Winter 2007-Spring 2008
In This Issue
I hired Dan Sharphorn as my new Deputy General Counsel. I hired him to help me do a multitude of tasks related to running this office. Accordingly, see his “Greetings” column next. He is already paying off!
I am delighted to have joined the UT System Office of General Counsel, and not just because in Austin I can fish in February and not be sitting on a box staring through a hole in the ice. Higher education institutions are complex, fascinating organizations (or “disorganizations”), and there are likely none out there more complex and fascinating than the UT System. It is exciting and an honor to work for them.
Before coming to Austin, I spent 25 years at the University of Michigan, primarily as an attorney in the Office of the General Counsel, but also as an occasional adjunct lecturer in sociology. As a part-time student of the sociology of organizations, I noted that to be true to their very noble and critical missions, public universities must be loosely coupled entities, where extraordinarily bright people have the freedom to do their important creative work. Yet these loosely coupled components have an often rigid overlay of legal, fiscal, and bureaucratic requirements imposed by (mostly) well-intended state and federal governments. The role of the attorney, and other support staff, is to enable our talented faculty, academic administrators, and students to do what they do best, while finding ways to eliminate or minimize legal and regulatory risks.
I am pleased to find that the competent and experienced attorneys in OGC, as well as the System administrators more widely, are fully committed to this approach to service to the 15 institutions that comprise The University of Texas System. We do understand and are committed to your missions. We truly do want to help.
The bulk of my substantive experience at the University of Michigan focused on all legal issues associated with the areas that are typically identified as academic affairs, student affairs, and research administration. I also supervised attorneys dealing with purchasing, contracts, intellectual property, technology transfer, and conflicts of interest. I was the lead attorney for all manner of campus crises. It is my expectation that I can bring this substantive knowledge, as well as my experience and understanding of institutions of higher education and the people in them, to my role in the UT System.
I will invite topics of interest from the campuses, but some of the areas commonly covered include: all issues related to creating, keeping, and releasing public records; dealing with troubled and troubling students, faculty, and staff; the tenure process; conflicts of interest and ethics; and research compliance issues.
Hope to see you soon.
Please join us in welcoming these new attorneys to OGC:
Federal and State Reporting of Certain Foreign Gifts and Contracts
Federal and state laws require institutions of higher education to report certain gifts from or contracts with a foreign source valued at $250,000 or more (individually or in combination with all other gifts from or contracts with that foreign source within a calendar year). A foreign source includes (1) a foreign government or agency of a foreign government, (2) a legal entity (governmental or otherwise) created solely under the laws of a foreign state or states, (3) an individual who is not a citizen or a national of the U.S. or a trust territory or protectorate of the U.S., and (4) an agent (including a subsidiary or affiliate of a foreign legal entity) acting on behalf of a foreign source.
Any gift of money or property from a foreign source to an institution of higher education, and any agreement for the acquisition by the foreign source of property or services for the direct benefit or use of the foreign source or the institution of higher education, that meet the $250,000 threshold must be reported. However, agreements for the acquisition by the institution of higher education of property or services from the foreign source need not be reported.
FMLA: Congressional Amendments Extend Leave to Certain Family Members of Active Duty and Injured Servicemembers
by Omar Syed (General Law)
On January 28, 2008, President Bush signed into law the National Defense Authorization Act (Pub.L. 110-181). Among other things, the Act expands the Family and Medical Leave Act (FMLA) by creating new leave entitlements for employees whose family members are called to active duty in the Armed Forces, including the National Guard or Reserves, or whose family members are injured while on active military duty.
Specifically, the new provisions require covered employers to permit an employee already eligible for FMLA leave:
An employee may take FMLA leave for the “qualifying exigency” described in the law either intermittently or on a reduced leave schedule. By contrast, leave to care for an injured servicemember may be taken intermittently or on a reduced leave schedule only if medically necessary. Significantly, the U.S. Department of Labor (DOL) has not yet defined the term “qualifying exigency,” but will likely issue regulations that do so. In any event, almost all of the other restrictions and obligations associated with FMLA leave apply.
