I. Introduction: Health Policy
a. Introduction: Healthcare Financing and Delivery System i. Insurance and Regulation (33-42) 1. Pre-1929: Neither medicine nor health coverage was very advanced prior to the Great Depression. 2. 1929-1940: Blue Cross plans organized by hospital associations, typically at the state level. 3. 1940s & 1950s: Workplace insurance became prevalent after the IRS deemed such benefits taxable neither to employer nor employee. 4. 1960s & 1970s: Expansion of government-subsidized health care through enactment of Medicare and Medicaid. 5. 1980s: Creation of Prospective Payment System (PPS) for inpatient hospital services under Medicare. Private firms moved towards managed-care through HMOs and PPOs 6. Beyond: Health spending continues to take-up an ever increasing portion of the GDP. ii. The Health Care ―Crisis‖ (42-50) 1. American medicine has been declared in a ―crisis‖ since the ‗60s. Health care counts for a larger portion of the GDP than any other sector of the economy. On aggregate, the U.S. ranks lower than many other developed nations in terms of health statistics. 2. What makes a HC system ―good‖? a. Cost b. Quality c. Access iii. Changes in Financing & Delivery Systems (50-56) 1. Insurance plans begin to attempt to constrain expenditures by playing an active role in the delivery of services 2. HMO (health maintenance organization) – subscribers receive their care from a limited group of providers 3. PPO (preferred provider organizations) & POS (point-of-service) – may not be subject to the same level of plan oversight as in HMOs; generally they may go to any provider, but their outof pocket payments are lower if they choose participating providers that give insurer discounted rates A Right to What? Defining Health Care (9-14; 20-33) i. Nature of Medical Practice (Commonly held notions on Pg. 10) 1. Doctors and Hospitals 2. Nature of Medical Judgment a. Variation in Practice – some docs don't define diseases the same. Also, difficulty in selecting a procedure for treatment i. How do we synthesize all the information? ii. Danger in oversimplification. A large number of incentive encourage simplifications that can lead to overutilization iii. Raises the question – Are medical decisions based in science? b. There is a culture clash b/t doctors and lawyers 3. Evidence-Based Medicine (76-81) ii. Moral, Economic, & Political Themes – Health Care Rationing 1. 2 questions: a. Who should decide what care is not worth the costs? b. What criteria of benefit should be used to make the determinations? Health Care Economics (68-73; 361-374) i. Economics – Market v. Regulation 1. Three approaches to medical care: a. Scientific professionalism – What medical science suggests a given patient needs i. Care allocated w/o regard to cost ii. Focus on Quality and Access




iii. Supporting Assumptions: 1. Medical decisions are scientific 2. Physicians are scientifically trained 3. Medicine is ―a technical activity with occasional moral and social overtones‖ iv. Consequences 1. Physician autonomy a. Surrogate decision making b. Professional self-regulation 2. Unitary standard of medical care a. Medicine is like water supply, not education v. Critique 1. How effective is medical care? 2. Is medicine based on science? 3. Can science alone determine appropriate medical policy? 4. Is professional regulation appropriate? vi. Command-and-Control Addendum 1. Preferred Hierarchy of Decision Making a. Private regulation (guild system) i. Most preferred b. Bureaucratic decisions by experts c. Uniform democratic state decisions d. Pluralism of market decisions i. Least preferred 2. Critique a. Can medical science answer all our policy questions? b. Can the requisite information be gathered? c. Does one size fit all? d. The monopoly problem e. The ―Nirvana‖ fallacy i. It is ridiculous to assume that docs can solve all the medical problems; therefore, the market should do all the work ii. Just b/c one option is bad, the next isn‘t necessarily good b. Hippocratic tradition i. Science and mystery ii. The inevitability of death iii. Caring and curing – Medicine as ―ministry‖ iv. Medicine is ―a social and moral activity with a technical substratum‖ v. Markets should not overrule virtue vi. Gov‘t should hesitate to interfere in personal relationship b/t doc and patient vii. Critique 1. Unscientific/Supernaturalist 2. Loss of cultural authority a. Loss of intelligibility in secular culture b. What is gov‘t buying? 3. Relies heavily on professional virtue c. Economic utilitarianism i. What informed consumers demand in a competitive market 1. Consumer sovereignty ii. Wealth affects ―consumption‖ of medical services iii. Supporting assumptions: 1. Medical decisions involve science, economic and value judgments 2. Resources are scarce 3. Tradeoffs are inevitable and desirable 4. Skepticism about the scientific basis of some medical care 5. Focus on cost



iv. Consequences 1. Consumer decision making 2. Physicians are advisors 3. Professionals are subject to dictates of marketplace 4. Multiple levels of case based on ability and willingness to pay v. Moral Hazard: the tendency of insured not to take precautions against insured risks and not to economize in the consumption of funds in the insurance pool 1. Health insurance tends to increase consumption of medical services 2. Managed care as a reaction to moral hazard 3. Efficiency of insurance despite moral hazard vi. US Tax Policy 1. Employer-provided health insurance premiums a. Deductible to employer b. Not taxable to employee 2. Tax incentive induces ―overinsurance‖ a. Exacerbates moral hazard problems vii. Can Markets Allocate Health Care Resources Efficiently? 1. Markets, Allocative efficiency and ―ordinary‖ goods and services 2. Three problems with markets and health care: a. Information b. Agency c. Moral Hazard ii. Economic and Regulatory Theory 1. California Dental Ass’n v. Federal Trade Commission a. Facts: California Dental Association (CDA), a nonprofit association of local dental societies, provides its members with insurance and financing arrangements, and engages in lobbying, litigation, marketing, and public relations for members' benefit. Members agree to abide by the CDA's Code of Ethics, which prohibits false or misleading advertising. The FTC brought a complaint against the CDA, alleging that the CDA's guidelines restricted two types of truthful, non-deceptive advertising: price advertising and advertising relating to the quality of dental services and therefore had violated section 5 of the FTC Act. b. PP: An Administrative Law Judge held that the FTC had jx over the CDA and found a violation of §5 of the FTC Act. The FTC adopted most of the ALJ's factual findings and held that the price advertising, as well as the non-price, restrictions were violations of the Sherman and FTC Acts. The Court of Appeals sustain the FTC's jx. c. Issue: (1) Does the FTC have jx over the CDA? (2) Does an abbreviated rule-of-reason analysis suffice to justify the conclusion that the CDA's advertising restrictions violated the Sherman and FTC Acts? d. Holding/Reasoning: 5-4 CDA. (1) Yes. FTC's jx extends to associations like the CDA, which provide substantial economic benefit to their for-profit members, but that because the disputed anti-competitive efforts were not obvious, more than the abbreviated rule-ofreason analysis, performed in this case, was required. ―Nonprofit entities organized on behalf of for-profit members have the same capacity... to engage in unfair methods of competition or unfair and deceptive acts." (2) No. Court of Appeals should have used a less-abbreviated standard of review to determine whether the FTC's invalidation of the CDA's rules was justified. Managed Care i. Weiner & deLissovoy, Razing a Tower of Babel 1. Argue that what usually distinguishes managed care plans from (plans) that are more traditional is that there is a party that takes responsibility for integrating and coordinating the financing and delivery of services across what previously were fragmented provider and payer entities" They then divide this broad category into five mutually exclusive types of managed care plans: a. fee-for-service plans with utilization review (what they call "managed indemnity plans" (MIPs)),


b. PPOs, EPOs, open-ended HMOs (O/HMOs), and c. Regular HMOs. 2. Although they propose a fairly complicated scheme for distinguishing among these five plan types, the crucial distinguishing features are twofold: a. Whether plans require their patients see certain specified medical providers (EPOs and regular HMOs do, MIPs do not, and PPOs and O/HMOs do but penalize patients who receive care from providers outside the network), and b. Whether physicians bear financial risk (only in HMOs do they do so, they argue, because HMOs rely on capitation). 3. With the exception of MIPs, they dub all these plans "integrated delivery systems." 4. ―Job-lock‖ ii. Corporate Restructuring: 1. HMO – the integration of health care delivery and finance. Bringing together of the two functions. Use finance to control delivery. a. Staff model – Has its on clinics b. Group model – more like insurance company. Has a K w/ 1 or more specialty groups c. IPA model – arrangement b/t HMO and a certain group of doctors 2. PPO – less integrated than an HMO. Economic incentive to use the doctors in the ―book‖. The doctors get in the book by agreeing to the reduced fee schedule 3. POS – capacity of a patient to choose care in or out of network; often grafted onto different networks 4. Direct employer contracting – another way of describing when a large employer self-insures and possibly makes arrangements with a network to get better plans for an employee a. Self-insurance with Third-party administration (TPA) 5. Three such features seem to us to be most critical: (1) the degree of risk sharing between providers and the primary risk-bearing agent (such as a health plan or a self-insured employer), (2) the degree to which administrative oversight constrains clinical decisions, and (3) the degree to which enrollees in a plan are required to receive their care from a specified roster of providers.

