicable to group health plans has
and unclear health plans maintained in existence prior been expanded to include new rights
descriptions of to the adoption of the Act may be exempt for participants, including an external
health care from certain requirements as review or disputed claims by a third-
reform in the "grandfathered" health plans. The new party independent review organization.
news media, interim regulations
3. Prohibition on Discrimination in
employers are illustrate the
Favor of Highly Compensated
at a disadvantage in determining and requirements for
Individuals. Effective for plan years
understanding their obligations under a group health
beginning on or after September 23,
the new health care laws, as well as plan to meet and
2010, the prohibition against a group
identifying the available opportunities. maintain "grand-
health plan discriminating in favor of
fathered" status.
The President signed the Patient highly compensated individuals (either
Protection and Affordable Care Act on In general, a group in the form of eligibility or benefits) is
March 23, 2010, and subsequently health plan may be extended to apply to all group health
By Scott Newsom a "grandfathered" plans. Previously, the prohibition only
signed the Health Care and Education
Reconciliation Act seven days later health plan if it applied to self-insured group health
(collectively the “Act”). Initially, the provided health plans.
application and effect of some insurance coverage to any individual on
However, despite the exemption from
provisions of the Act remained unclear March 23, 2010 and has continually
complying with some requirements of
pending mandated descriptive and covered any (not necessarily the same)
the Act, including those listed above,
implementing regulations. Anticipated individual since that date. Grandfathered
a "grandfathered" health plan must
regulations and guidance have begun health plans are not required to comply
comply with some of the more known
to emerge, including interim final with some design and operational
provisions of the Act, including:
regulations governing "grandfathered" requirements mandated by the Act,
health plans, and interim regulations including: 1. Required Coverage for Adult
and additional formal guidance Dependents. Effective for plan years
1. Coverage of Preventative Health
expanding required internal claims and beginning on or after September 23,
Services. Effective for plan years
appeal procedures applicable to health 2010, any group health plan that offers
beginning on or after September 23, 2010
insurance claims to include an external coverage to dependent children must
(i.e. January 1, 2011 for calendar year
review process. These recent develop- make the coverage available to
plans), a group health plan may not
ments are among the first publication dependent adult children until they
impose cost-sharing requirements (i.e.
of regulations interpreting and reach the age of 26 years. To accom-
co-payments or deductibles) for certain
implementing the Act's provisions, and modate this change, the exclusion from
identified preventive care services.
require immediate consideration and
analysis by sponsors of group health
plans.
continued on next page >

18. Health Care Reform, continued
5. Prohibition Against Rescission.
Effective for plan years beginning on
income for employer provided health or after September 23, 2010, a group
insurance coverage has also been health plan is prohibited from rescinding
amended. However, for plan years coverage (termination of coverage
beginning prior to January 1, 2014, retroactively) unless an individual
coverage may be restricted to adult engages in an act, practice or omission
children who are not eligible for other constituting fraud or an intentional
employer sponsored group health plan misrepresentation of material fact as
coverage. prohibited under the plan's terms. A
2. Prohibition Against Pre-Existing permissible rescission will require a 30
Condition Exclusions. Effective for plan day advance written notice. Retro-active
years beginning on or after September termination of coverage is permitted for
23, 2010, a group health plan may not failure to pay premiums.
impose a pre-existing condition To maintain grandfathered status, a
exclusion on any individual under the group health plan must include a notice
age of 19. Effective for plan years in all participant communications
beginning on or after January 1, 2014, describing benefits that alerts the
the prohibition against pre-existing participant that the plan is considered a
exclusions is extended to include all grandfathered plan. The regulations
individuals. provide sample language that may be
3. Prohibition Against Lifetime or used to satisfy this requirement.
Annual Limits on Essential Health In addition, substantive restrictions and 1. Any elimination of all or substantially
Benefits. Effective for plan years limitations exist on the changes that a all benefits to diagnose or treat a particular
beginning on or after September 23, grandfathered plan may make and still condition.
2010, a group health plan may not maintain its exempt status from the Act.
establish lifetime limits or annual limits 2. Any percentage increase in any cost-
As health insurance renewal season
on the dollar value of essential health sharing requirement (such as coinsur-
commences for many employers, the
benefits for any participant or ance).
most notable restriction is that any new
beneficiary. However, effective for plan policy, certificate or contract of insurance 3. Any increase in a fixed-amount cost-
years beginning before January 1, 2014, entered into after March 23, 2010 results sharing requirement other than a
a group health plan may impose in a loss of grandfathered health plan copayment (such as a deductible or out-
"restricted" annual limits on essential status. For example, many employers of-pocket limit) in excess of the "maximum
health benefits as determined by often change health insurance providers percentage increase" (medical inflation +
regulations to be issued. after a comparative shopping process as 15%) measured from March 23, 2010
4. Waiting Periods Cannot Exceed 90 a means of controlling premium costs. through the effective date of the increase.
Days. Effective for plan years This process will now result in a loss of
4. Any increase in a fixed-amount
beginning on or after January 1, 2014, grandfathered status. Notably the
copayment, determined as of the effective
a group health plan may not impose a Department of Labor has issued
date of the increase, if the total amount
waiting period of more than 90 days Frequently Asked Questions, in which it
of the increase measured from March 23,
for an individual to become eligible states that further guidance will be
2010 exceeds the greater of:
for coverage. forthcoming on this issue.
(a) An amount equal to $5 increased by
Other changes that cause a group health
"medical inflation."
plan to lose its grandfathered status
include: (b) The "maximum percentage increase"
determined by expressing the total
increase in the copayment as a percentage.
www.slk-law.com