The FMLA provisions that grant leave to care for injured servicemembers became effective on January 28, 2008, while the provisions that grant leave to those who suffer a “qualifying exigency” is not effective until the DOL issues regulations defining “qualifying exigency.” OGC has been collecting comments from all UT System institutions about the DOL’s rulemaking process and will provide additional guidance once it learns the DOL’s intentions.
The Bottom Line: Employees may now take FMLA leave if their closest family members suffer a serious injury or illness while on active duty in the Armed Forces (including the activated National Guard and Reserves). Soon, employees will be eligible to take FMLA leave if they suffer a “qualifying exigency” because their family members are on active duty or are called to active duty.
by Donald O. Jansen (Business Law, Tax and Employee Benefits Group)
In just over two years, UT System must begin to collect 3% withholding tax on most payments for contracts and services. This unprecedented withholding requirement mainly applies to independent contractor payments by federal and state governments including their political subdivisions and instrumentalities, starting with payments on January 1, 2011. For some unstated reason, Section 3402(t) of the Internal Revenue Code only applies to governmental entities and not to the private business and tax exempt sectors.
Excluded from the statute are payments already subject to withholding (e.g., wages) and payments of interest, for real estate, to other governments or tax exempt entities, and for public assistance or welfare if based on a needs or income test. Furthermore, state instrumentalities with such annual payments of less than $100 million do not have to withhold. In determining the application of this exemption, it is not clear whether UT System is a single state instrumentality or whether the test will be applied to each of the fifteen institutions which make up the System.
It is apparent that there will be a tremendous expenditure of time and treasure in order to comply with this new mandate. There is considerable fear that vendors might increase their prices by 3% to make up for the cash flow impact of the new withholding. If so, then in effect, the governmental entities will be paying the tax. Small businesses and minority-owned enterprises under SBA and HUB programs might be adversely impacted. Because the withholding requirement was added at the last minute in the Conference Committee without Congressional hearings, the new law has many gaps such as no de minimis exclusion of payments or authorization for the IRS to fill in the gaps by legislative regulations.
Recently in Notice 2008-38, the IRS stated its intent to issue guidance and requested public comments. UT System, after consultation with its institutions, did submit comments urging that the $100 million exclusion be applied on an institution basis, that the real estate exclusion include rental payments and major building construction payments, and that government entities be authorized to contract with their credit card companies to have them serve as agents in withholding on credit card payments.
Apparently, Congress has been receiving complaints and because legislative history on the provision is nonexistent, no one really knows why Congress felt compelled to impose this requirement. Repeal bills have been introduced in the House and Senate but they have gone nowhere. The House recently passed a bill to delay the effective date one year to January 1, 2012 but the Senate leadership does not appear to be interested at this time. With outright repeal or effective date delay far from certain, the UT System Business Management Council has started the process to prepare for the new withholding rules.
The Bottom Line: Unless Congress cuts some slack, UT System in 2011 will enter previously unchartered waters in withholding a 3% tax from payments to vendors for products and services. The IRS is preparing guidelines and UT System is laying the groundwork to comply in what promises to be a costly and complicated endeavor.
by Jim Phillips (Business Law)
Environmental Health and Safety (EH&S) professionals are now having to add another “S” to their job titles—Security. In the post-911 era, concerns over the security of hazardous materials and restrictions on those who have access to them are now being translated into regulatory requirements that can result in inspections, fines, and penalties. UT institutions are not exempt.
The emphasis on EH&S security obligations began shortly after the anthrax incidents in 2001. The USA Patriot Act imposed restrictions on those institutions and persons who use, possess, or transfer “select agents and toxins”, strengthened physical security requirements, required registration of all persons with access to select agents together with FBI background checks, and imposed stringent reporting safeguards. The Center for Disease Control Prevention and the U.S. Department of Agriculture are responsible for the select agent regulations and the recent experience of Texas A&M in losing federal research grants, having its ability to conduct research on select agents suspended, and agreeing to pay a $1 million dollar fine show how seriously the feds feel about compliance with the select agent requirements.