II. Introduction: The U.S. Health Care System
a. Right to Health Care i. United States v. Milligan 1. PP: Ds sought review of a decision, which convicted and sentenced Ds with 4 counts of mail fraud; 1 count of wire fraud; and 1 count of conspiracy. 2. Facts: D, uninsured friend, was injured, and D, insured couple, took him to the hospital and had him admitted under their insurance info as if he was the insured spouse. The insurance company investigated them. At first Ds denied all charges but then admitted they lied due to necessity. A jury convicted D couple on all counts and found D – friend guilty on five counts. DC sentenced them and ordered all to make restitution. 3. Holding: Court affirmed, finding that gov‘t‘s proof was sufficient to justify the jury's conclusion that Ds failed to establish a necessity defense, that the jury charge was fair, that a conspiracy existed, and that sentencing and order for restitution was w/in contemplation of the Sentencing Guidelines and DC‘s discretion. Private Health Insurance (164-187) i. The Virtues of Markets 1. Cost Containment: Allocative & Productive Efficiency 2. ―Constructive Destruction‖ (Schumpeter) – replacing old w/ new from w/in 3. Diversity & Private Decision Making 4. Accountability & Adaptability ii. The Trouble with Health Care Markets 1. Info Problems: Incomplete info (uncertainty about risk); Asymmetric Info (adverse selction); Externalities (risk selection & ―unsurance‖) 2. Agency Problems a. Differing consumer preferences



Innovation and ―Free Riders‖ – innovator takes a big risk while others can just copy e. Access to Private Health Insurance viii. Better Agents (encourage docs to provide quality over quantity). No balance billing 4. Negotiate lower provider fees (price) 2. Institutional services. Increase premiums collected? 1. Low income SSI receipts 5 . Moral Problems: Allocation. Insurance 5. Employers: May want the ―cheap‖ plan 3. How can you do it? a. Low income families receiving cash assistance (welfare) through DHR b. Raise prices? 2. Reduce claims paid and/or administrative expenses 1. These are ways to improve markets – not give up on them iv. Organizational Restructuring. Efficient administration v. Profit = Premiums collected –(claims paid + administrative expense) i. Patient Cost Sharing c. Children under age 19 and over to 100% of poverty level d. Uninsured Patients. Multiple Markets: Professional services. W/o Medicaid revenue. HYPO: 1. critical components of Alabama‘s healthcare infrastructure could not continue to exist: 52% of the patient days at Children‘s Hospital are paid for by Medicaid & 77% of the patient days at UAB Women‘s and Children‘s Center are paid for by Medicaid. Mandatory Medicaid Eligibility Groups (can be more generous): a. States may impose nominal copayments. Administrative Costs of a Fragmented System iii. Tax Reform. Cartelization d. Medicaid: Joint fed and state program that mainly covers ―poor‖ people 1. Paying for Health Care vi.b. Better Insurance Policy Designs 1. Physicians: Depends on whether the are paid FFS or capitation iii. Patient Cost-Sharing vii. Claims paid = price * volume a. Externalities and collective Action Problems 6. Imagine that you are the CEO of Acme Health Insurance Company. Optional coverage for ―medically needy‖ a. Increase premium volume? How? ii. Other Problems a. Children under age 6 and pregnant women whose family income is at or below 133% of the federal poverty level c. Ex: need permission of state for new health care services (AL legislature sees this as a way to keep costs down – Does this make sense?) c. ACA changes this approach 6. You want to increase your market share. Participating: almost 20% of AL‘s total population (tremendous budgetary issue for AL) 2. Barriers to Entry: Keeps costs from being contained & Occupational licensure i. Insurance Fraud. Solutions (?): Regulation. Public Health Insurance (187-204) i. Heterogeneity of Service b. 5. Agents‘ conflict of interests i. Grew out of the idea that we wanted to pay for deserving families who could not necessarily pay for themselves 3. Control utilization (volume) i. Better Information. Eligible: ―Deserving Poor‖: ―categorically needy‖ must be covered (welfare or SSI eligible). Paid: Federal matching grants to states. Insurers: Conflict b/t providing good care and being a good steward of resources ii. Insure healthy people b. social function of insurance? 4.

and advisories are periodically issued which describe coverage criteria. Cosmetic purposes or hair growth. Must Cover: Cancer medications. Family planning. There are some issues surrounding Medicare's use of DRGs because if the patient uses less care. Pays out only on strict calendar schedules. generally outpatient. This. 7. The actual allotment of funds is based on a list of diagnosis-related groups (DRG). if the patient uses more care. Screening svcs for kids. Excluded Drugs: Drugs for Anorexia. Eyeglasses ii. if time limits exceeded Part A stops paying. Optional Benefits: Dental svcs. Benefits: Inpatient hospital svcs. Nurse midwife svcs. 1-21. in theory. Codify ―economic substance‖ tax doctrine: Trying to get the CBO scoring of the bill elevated. rest by taxes a. Covers inpatient hospital stays and some skilled nursing care. Nonprescription drugs. Estimated: $4. should balance the costs for the hospital. premiums and cost-sharing. Benzodiazepines 7. Anticonvulsive treatments for epilepsy and other conditions. Part D: Prescription Drug Plans . Prescription vitamins and mineral products (except prenatal vitamins and fluoride preparations). Lab service. b. 4. On the national level these advisories are issued by CMS. Anyone with Part A or B is eligible for Part D. Supp. 2.5 billion revenue through 2019 6 . Indian Health Service PPACA Overview (Hall et al.some payment by enrollee premiums. weight loss. RESULT: Elderly pay for 18% of their health care expenses out of pocket iii. Covers: Persons 65 or over who receive SS or RR retirement system benefits. Paid: ―Social Insurance‖ Program financed through payroll taxes. Immunosuppressant meds c. Persons w/ end-stage renal disease (ESRD) 3." when a physician makes a more severe diagnosis to hedge against accidental costs. Physical therapy. New requirements for nonprofit hospitals: Uninsured people charged more than insured people c. Local Coverage Determinations (LCD) only apply within the multi-state area managed by a specific regional Medicare Part B contractor 5. Copayments a. Physician billing: Akin to fee-for-service c. Symptomatic relief of cough and colds. then the hospital has to cover its own losses. or weight gain. Deductibles. Doesn’t Cover: Long-term Care. b. Antipsychotic meds. CHAMPUS – civilian health care plan for military members vi. c. the hospital gets to keep the remainder. Part A: Hospital Insurance – payroll taxes which accumulate in trust fund a. Benzodiazepines d. This results in the issue of "upcoding. 23-38) i. rest by taxes a. Medicare 1. Physician svcs. rest by taxes a. Nursing facility svcs.d. Complex rules are used to manage the benefit. Fertility. FEHBP v. Timeline 1. Barbiturates. Effective at passage a. State review of insurance premium increases b. home health svcs 8. Not subject to federal appropriations process – it just gets covered. Helps pay for some services and products not covered by Part A. covers some preventative care. Payments based on prospective cost schedule. b. The actual amount depends on the primary diagnosis that is actually made at the hospital. VA – vet health care vii. Persons under 65 who have qualified for SS disability benefits. Antidepressants. State Children’s Health Insurance Program (SCHIP): For poor kids whose parents don‘t qualify iv. Part C: Medicare Advantage Plans – some payment by enrollee premiums. Uses capitation and network coverage 6. Prescription drugs. HIV/AIDS treatments. Part B: Medical Insurance – 25% paid by enrollee premiums. However. and are known as National Coverage Determinations (NCD).

Standard ―qualified medical expense‖ definition for all HSAs. New 3. Public reporting of physician performance data 7. hearing aids and other items generally purchases by the public at retail are exempt i. Executive Compensation Limitations: Health insurers may not deduct executive compensation in excess of $500k annually paid to any one executive j. Increase in early withdrawal taxes on HSAs and Archer MSAs g. . FSAs f. Medicaid expansion permitted: Parents and childless adults up to 133% of FPL b. Required use of uniform coverage documents e. and contributes at least 50% of the prem. Part D ―donut hole‖ rebate: Gradual reduction of coinsurance in subsequent years c. Temporary national highrisk pool. cost d. Electronic Exchange Standards c. Medicare rates for Medicaid physicians d. 2010 a. Fraud and Abuse Changes 2. 85% Medical Loss Ratio Requirement: Blue Cross plans only initially. Physician Payment Reforms: Medicare/Medicaid parity for primary care (greatly expanding Medicaid program. Insurance Plan ―annual fee‖ k. costs e. Medicare Advantage Program (Part C) payments frozen d. Employer disclosure of value of health benefit on W-2: Make you more aware of how much your health insurance plan is costing your employer and by extension – you e. contact lenses. 2. 2013 a. ―Eligible small employer‖: employer w/ no more than 25 FTE employees. annual wages of $50k or less. Medical Loss Ratio Reporting f. care vs. b.9% Increase in Medicare payroll tax for wages over $200k/$250k married filing jointly f. Increase in AGI threshold for claiming itemized deductions for medical expenses from 7. 2012 a. ARRA Medicare and Medicaid HIT incentive payments begin for eligible profs 5. elevate $ to doctors taking it. ―Eligible small employers‖ are eligible for tax credits of 35% of the employer‘s contribution to the purchase of employees health insurance ii. Hospital Readmission Tracking/Penalties d. Annual ―Pharmaceutical Manufacturing ‗Fee‘‖ – Anticipated annual revenue: $2. pays avg. Simple Cafeteria Plan for small businesses h. HHS must develop long-term care insurance program to be funded by voluntary payroll deductions c. 2011 a.8% tax on net investment income in the same salary range g. Alternative liability reform demonstration project funding j. Accountable care orgs. June 2010: $5 billion in temporary fed support to enable citizens with pre-existing conditions to buy insurance (Pending implementation of insurance exchanges). Small Business Tax Credit i.3% medical device excise tax: Eyeglasses. Insurers must begin providing a rebate to each enrollee if the amount the insurer spends on clinical services provided to enrollees is less than 85% (large groups) or 80% (small groups) of premium revenue b.5% to 10. Early retiree reinsurance coverage 3. 10% tanning Bed Tax g.5% e. Phase-in of new Medicare Advantage payment system begins: tied to state spending levels and quality scores 6. 2014 7 . Executive Compensation limitations h.5B i. Medical Liability Protections – Hardly any med mal reform 4.d. Hospital ―Value-Bases‖ purchasing programs c. $2500 cap of FSA contributions b.

Fed Medicaid matching & expansion: 100% fed matching (2014-16) for state Medicaid funding and increase in Medicaid eligibility to 133% of FPL for all non-elderly b. Flexibility in selection of primary care physicians. (2) Enrollment of add‘l family members/employees pursuant to plan terms doesn‘t cause loss of ―grandfathered‖ status. No routine care denials due to participation in clinical trial 2. The decisions can only be overridden by the same process it takes to pass a bill c. assessed a monthly penalty equal to 1/12of $2000 for each fulltime employee. (3) Collectively bargained plans ratified on or before 3/23/10. Small Business Tax Credit (Phase II) h. essential coverage‖ to employees ii. 200 (individuals) and $27. If that is not done. Phase II c.. High-cost health plan excise tax: ―Cadillac tax‖– 40% tax on insurers/plan admins for portion of premium amount above $10.a. Value-Based Payment Program (―pay for performance‖) b. ” i. Employers – ―Pay or play‖ i. Lg. Provider and Plan Payment Changes 5. Independent Payment Advisory Board: Can recommend provider payment reduction. Phase I (September 2010): “When health reform passes. No pre-existing condition limitations for enrollees under age 19. ―Essential Health Benefits‖ requirement (except ―grandfathered plans‖) 8. Optional Large Employer Participation in Exchanges e. but not all.500 (families) (2018) ii. Premium Tax Credits g. In 2014: Medicaid expansion to cover everyone up to 133% of Federal poverty level (100% Federal financial assistance to cover expansion until 2016. you will be able to keep the coverage you have today . All plans: Blanket prohibition on pre-existing condition exclusions. when states start picking up costs) 3. Individual Coverage Requirements and Penalties (―individual mandate‖) e. 2015 and beyond a. Must provide ―essential health benefits‖. Public Coverage Programs: Gradual elimination of Medicare Pat D ―donut hole‖. Insurance Market Reforms. Non-grandfathered plans: Must cover immunizations and preventive care w/o cost-sharing. Applicable to all plans: No lifetime or annual dollar limits on benefits (exception for restrictions on benefits that are not ―essential health benefits‖). Delivery System Reforms 4. excluding first 30 employees 8 . nonpayment of premiums or termination of plan. Insurance Exchanges d. Reform Categories 1.5x) – Can reduce premiums based on well-ness programs) Limitations on cost-sharing: Limitation of about $6000/individuals. No rescission. Guaranteed issue. Maximum 90day waiting period ii. No prior authorization for ER visits) b. Insurance Market Reforms a. Non-grandfathered plans: Limitations on premium rating (Only can rate premiums based on age (3x is the limit). Benefit Summary/Reporting Requirements iv. employers (>50 FTEs) must offer ―min. Fee for Employers Not Offering Coverage (―pay or play‖) f. Comply with patient protection requirements (e. are also grandfathered for some purposes iii. Financing a. ―Grandfathered‖ plan is: (1) Group health plan or insurance coverage in which an individual was enrolled on 3/23/10. but most restrictive consumer protection guidelines apply d. Interstate Health Choice Compacts: Insurance offered across state lines. reforms ii. Phase II (2014) i. . misrepresentation. tobacco use (1. Some plans are ―grandfathered‖ with respect to some. except for fraud.g. regardless of whether the coverage is renewed after that date. Health Insurance Sector ―Annual Fee‖ i. Must cover dependents through age 26. .

Yes b. Requires everyone to purchase HI unless the cost of insurance is greater than 8% of income (―individ. 2. 5. just a tax that falls on people who elect not to engage in the transaction c. Provides tax incentives for small employers to provide health coverage. If they offer coverage but do not contribute sufficiently to its cost to make it affordable. Expands Medicaid for those with incomes less than 133% of FPL. Penalty is capped at an amount equal to the national average premium for ―bronze‖ health plans offered through state exchanges iii. Moves toward universal coverage: 1.735).05% of income. Facilitate individual and small group enrollment in health plans – brings all options together in 1 place. 2. denied claims. Limits ―whole hospital‖ and ―rural provider‖ Stark Law exceptions to hospitals that have Medicare provider agreements and physician investments as of 12/31/10. Violations of Anti-Kickback Statute = ―false claim‖ b. Subsidizes insurance purchases through tax credits where premium cost is greater than 9. 2016: $695 or 2. Penalty: 1. etc. No employer penalty is due where an eligible employee uses a free-choice voucher to enroll in an Exchange plan. mandate‖) 2. justifications for premium increases. a. Insurance Exchanges (Likely models on Massachusetts Connector) 1. Cuts in Medicare spending f. b. Present transparent info consumers can make informed choices. 4. or $2. New payroll and investment taxes d. plus other requirements d. Subsidizes cost-sharing for families with income < 400% of FPL (Sliding scale). ―necessary and proper‖ – mandate is incidental to insurance market reforms that are clearly within government‘s power (Severability?) c. Responses: a. Imposes patient disclosure requirements with respect to imaging services provided pursuant to in-office ancillary services exception iii. 2. Sate-run marketplaces designed to: 1.5% of income. the employer is assessed a monthly penalty equal to 1/12 of $3000 for each such employee iv. enrollment. and an employee enrolls in a plan through the exchange and receives a premium credit or cost-sharing reduction. 9 .iii. 6. 3.5% of income (or employer plan actuarial value is less than 60%) and income < 400% of FPL. States begin absorbing increased Medicaid costs in 2017 g.313. IM and the Commerce Clause: Alleged infirmity – Can gov‘t require one private party to do business with another private party? 1. Amendment clarifying that AKS violation doesn‘t require specific intent to disobey the law (Reversing Hanlester (9thCir. Participation in exchange will also provide regulatory ―lever‖ with respect to federal quality regulation on health plans iv. Penalizes ―large‖ employers (>50 FTE) who fail to provide health coverage.) and similar decisions) c. Premium Subsidy Example: Pat is 45 years old and has an income in 2014 that is 250% of poverty (about $28. P would not be required to pay more than 8. whichever is greater 2. Access and Affordability 1. Individuals must buy HI as long as premium costs less then 8% of income ii. Compliance and Transparency (aka Fraud & Abuse) a. whichever is greater 3. Individual Mandate i. Miscellaneous taxes an fees e. The cost of the second lowest cost silver plan in the exchange in Pat‘s area is projected to be about $5733. No requirement. Under PPACA. Called job-killing act b/c employers will have to pay extra $ to employ people 6. to enroll in the second lowest cost silver plan. 2014: $95 or 1% of income. 3. Receive and evaluate data received from health plans w/ respect to claims payment policies.

b. PP: Circuit Court entered judgment for D physician. employers must offer coverage including “EHBs”. Edingfield i. 2. The decedent's messenger informed D of decedent's violent sickness. 98-103) 1.000 per year (about 230% of FPL). usually. or expected length of life. Duty to Treat a. iii.‖ vii. the physician. including behavioral health treatment. but they cant turn away patients in an emergency until their condition is stabilized. Usually. Transparency b. Community vs. ii. advanceable) tax credit available to P would be $3420 ($5733-2313). the Secretary may not: ―make coverage decisions‖. An independent physician may. Access to Health Insurance: Medical underwriting. Insurance market reforms a. Quality of Health Insurance: Adequacy of benefit package. Hurley v. in obtaining the state's license to practice medicine. Government-run plan that could have been included as an option in state insurance exchanges 2. Consumer choice. Secretary must also ensure: EHBs are not denied against the wishes of patients ―on the basis of the individuals‘ age or expected length of life or of the individuals‘ present or predicted disability. a.‖ 4. When the decedent became dangerously ill. In defining EHB. 4. not a compulsive measure. is absorbed by plan and billed to the gov‘t 4. Decedent died. The (refundable. Administrator appealed. 4. J‘s cost sharing is limited to $2975 (50% of $5950 individual out-ofpocket max). a patient-provider relationship is consensual & both parties must agree. The “Public Option” 1. disability. 3. he sent for D. degree of medical dependency. and stated to him that no other physician was procurable in time and that the decedent relied on him for attention. Elim. costs $). Health plans offered in exchanges include “EHBs” 1. Experience rating. ―establish incentive programs‖. Federalism – states have usually been regulators of health care. ―design benefits in ways that discriminate against individuals b/c of their age. or quality of life. Rights to Treatment: i. Holding: Court found that the act of regulating the practice of medicine was a preventive. All cost sharing over that amt. Issues: 1. Essential Health Benefits – Mostly vague term appearing several places in the legislation: 1. ―Medical necessity‖. Emergency services. Restrictions on annual limits on ―EHBs‖. Consumer protection v. lifetime policy limits on ―EHBs‖. Facts: D had been the decedent's family physician. seeking damages for D‘s allegedly wrongfully causing the death of the deceased. 90-96. 2. cost-benefit analysis and quality. 3. refuse to accept patients for any or no reason. Pathway to single-payor? vi. State Law (83-88. administrator of the deceased. Prescription drugs. Laboratory services. 3. Thus. Mental health and substance abuse disorder services. Lg. Maternity and newborn care. J sustains a serious injury. requiring repeated doctor visits and hospitalization. Opponents: government gets benefit or Medicare pricing 4. Under PPACA. The politics and economics of mandated benefits (They‘re expensive – every time something is added that people have to cover. Culture wars III. Pediatric services. Adjudicating Disputes Over Health Care Resources a. ―determine reimbursement rates‖. Hospitalization. Cost-Sharing Subsidy Example: John is 40 years old and makes $25. Rehabilitative and habilitative services and devices. Statutory definition: Ambulatory patient services. The wrongful act alleged against D was his refusal to enter into a contract of employment with the decedent. was not required to practice at all or on other terms 10 . Preventive and wellness services and chronic disease management. in an action against the D commenced by P. including oral and vision care 2. W/o any reason D refused to render aid to the decedent. Proponents: keep private sector plans ―honest‖ by giving them competition 3.b. tendered him fees for his services. Scope of EHB: ―equal to the scope of benefits provided under a typical employer plan‖ 3. The same is true to a lesser extent for hospitals.