Now, UT institutions are having to strengthen security measures over chemicals and radioactive materials. The Department of Homeland Security issued its final regulations in the Chemical Facility Anti-Terrorism Standards program last fall, including Appendix A, listing 300 chemicals of interest (COI) that present risks if they were to fall into the hands of terrorists. The regulations set screening threshold quantities that can trigger the need for facilities to perform vulnerability assessments, develop site security plans and implement site-specific security measures. UT institutions have had to conduct inventories of their COIs to assess whether they possessed sufficient quantities to trigger reporting to DHS by the January 22, 2008 deadline. This has required significant coordination between EH&S staff, purchasing staff and research personnel over the past several months. Some institutions have asked for a 60-day extension because of the challenges presented by the chemical inventory and assessment requirements.
Radioactive materials have not been ignored. The Nuclear Regulatory Commission (NRC) issued its “Increased Controls” Order in November 2005, requiring licensees possessing certain radioactive materials in quantities of concern to implement security procedures over storage, transfer, use and access to radioactive materials. Only “trustworthy and reliable” individuals were to be given unescorted access to such materials and greater physical protection of the materials was mandated. UT institutions are now undergoing the first round of inspections by the Texas Department of State Health Services and are receiving their first report cards on compliance with the Increased Controls Order. On December 5, 2007, the NRC issued a supplemental order which will require fingerprinting and criminal history records check of individuals who have unescorted access to the regulated radioactive materials. UT institutions will be required to implement these new requirements by the fall of 2008.
One of the difficult challenges facing UT institutions is that different federal agencies with different approaches have jurisdiction over these new security requirements based on the type of hazardous material involved. There is often a lack of coordination by the agencies, resulting in our institutions having to implement security requirements on different schedules, under different standards and with a lack of appreciation by the regulators that the research mission and structure of colleges and universities are unlike those of industrial facilities and operations. DHS’s Chemical Facility Anti-Terrorism Standards program is aimed at large manufacturing and refining facilities possessing large stockpiles of chemicals that represent real targets for terrorism. However, DHS refused to exempt the research labs of colleges and universities from the enhanced regulatory requirements. The new security requirements have created a significant amount of work for our EH&S staffs, research personnel and UT Police and required the dedication of additional resources by administrations at each institution to assure compliance.
The Bottom Line: New security requirements for the possession and use of hazardous materials have caused a significant reorientation for university EH&S personnel. Compliance with the different federal edicts will remain a challenge for years to come.
by Steve Rosen (Business Law, Intellectual Property Group)
The National Institutes of Health (NIH) has issued a revised Public Access Policy requiring any published results of NIH-funded research to be made available to the public. As a result, as of April 7, 2008, principal investigators must ensure that electronic versions of any peer-reviewed manuscripts arising from NIH funding and accepted for publication after that date are deposited in PubMed Central (PMC), NIH's digital archive of biomedical and life sciences journal literature. Full text of the articles will then be made freely available to the public no later than 12 months after publication. The requirement applies to any NIH direct funding, including grants, contracts, training grants and subcontracts. In addition, beginning May 25, 2008, applications, proposals, or progress reports to NIH must include the PMC or NIH Manuscript Submission Reference Number when citing applicable articles that arise from their NIH funded research.
The easiest way to comply with the new publication requirement is work with publishers that participate directly in PMC – click here for a list of such journals. Otherwise, PIs and their institutions are responsible for ensuring submission of any peer-reviewed manuscripts to PMC in a timely way. That may be done by working with journals that will either deposit a manuscript with PMC on behalf of a PI or will permit the PI to deposit a copy directly using the NIH Manuscript Submission System. In the latter case, use the following NIH-suggested (or similar) language in your publication agreement to preserve your right to make the required NIH submission: “Journal acknowledges that Author retains the right to provide a copy of the final manuscript to the NIH upon acceptance for Journal publication, for public archiving in PubMed Central as soon as possible but no later than 12 months after publication by Journal.”