for refusing to furnish medical treatment to the child in an emergency. Shows the reach of EMTALA b. ii. sleeplessness. or b. NO Duty to Treat c. but the child died in the afternoon of bronchial pneumonia. Ct. Ct. the administrator of a decedent infant's estate. if necessary i. Holding: Court concluded that the doc violated EMTALA and government regulation under EMTALA was not an unconstitutional taking without just compensation because only hospitals that voluntarily participated in the federal government's Medicare program had to comply with EMTALA. Holding: Ct. Emergency medical cond. Elements of a successful EMTALA claim a. Failure to stabilize the emergency condition (or labor) c. Creates Two Distinct Duties: (1) SCREEN (2) STABILIZE 2. 11. Problem: Brenda Baber – on page with EMTALA statute & Problem a. Hospital‘s obligation ceases once patient has been admitted and condition has been stabilized 5. Parents returned home and made an appointment to see the child's doctor that evening. is defined in (e)(1). 4. saying it was hospital policy not to treat a patient who was already under the care of a physician. affirmed denial of SJ but disagreed with the trial court's reasoning. Failure to screen for emergency condition. 8. Wilmington General Hospital v. Hospital can‘t divert a non-hospital-owned ambulance unless there is an inability to provide treatment to the patient. ―To stabilize‖ is defined in EMTALA (e)(3)(A). b. Facts: Parents took their baby to the ER of a hospital. Burditt v.than he might choose to accept. Did B have an emergency med cond? Did Doc deviate from normal routine b/c B was uninsured? 11 . PP: Hospital (D) appealed an order of the trial court. Sup. D was not required to have entered into a contract of employment with the decedent. if the patient relied upon a well-established custom of the hospital to render aid in such a case. iv. ii. Failure to appropriately transfer emergency patient. Note: only hospitals voluntarily participating in Medicare program are subject to EMTALA 6. – There is no requirement/need to show an improper motive for lack of stabilization 7. which denied the D‘s motion for SJ but held that D was liable to P. The nurse refused to admit the baby. EMTALA is triggered whenever a patient is on hospital property 9. Therefore. iii.S. and diarrhea. the physician had refused to treat a Medicare patient in active labor and had signed a transfer order w/o specifying the required reasons to justify the transfer. Physician certified that benefits of transfer outweigh the risks 3. Facts: The federal agency responsible for administering Medicare assessed a fine against the physician for violating EMTALA. iv. U. presenting a history of two days of high temperature. The administrator of the infant's estate filed suit against the hospital. EMTALA 42 USC 1395dd (103-109) Federal Patient Dumping Statute 1. explained that D was a private institution and had the right to deny any person admission or treatment. and deviation from the statute puts you in violation. Distinguished by Bryan b/c the patient was already admitted and EMTALA was intended to regulate the hospital‘s care only in the immediate aftermath of the act of admitting her for emergency treatment. Hosp should‘ve given B the screening that anyone w/ her symptoms gets. However. Department of Health and Human Resources i. EMTALA compliance is strict. Manlove i. iii. Request for transfer in writing (with informed consent) ii. Hospital has duty to treat in “unmistakable emergency” d. a hospital's liability could be predicated on the refusal of service to a patient in an unmistakable emergency. There is no exception for futile care under EMTALA (In re Baby K) a. 10. Must comply w/ EMTALA regulations ii.

e. the clear and unambiguous language of the policy dictated that D properly denied coverage for the treatment. Kline under EMTALA? See (d)(2)(A)…No. Goldberg – may be entitled to a pre-treatment determination 3. D2 argued that its policy did not cover a hospital confinement for obesity and that the care rendered to the patient was convalescent or sanitarium type care. Court accordingly held that P had received a full and fair review as required under § ERISA. seeking coverage for high-dose chemotherapy w/ autologous bone marrow transplantation. but it was certainly a condition. only remedy is cost of treatment. Court agreed w/ D that its plan did not authorize reimbursement for the procedure and that D‘s complaints committee lacked authorization to make its recommendation that D should cover the treatment. Retrospective utilization review: determine when care is medically necessary after it has been administered 2. 6. e. which denied her motion for SJ and granted SJ in favor of health plan (D) in P‘s suit against D under ERISA. Only remedies are injunctive relief or pmt of treatment cost. Default: De novo review b. To stabilize B. Zorek (260) a. c. c. full coverage existed for the hospital stay. Could Ms. c. Holding: Court disagreed w/ D2‘s position and awarded judgment in favor of the patient's husband in the exact amount of the judgment that the hospital obtained against the patient's husband. but Medicare can levy fines against non-complying docs. Court further noted that the test called for an exercise of judgment and the court concluded that the applicable standards of judgment had to be those of the treating physician. even applying de novo review. an experimental treatment. D refused to cover the treatment. aside from head injury. If patient dies before it‘s given. which was governed by the Employee Retirement Income Security Act. Outcome: Court granted judgment in favor of P against the D1 and also granted the D1 a judgment against D2 for the same amount awarded to P. they would‘ve had to refrain from transferring or discharging B. Prospective utilization review: done beforehand a. Note: No punitive damages under ERISA. Determining What is Medically Appropriate 1. 259-279. and K did not specifically exclude that treatment. Bechtold v. Physicians Health Plan of Northern Indiana (p. Look at language of K. Court concluded that the test was whether the confinement in the hospital was necessary for proper treatment. which the policy excluded. Doc’s judgment should determine medical necessity 5. & would‘ve had to perform brain surgery. Facts: Hospital (P) filed an action against patient's husband (D1) for payment of hospital expenses that arose out of treatment of the patient for obesity. Facts: P sought coverage from D. Concurrent: 4. b. Thus. d. Baber have sued Dr. D1 filed a third-party action against third-party defendant health insurer (D2) to provide coverage and reimburse for the hospital expenses incurred in the treatment of the patient. 294) i. Analysis (Met Life): a. doc would‘ve had to prescribe her medication so that she would return to a normalish state. Benefits Litigation (ERISA Statutory Supplement. to treat breast cancer. for high-dose chemotherapy with autologous bone marrow transplantation. PP: Beneficiary (P) sought review of a decision. P brought an action to recover benefits for the treatment. If docs had found head injury. if the treating physician chose a treatment for which hospitalization was proper. Holding: Court affirmed and stated that under the facts in the case. Penalty not to be imposed d. D2 also argued that obesity was not an illness and therefore not included within the policy's coverage. d. Court noted that whether or not obesity was an illness was debatable.263) a. Mount Sinai Hospital v. Next step: deference unless there is a conflict of interest 12 . b.b.

Facts: The HMO denied coverage for an unconventional surgery for the beneficiary's shoulder pain as not medically necessary. Supreme Court held: (1) Statute requiring HMOs to provide independent review of disputes b/t primary care doc & HMO. Holding: Court held that the state statute was a law "directed toward" at the insurance industry. Yes. g. An independent medical review of her claim. law must be specifically directed to insurance industry rather than simply having impacting it. (3) Statute didn‘t impose scheme at odds w/ ERISA civil enforcement scheme. and the contract provides that ―Administrator shall have the right in its sole discretion to make benefit determinations under the plan and to interpret the provisions of the Plan. & (4) Statute didn‘t conflict w/ ERISA by depriving HMOs of deferential standard of review of benefits determinations. HYPO 1: ABC Widget Corp operates an employee benefit plan by purchasing group insurance for its employees from the local Blue Cross plan. Glenn) case clarifies these rules and tries to determine whether the plan abuses its discretion in the interpretation of the plan – conflict of interest is only one factor that the reviewing court should take into account 8. the beneficiary went ahead w/ surgery at her own expense. noted that the state statute bore a closer resemblance to second-opinion requirements than to arbitration schemes. The state law operated before the stage of judicial review and its effect was no greater than that of mandated-benefit regulation. (2) Statute didn‘t conflict w/ ERISA by supplementing its civil enforcement scheme. e.‖ a. and all such determinations and interpretations shall be final and binding upon any party affected by such decisions. the plan documents give the administrator discretion and there is no direct conflict of interest b/c BC just runs the administrative services ii.‖ a. Problem: Appealing Adverse Medical Patient Appeal Procedures a. Ct then tests results of inquiry by employing 3 factors used to point to insurance laws spared from fed preemption under McCarranFerguson Act. Moran (p. HYPO 2: ABC Widget Corp operates a self-insured employee benefit plan. & to cover services deemed medically necessary by independent reviewer. K provides that ―Administrator shall have the right in its sole discretion to make benefit determinations under the plan and to interpret the provisions of the Plan. the plan documents give the administrator discretion ** A 2008 US Supreme Court case (Metropolitan Life v. 7. Yes. and an insurance regulation under a commonsense view. thus it was not preempted by ERISA. If so. There is an indirect conflict of interest b/c BC has an incentive to deny claims and be economical so that it can conserve the $ of the client 1. then: that is used as one factor in determining whether there was an abuse of discretion instead of just going right back to de novo review Rush Prudential HMO v. Will the court defer to plan benefit determinations? i. regulated insurance under ERISA‘s saving clause.c. and all such determinations and interpretations shall be final and binding upon any party affected by such decisions. It hires Blue Cross to provide ―administrative services only‖ in connection with the Plan and names BC the plan administrator. Ct starts w/ common-sense view. USSC says that this is a conflict of interest as well 9. f. Will the court defer to plan benefit determinations? i. Ct. Blue Cross administers benefits under the plan. found that the procedure was medically necessary. Ct. rejected the HMO's arguments holding that the state statute did not enlarge a claim beyond the benefits available in any action brought under ERISA. How do we approach this type of problem? 13 . Yes. While the ensuing lawsuit was pending. In deciding if law ―regulates insurance‖ under ERISA's saving clause. Outcome: The judgment of the circuit court was affirmed. as provided for in the Illinois statute. Is this a strong enough incentive to reduce the level of the deference given by the court? a. 267) d.

Shift to prospective payment based on DRGs 2. depreciation. he can get sued. Helped reduce rate of growth of Medicare inpatient spending. One PPACA becomes effective. Payment rate is set ―prospectively‖ on the basis of diagnosis (DRG selection) iv. Incentives? a. including capital costs. Resource-Based Relative Value Scale (RBRVS) 3. Prospective Payment System (PPS) 1. B/c coverage denials affect treatment decisions. From ―Usual. Want to know whether ERISA is applicable. Diagnosis-Related Groups (DRGs) i. Pilot Light v. Game codes? 4. Instead of rewarding for incurring more costs. Competitive Bidding iii. Does it give the plan administrator discretion to make decision or not? Is there a conflict of interest? c. can be modified for other cost factors 1. Nagele and Welch. wanted to figure out a way to be more efficient – one set price for his patient for this diagnosis ii. a. but government scaled back payments c. LOS: from 10. Single payment per hospitalization 2. Regulating Health Care Providers a. Could this be a self-regulating situation? If he doesn‘t feel comfortable doing it. Resource-based relative value scale (RBRVS) 14 . If the doctor hasn‘t done it before but says that he can do it. “Prudent Purchasing” 1. Payment assumes average cost of treatment for patient with the diagnosis in question. Discharge patients ―quicker and sicker‖? c. Fee Schedule a. Doe – bad faith claims against ERISA are preempted – too bad for patient a. utilization review might be characterized as an illegal interference w/ medical judgment 11. The New Healthcare – has a very pro-doctor slant ii. Physician Payment i. Recall discussion of the incentives this created b. customary and Reasonable‖ to Fee Schedule a. Hospital profitability: initially high. etc. everyone will have the right IV. (Rush) d. but mostly offset by increased outpatient spending iv. Shift to prospective payment 3. Physician Payment 1. Blanket exclusion: As an HMO. 10. Want to know what the plan says. From ―Reasonable Cost‖ to PPS a. the clause will control.b. Medicare & Medicaid Appeals a.3 days to about 7 days b. Traditional – UCR payment 2. Results a. No clear evidence of quality diminution e. he won‘t do it out of fear of a lawsuit. Decrease in inpatient admissions i. Increase in outpatient treatment d. Medicare statue prohibits federal supervision/control over practice of medicine b. Efficient care? Or just inexpensive care? b. Old Method: Medicare paid ―reasonable cost‖ or caring for patients. Medicare classifies diagnoses into 23 categories & a/b 500 subcategories (DRGs) iii. Medicare uses physician peer review to reconcile noninterference w/ the need for judging medical necessity c. unless there is a state law that governs.

Law says you can‘t do that. Physician Quality Reporting Initiative: ―Pay for reporting‖. was therefore against public policy. Distribution of $ ii. K was null and void as a violation of CPMD. Bonuses for top 10% hospitals based on performance benchmarks for AMI. The doctors‘ corp. May be reduced if it is a onprofit because motivations are different. (3) No sense when applied to licensed hospitals v. Survey of patients‘ hospital experiences 3. report the event (to a state agency. ACOs – integrated partnerships of hospitals and providers b. Patient elopement (disappearance). incentive to make a profit over treating patients fully iv.). Reduce costs. Codington County (p. CMS Premier Demonstration Project i. ―Appearance‖ of nobility of profession. undermining professional ethics. pneumonia.5% bonus f. Surgery on the wrong body part. Hospitals and Gainsharing a. Reports Medicare-gathered data to facilitate hospital comparison i.‘s inject the profit motive into professional practice. Corporate Practice of Medicine (459-471) i. Physician Ratings 5. Foreign object in body after surgery. Salary 5. Hospital process-of-care measures: Surgical infection prevention process of care. Death/disability from medication error. Physician Tiering: Pay physician better if they meet certain standards 6. which incorporated. CABG and hip and knee replacements d. Heart failure process of care. Hospitals tell docs – if you meet benchmarks. Preserve physician authority. 2. (2) No sense when applied to non-profit. waive the cost c. 1. practicing medicine in violation of CPMD. Bonus/penalties based on reporting 4. Pay for Performance/Value Based Purchasing (P4P) a. Concern about commercialization: docs wouldn't care as much a/b their work b/c it would be less personal. You cant take your money and give it to someone else to make medical decisions – could compromise docs‘ medical judgment b. Cons: Lets doctors do what they are good at (efficiency). tried to payment for services provided. Bartron v. County said it didn‘t want to pay and wouldn't b/c it was a corp. we will share in the benefits w/ you. etc. Heart attack process of care. not lay people. etc. CMS Hospital ―pay for reporting‖ – Report indicators or face 2% penalty e. Corp. Also. Should also apologize. ACOs. Pros: Prevents commercialization. Children‘s asthma process of care ii. Nobility of profession.b. Better incentives – in terms of information (market competition) iii. Don‘t just pay for doing something. 459) 1. Prevents commodification. Lawsuit started when corp. Capitation 4. Concern about conflicts of interest. Gainsharing – splitting proceeds of efficient care between doctors and hospitals i. Bonus/penalty/withhold? 3. perform a root –cause analysis. ―Never Events‖ a. Holding: County didn't have to pay. Facts: Docs associated into a clinic. There has been a good bit of resistance to these things d. accreditor. Examples: Artificial Insemination with the wrong donor sperm or egg. heart failure. Which method is best? v. Surgery on the wrong patient b. Goal: Transform Medicare ―from a passive payer to an active purchaser‖ 2. Corp comprised of docs. Ct voided collection action although there was no unlawful action b/c tendency for conduct was there. Privately generated information: NCQA and MCOs. Pay for generating good outcomes b. Hospital outcome-of-care measures iii. and in violation of CPMD 15 . Improving Payment Strategies 1. Pneumonia process of care. ―You get what you pay for‖ c. States are going 3 ways: (1) CPMD makes no sense.

G doesn‘t keep his practice a secret & tells those docs his practice each time he meets a new one. Cost – economic & social d. were inapplicable to a licensed hospital in the modern health care industry. Berlin v. Holding: Ct rejects D‘s argument & says that just b/c some payment may be for services.580) a. Yes. even for legitimate services. 3. Ordinary Fraud – send Medicare a bill for services you didn’t provide 2. Commercialization of the profession e. compensating for services actually rendered could not be a violation. so the 40% he returns to referring doc is for services (by interpreting results for patient). The statues are designed to preserve the public health by excluding from practice persons w/o adequate morality. c. Primary care doc would be violating AKS (b)(1)(A) if he accepted G‘s payment. Primary care doc might care more about the money than the care his patient would receive from G. G only committed a felony under AKS if the patient is a Medicare or Medicaid patient.10 Services Provided by Multiple Physicians. A ―where to refer‖ problem. States are going 3 ways concerning CPMD: 1. Has a long list of exceptions: a. Sarah Bush Lincoln Health Center (Modern CPMD – p. Whether to refer. G‘s conduct is a violation of the AMA’s E-6. Trial court said the non-prof hospital violated CPMD. 2. Practicing health care in a way that the government disapproves of ii. Makes no sense b/c hospitals employing physicians aren‘t practicing medicine. c. which supported the corporate practice doctrine. b. United States v. Exception (3)(a) – for a properly reported discount. and Exception (3)(b) – allows for employees to be paid.02 Fee Splitting prohibition and possibly AMA E-6. c. 2. Problems w/ G‘s practice? a. 587-600) 1. b. it violates AKS (b)(2)(A) b/c G is paying remuneration for patient referrals. The court also held that the public policy concerns. remuneration is tailored to broadly cover doctor actions. Holding: The court declined to apply CPMD to licensed hospitals. Greber (one purpose test) (p. 2 aspects: 1. Doc creates a conflict of interest. No sense when applied to non-profit 3. 16 . b. D argues that payment for professional services cannot be basis of fraud under AKS. Right of Corporation to Practice Medicine 1. No sense when applied to licensed hospitals b/c the hospitals are authorized by other laws to provide medical care ix. Whenever primary care doc sends G a patient. 1. AppCt aff‘d. vii. There is also an exception for an HMO type price negotiation. Abusing the system b. viii. Regulatory Fraud – “fraud and abuse” a. 2. just making it available 2. HYPO: G is a cardiologist. D insists that absent a showing that the only purpose behind the fee was to induce future services. if part of it is to induce referrals it is still a violation. Fraud and Abuse: i. 2. b. made with any purpose of inducing referrals are barred. Will the conduct violate the AKS? a. Facts: Doctor sought to invalidate restrictive covenant after he took a job < 1 mile away. The Anti-Kickback Statute (579-581. Rule: Payments. he sends doc $100. iii. Professional corporate laws now allow groups organized like one in Barton. 465) 1. Under the AKS. ability. Corporate Practice of Medicine and Choice of Entity (Notes: 467-71) c. Facts: D argues that referring doc is actually performing a service for which he should be compensated. c.

Referring docs participating in treatment is possibly a violation of E-6. AKS. & not referring facility. Prohibits fee-splitting 5. AKS analysis of referring doc participating in treatment: Under Greber test. ―Where to refer‖ & commercialization objection: ―if doc didn‘t get consulting fee. f.i. ―referral‖ would be that LPs are referring patients. & influencing w/ financial considerations decision of where best to refer a patient (where). b/c must be treated. iii.582) 17 . Joint Ventures and the “Gray Area” (582-584) 1. increasing charges for needed services (cost). ―The law isn‘t interested in whether the program was well run. law clearly states that providers cannot pay for patient referrals. Cost objection: full opinion states that Medicare may be paying higher prices b/c of these arrangements. The other centers always prescribe a return visit iv. Shalala (p. it comes down to the subjective intent of the referring & participating doc. . prosecutors do not follow the Greber test by their own discretion. c. Court held that materiality was an essential element and further held that the record contained enough evidence to support the district judge's ruling that the certifications to Medicare were material. ―Remuneration‖ would be doc‘s ROI. e. doc is supposed to have a follow-up visit. (Though Greber suggests that this might not be enough) b. Physicians paying for machine – hoping to get money from sending a lot of patients there iii. The Hanlester Network v. The Anti-Kickback Statute a.8) – a. Also possible violation of AMA E-6. Saying there should be no ―documentation‖ probably wasn‘t smart even though lawyer was trying to keep client out of trouble.03 b/c payment comes from insurance co. Cross-referral apparently doesn‘t violate E-6. b.05 b/c doc doesn‘t really do anything. Fees incidentally related to a referral are valid if they don‘t exceed the FMV of legitimate nonreferral services bargained for at arm‘s length. etc could be indicted based on this type of cross-referral that violates the language of AKS. . Identify the places in the fact pattern that would bring the anti-kickback statute into play: i. Likely not a whether to refer problem. 6. but got off. Referral fee statutes are intended to prevent: ordering unnecessary services (whether). Direct payment of the Fee! ii. he wouldn‘t use Δ‘s service. a.‖ ii. but it is still possible that docs. g. benefited patients or saved Medicare money . The Ls were acquitted after a widely publicized prosecution alleging that they had structured sham transactions for their hospital client as part of a conspiracy to violate AKS. specialists typically send patients back to where they come from. Little Rock Treatment Center Problem: For LP. Anderson (Safe Harbor Handout p. The jury apparently found that documents and testimony contained enough evidence to support the government‘s conclusion 3. Is follow up care necessary for everyone? c.03 & a where to refer problem. b. Facts: Hospital paid docs to continue referring patients. it is valuable. the potential to influence where a patient is referred. iv. 4. Is there remuneration for referral? Yes. Any incentive plan that has a referral aspect in a literal sense will always conflict w/ at least one of the statute‘s stated purposes – namely. Cross-referral could be remuneration as well. Allowing the doctor to ―assist‖ – they could then bill the Medicare program for participating in the procedure. not really a flat-out referral fee. Recommending for referring doctor may be indirect remuneration d. Safe Harbor Regulations (handout) 2. Normally. Ls were tried in add‘n to hosp execs & docs. But. AMA Principles (handout) a.