The Bottom Line: Before you sign a publication agreement or similar copyright transfer agreement with a publication covering NIH-funded work, ensure your publisher has a standing commitment to forward published works to PMC. Alternatively, as the PI of any NIH-funded work, preserve your right to submit published or peer-reviewed works to PMC by including the language suggested above or similar language. For more information on the new reporting requirements, see the NIH FAQs. Also, contact your institution’s librarian subject specialist regarding specific inquiries.
by Kevin Brown (Claims and Bankruptcy)
Under the Fair Credit Reporting Act (FCRA), an "information furnisher" must follow certain guidelines when reporting adverse information to a credit reporting agency (CRA). UT institutions and the collection agencies with which they contract are information furnishers as defined by FCRA. Therefore, UT institutions have a duty to make sure information reported is accurate and true. This duty can be mitigated by providing notice, with a clear and conspicuous address for disputing the information, to the consumer.
Within 90 days of reporting adverse information to a CRA, the information furnisher must additionally provide the original month and year the account became delinquent. If a collection agency is reporting on behalf of a UT institution, they must put a reasonable plan in place for determining this date if it is not otherwise available. Additionally, medical entities must notify the CRA that they are medical entities to insure that any protected information is not included on the credit report. Any changes to the account, such as payments or balance changes, must be promptly reported to the CRA.
Once the information has been reported to the CRA, the consumer may contest the validity of the information by notifying the CRA, the collection agency, or the information furnisher. The CRA has five days to notify the information furnisher of the dispute. The information furnisher has 30 days, including the CRA's five days, to investigate the dispute. If the consumer provides additional information during the investigation, the information furnisher has up to an additional 15 days to investigate. This means the information furnisher has a maximum of 45 days to review the dispute. At the end of this time, the information furnisher needs to report the results and any corrections to the CRA.
Subject to certain defenses, such as sovereign immunity, a consumer may bring suit against the information furnisher or the collection agency for failure to follow the FCRA. If a court determines that the institution was negligent in complying with the rules, then judgment can be entered against the institution for actual damages, court costs, and attorney’s fees. If the court finds that the institution willfully disregarded the FCRA, then it is also subject to punitive damages. The consumer must bring suit within two years from the date of discovery or five years from the date of violation of the FCRA, whichever is less.
The Bottom Line: If an institution, or one of its collection agencies, use credit reporting as a collection tool, make sure the information reported is accurate and timely review any disputes.
At least 44,000 people, and possibly as many as 98,000 people, die in U.S. hospitals each year as a result of preventable medical errors, according to the 1999 report To Err is Human: Building a Safer Health System by the Institute of Medicine. This report led, in part, to the passage of the federal Patient Safety and Quality Improvement Act in July 2005, promoting patient safety through confidential and voluntary reporting mechanisms, known as Patient Safety Organizations (PSO), for hospital systems and healthcare delivery networks.
We reported on the passage of this new Act in our Fall 2005 issue of The Foreseeable Future with the promise of an update when the Department of Health and Human Services (DHHS) issued regulations. Almost three years later, the Agency for Healthcare Research and Quality (AHRQ), a part of the DHHS, has finally issued the proposed rules. Comments to the proposed rules were due April 14, 2008. Click here, to view comments provided by UT System.
In anticipation of the issuance of the proposed rules and to promote patient safety, Dr. Kenneth I. Shine, UT System Executive Vice Chancellor for Health Affairs appointed the UT System Patient Safety Task Force. The Task Force is chaired by a nationally recognized patient safety expert, Dr. Eric Thomas of UT Health Science Center at Houston, with representation from each of the six UT health institutions—Debora Simmons of UT M.D. Anderson Cancer Center, Sandra Fly of UT Health Center at Tyler, Dr. Bruce Meyer of UT Southwestern, Dr. Jan Patterson of UT Health Science Center at San Antonio, Jennifer Baer of UTMB, and Dr. Todd Johnson of UT Health Science Center at Houston.