all docs. but mere encouragement to refer is not. actual referral fees are not involved in docs‘ return. 8th: ct refused to adopt ignorance is no excuse reading. United States: SC held that ―as a general matter. All. therefore. Enterprise is structured so that docs only receive a ROI. Court in Kansas dismissed a case against a group of doctors finding that they tried in good faith to structure an arrangement that they thought complied with the law 5. 3. so she met ―knowingly & willfully‖ requirement under AKS. Investment interests (a)(2): 8 standards must be met for safe harbor to apply (see handout).) basically says ignorance of the law is an excuse when it comes to the AKS. Hithcock (VP of Marketing) untruthfully told potential investing docs (LPs) they must refer patients to lab b/c ROI depends on it. Argument is docs get an ordinary ROI w/ little effect by their own practices. & owners/officers got off the hook except for Hitchcock. Money goes from Medicare. managers are active investors. out to docs (LPs). First. a ‗willful‘ act is one undertaken with a ‗bad purpose. you can‘t induce referrals.a. so they could all make referrals (100% > 40%). if one purpose is to induce referrals then AKS is violated. One argument is that the only reason to include docs is to generate business through their referrals to the labs in which they have invested. labs. but you don‘t have to know which Code § makes it so. Facts: See p. Actual investment of docs seems insignificant & only serves to lower ROI of GP. e. What is a good middle ground between Hanlester and the AMA section imputing liability without knowledge? a. Ct (9th Cir. bad faith triggers statute. ii. Argue that you fit into as many of the provisions as possible & there is 18 . b. took steps to stay w/in law. it is not necessary to show knowledge of the precise statutory provision in question. Hanlester (GP). 11th: in Starks. Under AKS.‘‖ which the Court defined to mean acting ―with an evil-meaning mind‖ and ―with knowledge that [the] conduct was unlawful. 2. Scienter requirement in other jurisdictions: a. All courts have not accepted this analysis and Hanlester has been called into question in other circuits. Docs share risk. Holding: Hitchcock knew what she was doing was illegal. Limited partners are passive investors. 1. b. Under Hanlester. Also helpful/req‘d to ask whether transaction was at FMV. Must determine how tightly tied the doc‘s decision to refer is to his ROI. Safe harbor protects you from AKS. c. Stark Law violated? No. What is wrong w/ the Hanlester venture? i. Inducing referral is a violation. Any single doc‘s referrals are unlikely to affect his ROI. except Hitchcock. GP.‖ However. Also no prohibited subjective intent to disobey the statute. b. Remuneration is discount that SmithKline gives to ―shell‖ labs & is passed on to docs & Hanlester by ROI. all of the LPs were urologists. So doc ROI depends only on investment. venture may or may not be legal. b. doc is not negatively incentivized. Lithotripsy is not on list of DHS & Stark Law is not violated if the only remuneration results from ROI interest. 595: Bryan v. & labs. i. Ct says AKS requires alleged offenders to (1) know the § prohibits offering or paying remuneration to induce referrals & (2) engage in prohibited conduct w/ specific intent to disobey the law. Ultimately. Little Rock Problem Revisited – Is selling investment interests in lithotripter treatment center a violation of the AKS or Stark laws? a. Under Greber. Ensure docs they aren‘t req‘d to refer & that ROI doesn‘t depend on referrals. 24 of HL notes for Flowchart of parties involved. Little Rock Lithotripter does not meet the requirements of the safe harbor. you must know what you are doing is unlawful. c. good faith is a defense. d. Which safe harbor provisions apply to this problem? i. Note 5 p. 4. but if you don‘t fit in. but encouragement might be OK. asks whether a reasonable D knew conduct was wrongful. when used in the criminal context.

P regularly orders that blood be taken and analyzed by PGPC lab. Referring Doc is not paid directly by the Hospital. 9. MRIs are a DHS.. Stark II: banned self-referral for ―designated health services‖. the arrangement is illegal. False Claims Act. Jost a. No! There is an exception for in-office ancillary services. Sect says physician stands in the shoes of his entity. (h)(1): compensation arrangement g. Is Stark Law violated? There is a financial relationship (compensation arrangement) created b/t hospital & Jost. so question is whether she fits into the ―recruitment‖ exception? i. 333): If a hospital…knowingly makes a payment…to a physician as an inducement to reduce or limit services provided to [Medicare/Medicaid patients who] are under [his] care. v. (d) Generally applicable exceptions d. (a): of physician self-referral of Medicare patients ii. Doctors – worried about malpractice 3. effective in ‘92.a reason why you can‘t meet the others. How direct does the compensation agreement have to be? By reg. except that P is referring his patients for in-office MRI services a. ii. Recent regulations have banned ―per-click‖ leases. In the course of seeing his Medicare patients. Jost isn‘t moving. 42 USC §1320(a) – 7a(b)(1) – Regulates hospitals (p. which leases MRI to Hospital on a ―per-click‖ basis. (b)(2)(A)(1) 7. Permissible under Stark? a. No requirements to meet to make this ok 19 . HYPO 1: Paul Physician is an internist working with Physician Group. Different interests b/t doctor and hospital 2. 3. (a)(2): What is self-referral? (―financial relationship‖) i. Unlike AKS. Could show you aren‘t trying or are trying not to break the AKS. effective in ‘95. (d) ―Ownership interest‖ exceptions e. a. Stark is just trying to prevent covered kickbacks. Stark II Regulations 5. but is there a financial relationship b/t referring Doc and Hospital? i. if you don‘t fit into the exceptions. this would raise Stark issues. Problem: Recruiting Dr. which owns the MRI subsidiary and has lease agreement w/ the Hosp. The Stark Laws (584-587) 1. (e) ―Compensation arrangement‖ exceptions f. Managed Care Regulation (333-339) i. d. b. but he is a shareholder of PGPC. a. 2. There is no ―I didn‘t know‖ out. Result? i. Stark does not have a knowledge or intent requirement so it is strict liability (unlike AKS). Stark I: banned self-referral to physician-owned clinical labs. Doc refers patients to Hospital for MRI services. HYPO 3: Suppose PGPC owns a subsidiary. Nope still falls under ancillary office services (b)(2)(A)(i) 8. (h)(6): designated health services 6. ii. (a)(1): General prohibition i. Could look like a disguised kickback b/c Doc refers to Hospital. The Stark Law: Statutory Structure a. HYPO 2: Same as HYPO 1. There is no safe-harbor 4. (B): of billing to any entity for services that result from self-referral b. There is an investment interest and an employment arrangement and designated health services and a referral ii. 1. Basically. ―Per-click‖ lease… problem? i. It would violate Stark w/out an exception. No referrals if there is a financial relationship – ―ownership interest‖ or ―compensation arrangements‖ c. Hospitals – worried about getting $ expended back from Medicare/Medicaid 4. He is a shareholder of PGPC and also has an employment agreement with PGPC. So. Is Paul violating Stark Law? i. PC (PGPC). which uses MRI. the hospital [is] subject to a civil penalty.

and amendment. 2.5. Court denied as moot the motions to dismiss as to the other claims. and the complaints rested on the same material facts.The performance of the services is so deficient that it isn‘t really performance of services at all. Substantial financial risk is 25% of the capitation payment going somewhere else – meaning that HMOs can put physicians at risk for losing up to ¼ of their Medicare compensation w/o incurring any regulatory oversight. Court granted the gov‘t's motion to expedite. Medical Necessity . U. Outcome materiality – different decision would have resulted had govt known of false statement. For most incentives. 1. and thus defective JCAHO certification would not affect the Government's decision to pay Medicare claims. Columbia HCA 1. Two main elements of FCA: (1) False Claim and (2) False Statement a. Facts: The relator alleged that a hospital fraudulently procured certification from the JCAHO and that such fraud excluded it from participation in Medicare. 3. § 3730(b)(5). 333): Regulating HMO physician incentive plans and tracking the language of the above statute. If physician is placed at a substantial risk – HMO must: i. 4. a. Don't want hospitals to force doctors to accept less Medicare by lowing their payments 3. 42 USC §1395mm(8) – Regulates HMO (p. The relator was not the first to file the kickback allegations since two complaints predating the relator's first amended complaint alleged the same kickback scheme. relation back. it is merely regulatory. b. 6. Regulates capitation.C. determined that the kickback claims were barred by the first-to-file rule under 31 U. From Thompson. THIS HAS BEEN CHANGED BY PPACA b. Defending against abuse by hospitals. c. Ct. but they do not sustain the trial ct‘s ruling. a healthcare organization and related entities. Ct. Worthless Services . Ct also says the Stark law already says you aren‘t entitled to payment w/ a violation… so it is stronger for FCA purposes than AKS. because JCAHO certification was not a prerequisite to participation in Medicare. The court rejected the relator's arguments regarding a variation in geographic location. Ds moved to dismiss the kickback and JCAHO certification claims.S.S. S. Applies only to placing a physician at financial risk for services they order from others iii. The court also determined that the JCAHO allegations did not state a claim under the FCA. 2. 20 . Conducts surveys 4. Ct does question whether it matters to govt if Medicare payment relies on certification. i. The relator also alleged a scheme of illegal kickbacks to physicians for referrals. Provide stop loss insurance ii. for Medicare payment ―material?‖ a. is the cert.Certifies that svcs rendered were medically indicated & necessary. b. Intervenor US moved to dismiss the kickback claims and to expedite. Natural tendency materiality – decision potentially affected by knowledge of false statement. Can be met by requirements: a. 5. No specific payments are made b. not prohibitory 5. plaintiff relator sued Ds. PP: As part of a multi-district litigation of False Claims Act (FCA) qui tam suits. Only prohibition – for inducements to reduce medically necessary treatment of individual patients 6. App. Holding: The court granted the gov‘t‘s motion to dismiss as to the kickback claims and granted Ds‘ motion to dismiss as to the JCAHO certification claims. Civil monetary penalty liability + treble damages for either of the above. a. Types of Claims: a. ex rel. Appears to prohibit only physician specific payments and not incentives that are pooled across a group of physicians ii. said that violations of AKS/Stark do not necessarily make a violation of the FCA. alleging kickback and fraudulent JCAHO certification claims. see Mikes. Thompson v.

limits.allows for a private individual. iii. as appropriate. 1.‘‘ e. banks. Gainsharing – incentive programs that reward physicians for initiatives that improve the efficiency of care." with knowledge of past or present fraud committed against the federal government to bring suit on its behalf. or contractor to whom the overpayment was returned in writing of the reason for the overpayment. iv. a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of subchapter III of chapter 37 of title 31. Though plans that provide benefits in form of insurance may be indirectly regulated through regulation of insurance. carrier. Suit is filed under seal in fed ct. the State. PPACA §§6402 (d) Reporting And Returning Of Overpayments. if they do. State. Pegram suggests that doctors may be liable for not disclosing financial incentives (p. 338) vii. ―savings clause‖ explicitly saves from preemption state laws that regulates insurance. ERISA Preemption (224-237) i. and (B) Notify the Secretary. that law is not protected by the savings clause. the person shall— (A) Report and return the overpayment to the Secretary. Very broad language. (1) In General. or (B) The date any corresponding cost report is due. even if the plan purchases stop-loss insurance to cover losses or benefits payments beyond a specified level. Preemption Clause: ―relate to‖ §514(a) a.iv. McGann illustrates that ERISA creates virtually no fed regulation to replace state oversight. but govt can get extension if it wants. if applicable. insurance laws. Although ERISA‘s preemptive scope is broad. 2. Relator can proceed on her own if gov‘t declines. *** (f) Health Care Fraud. construed broadly by the courts. United States Code. Originally. or "whistleblower. v. Deemer Clause: states cannot pass laws that ―deemed‖ employer plans as insurers. DHHS said they were illegal b/c it would be problematic to say which programs are and are not permissible b. An overpayment must be reported and returned under paragraph (1) by the later of— (A) Date which is 60 days after the date on which the overpayment was identified. Intended to focus on practice patterns and professional standards rather than on discrete treatment decisions for particular patients and pool the incentive payments and refuse to reward any initiatives that compromised medically necessary care a. 1. 4. ―Deemer clause‖ provides state insurance laws aren‘t saved from preemption if they deem an employer benefit plan to be an insurance company to regulate it. Also called disgruntled ex-employer lawsuit 2. §514(b)(2)(a). Broad ERISA preemption was intended to ensure uniform fed regulation of employee benefits. Saving Clause: allows states to retain the ability to regulate banks. or a contractor. 1320a–7b) is amended by adding at the end the following new subsection: ‗‗(g) In addition to the penalties provided for in this section or section 1128A. a carrier. Ex-employer gets a share of the judgment from the lawsuit 3. Section 1128B of the Social Security Act (42 U. If a person has received an overpayment. v. (2) Deadline For Reporting And Returning Overpayments. at the correct address. Relator shares in gov‘t recovery if successful (15-30%). securities. Gov‘t has 60 days to decide whether to join the suit. (1) Kickbacks.S. such as by identifying and eliminating wasteful practice patterns. ―regulates insurance‖ 3. intermediary. with various safeguards. 3 main clauses of §514 Preemption Provision: 1. self-funded or insured plans may not be regulated as insurance cos. Qui tam . an intermediary. and oversights to guard against abuses vi. Retail Industry Leaders Association v. §514(b)(2)(B) ii.C. Fielder (225) 21 . Following ruling indicated some flexibility – approving a plan to pay cardiac surgeons a share of the savings from being more efficient with operating room supplies. and securities.

Each of these cases showed that as long as an employer's modification to a healthcare insurance plan was legal. not just a healthcare benefit that had been offered previously. Bartlett (228) 1. These effects impermissibly intrude on the relationship between an ERISA plan and its participants and beneficiaries. attachment point for stop-loss insurance policies issued to self-funded employee benefit plans was preempted by ERISA. H&H Music Co. Issue: Whether Maryland's regulations ―relate to‖ ERISA employee benefit plans and thus whether they fall within ERISA's preemptive scope? 3. attachment point would be a way to ensure that a plan is really self-insured instead of just in name. Ct says MD‘s law isn‘t really concerned w/ stop-loss insurers. American Medical Security. Facts: Employers & insurers sought judgment that MD insurance regulation fixing min.1. as opposed to the $1 million limit on many other claims. (D).000 or more employees to spend ≥ 8% of their payroll on employees' HI costs or pay amount their spending fell short to the state. 2. Holding/Reasoning: On appeal. D informed its employees that beginning August 1. MD‘s losing argument against deemer clause applying: not regulating self-insured employer. finding that the interpretation espoused by P was contrary to the Congressional intent to allow employers to modify or terminate existing healthcare insurance plans. App Ct affirmed 2. the remedy for any such deficiency must be requested of Congress. 2. Accordingly. H. 1988. Music Co. but regulating stop-loss insurance carrier. If a self-funded plan insured by stop-loss insurance having an attachment point of $5. Inc. Holding: On the merits. (231) 1. the court agreed with the district court that the Act was preempted by ERISA. State insurance regulation may not directly or indirectly regulate selffunded ERISA plans. state-mandated insurance coverage for organ transplants or convert the self-funded plan into a fully insured plan contrary to its preference. Facts: MD attempted to pass law regulating Wal-Mart‘s employee benefits plan. including a limit on lifetime benefits for AIDS-related claims and several other types of claims of $5k. a. and it was preempted by ERISA. arguing that his employer discriminated against him by decreasing lifetime healthcare benefits available to him. there would be a change in its healthcare insurance plan. While we recognize that self-funded plans may not be providing Maryland residents with the range of benefits mandated by state law and that such plans' benefits may not always be as secure as those offered by regulated insurance companies. courts have interpreted this clause broadly to carry out Congress' purpose of displacing any state effort to regulate ERISA plans. This law clearly relates to employer benefit plan & would be preempted but for savings clause b/c this law does regulate insurance. the court upheld the district court's ruling granting summary judgment in favor of the association. vi. v. The min. the regulations would either raise plan costs by including unwanted. DC entered S. McGann v. Holding: v ERISA preempted MD insurance regulation designed to prevent insurers & selffunded employee benefit plans from depriving plan participants & beneficiaries of state mandated health benefits. the SC upheld the decision that an individual must show that an employer intended to discriminate against him or her and that he or she was being deprived of an absolute right to healthcare benefits. 22 . Court also examined the Congressional intent of §510. the Act had an obvious "connection with" employee benefit plans. Also could argue ―reinsurance‖ is just a scam to make employer benefit plans look self-insured when they really are not. The only rational choice for employers under the Act was to structure their ERISA health care benefit plans to meet the minimum-spending threshold. P sued his employer under §510 of ERISA. vii. Because the Act effectively mandated that employers structure their employee health care plans to provide a certain level of benefits. in favor of employers & insurers. SC cited other ERISA cases to support its position.000 provided no benefit for organ transplants. USDC ruled in favor of D and P appealed. & H. of his diagnosis. The Act required employers with 10. Wal-Mart was subject to this minimum-spending requirement. In other words. Court also found that ERISA did not require employers to offer employees who have been vested a continued level of healthcare benefits just b/c the vested benefits once had been included in an overall health insurance plan. Facts: John McGann (P) was diagnosed w/ AIDS in December 1987. After P informed his employer.J. but is actually concerned w/ regulating employer benefit plans.