Major issues under the proposed rules are outlined below, certain to impact the work of the Task Force.
Who Can Be a PSO?
The regulations track the statute and allow a wide range of public, private, profit, and not-for-profit entities, including healthcare providers, to form a PSO. A major exception is for insurance companies. The current proposed definition of an insurance company allows the UT System to form or participate in a PSO. Accrediting and licensing bodies are also excluded from certification as a PSO, however, a component of such a regulatory authority may become a PSO.
What are the Permissible Types of PSOs?
A PSO may be free-standing or a component of another organization, such as a provider system. Component organization, as defined in the regulations, includes both discrete units within corporate or multi-organizational systems and separate organizations owned and operated by one or more organizations. The UT System comprises such a provider system. A PSO organized as a component organization must then satisfy additional criteria. Thus, if the Task Force recommends formation of a PSO as a component organization of UT System, the PSO must maintain separate operations from the parent, prevent unauthorized disclosures to the parent, and insure that no conflict of interest will be created with the parent. This structure is designed to encourage reporting by providers and insure confidentiality.
How are PSOs Created?
AHRQ administers the rules for listing the PSOs. Each potential PSO must attest that its structure and operation satisfies the rules. A PSO will be created for three years when it files a certification with AHRQ attesting that it is in compliance with the rules. Certification is extended for another three years if the PSO re-certifies its continued compliance. AHRQ will perform random checks to insure compliance, but the rules contemplate a non-adversarial process for correcting deficiencies to remain certified.
How are the Federal Privileges Obtained?
As soon as a PSO certifies that it is in compliance with the PSO rules, the federal privilege created by the Patient Safety Act protects and limits the use of protected information in criminal, civil, administrative, or other proceedings. The information protected by the statute is broad so as to include information that “could result in improved patient safety, health care quality, or health care outcomes.” The judicial system enforces this privilege.
What About HIPAA?
The Act and proposed rules specify that PSOs are considered business associates of providers that are HIPAA covered entities. Therefore, the PSO would need to enter into a business associate agreement in order to satisfy HIPAA. Patient safety work product that includes protected health information may only be used or disclosed in accordance with the HIPAA Privacy Rule, under the proposed regulations. Breaches in the confidentiality protections potentially subject an organization to up to $10,000 in civil money penalties.
The Bottom Line: Dr. Shine, the UT System Executive Vice Chancellor for Health Affairs has commented: "We are pleased with the release of the proposed rules so that the UT System Patient Safety Task Force can now begin consideration of development and certification of a PSO to collect and analyze data from each of our health institutions. We view this as a valuable tool to promote patient safety throughout the UT System and not as punishment."
An Introduction to the U. S. Department of Commerce Export Controls and “Visual Compliance” – A Software Tool to Help Swim Upstream in the World of Export Control
by BethLynn Maxwell (Business Law, Intellectual Property Group)
The Department of Commerce Bureau of Industry and Security (BIS) implements and enforces the Export Administration Regulations (EAR), which regulate the export and reexport of most commercial items. Items that the BIS regulates have a “dual-use” – these items have both commercial and military or proliferation applications - but purely commercial items - without an obvious military use - are also subject to the EAR.
The EAR do not control all goods, services, and technologies. Other U.S. government agencies regulate more specialized exports. For example, the U.S. Department of State has authority over defense articles and defense services.
What Is an Export?
Any item that is sent from the U. S. to a foreign destination is an export. “Items” include commodities, software, or technology, such as clothing, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages, and technical information.
How an item is transported outside of the United States does not matter in determining export license requirements. For example, an item can be sent by regular mail or hand-carried on an airplane. Or, a set of schematics can be sent via facsimile to a foreign destination, software can be uploaded to or downloaded from an Internet site, or technology can be transmitted via e-mail or during a telephone conversation. Regardless of the method used for the transfer, the transaction is considered an export for export control purposes.
What Is a Deemed Export?
Release of technology or source code (except encryption source code) to a foreign national in the United States is “deemed” to be an export to the home country of the foreign national under the EAR.
What is a “Release” of Technology?
Technology is “released” for export when it is available to foreign nationals for visual inspection (such as reading technical specifications, plans, blueprints, etc.); when technology is exchanged orally; or when technology is made available by practice or application under the guidance of persons with knowledge of the technology.
What is “Technology”?
The EAR defines "technology” as specific information necessary for the “development,” “production,” or “use” of a product.
How to Determine If You Need a Commerce Export License
Even though a relatively small percentage of total U.S. exports and reexports require a license from BIS, you still need determine if a license is required. License requirements are dependent upon an item's technical characteristics, the destination, the end-user, and the end-use.
Consider asking the following 4 questions to determine whether your export requires a license:
What are you Exporting?
A key in determining whether an export license is needed from the Department of Commerce is knowing whether the item you intend to export has a specific Export Control Classification Number (ECCN). The ECCN is an alpha-numeric code, e.g., 3A001, that describes a particular item or type of item, and shows the controls placed on that item.
Where are You Exporting?
Restrictions vary from country to country. The most restricted destinations are the embargoed countries and those countries designated as supporting terrorist activities, including Cuba, Iran, North Korea, Sudan, and Syria. Note that there are worldwide restrictions on some products – regardless of where you are exporting them.
Who will Receive your Item?
Certain individuals and organizations are prohibited from receiving U.S. exports and others may only receive goods if they have been licensed.
For BIS, there are 4 lists that you must check:
What will your item be used for?
Some end-uses are prohibited while others may require a license. For example, you may not export to certain entities involved in the proliferation of weapons of mass destruction (e.g., nuclear, biological, chemical) and the missiles to deliver them, without specific authorization, no matter what your item is.
With grateful acknowledgment to the BIS Export Control Basics (Exporting 101) website. In addition to the above, this site contains a lot of other useful information.
Visual Compliance ~ A Software Tool to Help You Analyze
In August, 2007, UT System negotiated a System-wide, unlimited access license to use software relating to Export Controls. It is called Visual Compliance. As a result of this System-wide license, each of the 15 UT System campuses has access to Visual Compliance.
There is an Export Controls contact person for each of the 15 UT System campuses and this point person can register you – as well as an unlimited number of other people on your campus – to have unlimited access to Visual Compliance. Contact BethLynn Maxwell to find out the name of the Visual Compliance contact person for your institution.
The Visual Compliance website is user friendly. If you are already registered as a user, you can log on to Visual Compliance at https://www.visualcompliance.com/.
Here is a brief list of what Visual Compliance offers:
Additionally, the version of Visual Compliance UT System licensed keeps track of all of your searches – with a date and time stamp for each search.You can also generate reports to document the diligence you performed and the results of your search.
Visual Compliance can be/should be used by a wide variety of different offices at your institution – here are some examples:
Visual Compliance offers quarterly training sessions – the next training will be in June and all registered users will receive an email announcing the day, date, time, etc. for the training. This training is excellent for the first-timers, as well as, those of us who don’t use Visual Compliance on a regular basis. If you are not a registered user but would like to learn more about Visual Compliance and how it can help you do your job, please contact BethLynn Maxwell.
The Bottom Line: Export Controls is a complicated area which is highly regulated. Visual Compliance, the software that UT System licensed for its 15 member institutions, can make your job easier. Although determining an item’s Export Control Classification Number can be time consuming and difficult, it is a necessary step in the process of complying with current export control laws. Another necessary step in the export controls compliance arena is making sure that the person or entity you are doing business with does not appear on one of the restricted parties/entities list.
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