Additionally. 3. xi. D often sold or recommended natural vitamins or nutrients to the people who visited him and consistently accepted donations of $10 for each treatment. It does relate to employee benefit plans. But. he clearly and unequivocally chose to represent himself. unnecessary care. Purpose of medical licensure? Protect public from incompetence. Employer (self-insured)-> BCBS (admin services only) -> Employees 1. the “savings clause” explicitly saves from ERISA's preemption those state laws that regulate insurance.  and (3) ―is limited to entities within the insurance industry. xv. ―The asserted discrimination is illegal only if it is motivated by a desire to retaliate against an employee or to deprive an employee of an existing right to which he may become accustomed. or magnets. but they can regulate the rates for insurers/HMOs. Miller (p. In KY Ass’n of Health Plans v. 1. States may not force employers to purchase insurance as this would ―relate to‖ employer benefit plans. b. etc. Holding: Affirming. xii. Employer -> BCBS -> Employees 1. Analysis: 1. Court also concluded that the DC adequately advised D of his right to counsel. but you can‘t do that b/c of the Deemer Clause. State laws regulating BCBS do ―relate to‖ employee benefit plans.‖ it is not enough that it operates only on insurance companies or insurance policies. Facts: Miller (D) treated people at his home for various ailments through the use of electric shocks. Miller. discrimination did not exist. x. Deemer clause doesn‘t matter unless you reach a ―yes‖ w/ respect to the savings clause. In determining whether a state law is one that ―regulates insurance. explained the nature of the charges. state law must be specifically directed toward entities engaged in insurance….‖ f. State v. but they are saved from ERISA preemption b/c they are insurance laws w/in the meaning of the Savings Clause. §1144(b)(2)(A). Professional and Facility Regulation i. It is an insurance law. Self-insured health benefits may never be subjected to state reg. D sought review of a judgment.viii.2nd. xiii. ―1st. §1144(b)(2)(B) a. So. Professional Licensure (380-398) 1. Medical licensure essentially cedes to the medical profession control of how many docs can enter practice. can‘t require self-insured plan to do anything. a. 2. but it would not be saved b/c it regulates employers and not insurance. however. 2. you would have to say the employer is acting as an insurer. the “deemer clause” provides that state insurance laws are not saved from preemption if they deem an employee benefit plan to be an insurance company in order to regulate it. Cts have routinely upheld state licensing statutes under rational basis review. state law must substantially affect the risk pooling arrangement b/t the insurer and insured. (2) ―is an integral part of the policy relationship between the insurer and the insured‖. 385) a. ix. 233) 3. The regulation must regulate the business of insurance in the sense that the object of its regulation: (1) ―has the effect of transferring or spreading a policyholder's risk‖. Most cts have also found that there is no fundamental right of access to treatment from unlicensed docs. Sup Ct announced common sense test.‖ (p. and warned of the ramifications of self- 23 . massage. Although ERISA's preemptive scope is broad. Health care medical professional licensure is a matter of state law. the court held that D knowingly and intelligently waived his right to counsel because when he was correctly advised by the district court that he could not be represented by unlicensed counsel. b/c there is no insurer in the picture. States can‘t require self-insured employers to cover mental health services. ERISA imposes no substantive obligations on employers as to the benefits they must provide.‖ States may not regulate the rates that hospitals charge w/ respect to self-insured employers. At the same time. xiv. since the AMA can control the size of medical school classes through the accreditation process. which convicted him of 7 counts of practicing medicine w/o a license.

reached a 1st decision → Full Bd review (appellate role). b. written. We could worry that the lack of consumer representation in private certification groups makes them better for professionals than consumers. staff would be diagnosing based on physician‘s protocol. b. The court further determined that there was sufficient evidence to support the conclusions that D had publicly professed to assume the duties incident to the practice of medicine and had routinely prescribed and furnished medicine. 4. which had lead the board to its conclusion. Court additionally noted that it was not apparent from the record that the board's order reflected a reasoned. Can’t hold yourself out to be a doctor. They noted that the board's order utterly failed to address the findings of fact and conclusions of law proposed by the parties or the reasons for rejecting such findings. informed. Good for consumers? 1. 3 Terms are commonly used to describe multi-level process for inspecting & approving health care facilities by state. d. but maybe not b/c they can control the market. ii. fed. and written consent. even though he didn‘t claim to be a doc & didn‘t advertise his services. i. 6. and informed consent. articulate decision. Occupational licensure usually results in services being of higher quality & higher cost. Most state medical licensing boards are composed mainly of physicians. Legislative definition of ―practice of medicine‖ typically is quite broad. but doesn‘t necessarily result in better outcomes for consumer. holding that given the finding by the hearing examiner and the board that the psychiatrist had used an experimental depossession therapy w/o first obtaining a signed. Court further noted that the requirement that the agency rule on such proposed findings and conclusions was mandatory and was to be enforced by the courts. such as signing certain prescriptions. Facility Licensure (398-409) 1. iii. Modi v.prosecutorial role) → hearing officer initially dealt w/ complaint (judicial function). Physicians & other licensed health care pros are subject to professional disciplinary action. ii. But. In many states. for assisting in the unlicensed practice of medicine. 7. SC held vitamins were med for purposes of prosecution for practicing med w/out a license. c. Professional Licensure Problem (p. The clinic staff are ―acting like docs‖ and practicing medicine. Many states permit physicians to delegate more tasks. such as license revocation or suspension. 5. which set forth the underlying evidentiary facts. and private agencies: 24 . Holding: Court concluded that the lower court was correct in finding that the board made inadequate findings of fact and incorrect conclusions of law. Conviction of practicing med w/out a license was supported by evidence that D treated people for various ailments. P filed a claim w/ Board (staff . Can’t arbitrarily call something quackery 8.Nurses/doc assistant did/would not hold themselves out as docs. a remand to the board was necessary for reconsideration of the issues and an appropriate. PP: Board sought review of a judgment. in medically underserved areas of the state. West Virginia Board of Medicine a. Yes and no.representation. c. a. Facts: Disciplinary proceeding grows out of M's care & treatment using a technique known as depossession therapy. which reversed and vacated an underlying administrative order that imposed sanctions against respondent psychiatrist for engaging in unprofessional conduct and for violating a state code by using an experimental therapy w/o first obtaining a full. the physicians know what is required of other docs. Court reversed. The breadth of the definition is important b/c persons who engage in the specified activities w/out an appropriate license are subject to criminal penalties. reviewable order. Nevertheless. the nurses and physician‘s assistants are also subject to licensing and fall under the professional licensure regulations. but public would be likely to be confused and think that they were seeing a doctor.397) .

Ct ordered change in way that Medicaid ensured compliance. i. 3. Holding: Since. In many states if you met requirements of JCAHO. Begun as a joint venture. Cospito v. the federal delegation of authority in overseeing the quality of state facilities to the secretary. Holding: Due to the Medicaid Act‘s focus on the care which patients actually receive. the statute places JCAHO accreditation in a position of ascendancy over approval by the Secretary. Ex: Law school – do students know anything when they graduate? d. Movement has become more outcome-based approach Estate of Smith v. iv. and as a result. The states conduct a survey of the facility and the secretary certifies the state‘s plan based on that survey. Facts: Patients in psychiatric hospital whose Medicare. its certification by HHS. P claimed Secretary of HHS was required to ensure high standard of care through Medicaid certification. Ct of Apps held (1) Sec. you also meet requirements for state licensure & participation (certification) in Medicare and other programs. has duty to est. court found that there 25 . in effect. including provision of high quality patient care.2. that the secretary has a duty to regulate in a patient-oriented scheme and a facility-oriented scheme was an abdication of that duty. Patients argue that in the case of psychiatric hospitals. Facts: P sought to improve awful conditions in nursing homes funded by Medicaid. P argued that the scheme was facility-oriented (focused on the ability of the facility to provide care) rather than patient-oriented (focusing on the care actually provided). If state wants to get Medicaid funding it must submit a medical assistance plan to the secretary for approval. and the implementation of that authority in the ―look-behind‖ provision which allows the secretary to actively inform himself of conditions at the facility. failed to follow focus of Act. Quality shall be ensured by a system of review. Federal law gives secretary authority to ―look behind‖ state‘s determination of quality and make its own determination. b. 402) a. Here. to meet the qualifications for participation in gov‘t funding programs. (2) by promulgating a ―facilityoriented‖ enforcement system. Easiest to measure b. 5. rather than a ―patient-oriented‖ system. iii. specifically Medicare & Medicaid JCAHCO: primary healthcare facility regulator. Sec. For law school – ex: Do teachers follow a syllabus? c. Heckler (facility-oriented v. 4. Certification – a voluntary procedure for health care orgs. the secretary has chosen to use a survey/certification method to enforce state compliance. Sets standards on what a good hosp looks like. i. is evaluated and can receive a designation of competence and quality c. ii. patient-oriented care management) (p. 3 main categories: a. a system to adequately inform herself as to whether facilities receiving fed money are satisfying requirements of Medicaid Act. thus leading to the question of unconstitutional delegation to a private group. Heckler (p. Medicaid and SSI benefits were terminated when hospital lost its JCAHO accreditation. all actions of JCAH are subject to full review by a public official who is responsible and responsive to the political process. Licensure – a mandatory governmental process whereby a health care facility receives the right to operate b. ii. b. The secretary must promulgate and enforce a patient-oriented scheme of state compliance. Accreditation – a private voluntary approval process through which a health care org. They brought a suit challenging loss of their federal benefits. Process: Asks what goes on in structures? i. Structure (inputs) i. 401) a. Outcomes = Results i. The state agency must maintain the standards of the facilities where Medicaid recipients receive treatment and ensure high quality. a. Need all 3 for a functioning facility e.

Traditional thought – health care facilities don‘t function like traditional markets. (2) certification procedure did not deny Ps equal protection. CON required for construction. Rationales for health planning: insurance & moral hazard. ESWL. 2. and (4) Medicare and Medicaid provisions did not improperly delegate authority to commission. and nonprofit organizational form 8. New annual operating costs > $[800K] d.. development. 7. Health Service Areas & Health Systems Agencies (HSA‘s) . New health services g. Limit supply to lower costs. See Todd & Co.2d 1008 (3d Cir. Determination of a ―substantially unmet public requirement‖ for new facility or service d. acquisition of a new health care facility or HMO. SEC. of Need (CON) laws operate like a building permit for hospitals and other medical facilities (usu. CON law constrains only what hospitals spend. Availability of alt.. See CON Review Board organizational chart from PP Slides. not what they charge. Is planning process scientific? Democratic? b. Certificate of Need (410-421) 1. Services subject to CON Review (AL): a. No limit on overall expenditures of facilities iv. 6. not physician‘s offices). Incumbent providers are given a monopoly to keep costs low. urgent care centers) or if they must be separately licensed.Mini-SHCC‘s developing needbased health plans for local area. v. b. Data suggests that CON programs do not contain costs. Would we expect this process to produce cost-containment? i. Cert. and satisfy financial feasibility. Court held: (1) Ps were not denied procedural due process. Limitation of competition iii. PET scanners & physicians‘ offices exempt 9. > $[2mil] c. Focus on ―need‖ likely to limit new technology? ii. Other capital expenditure > $[4mil] e. before beginning new construction. advise SHCC 13. Roehmer‘s Law: A bed built is a bed filled is a bed billed. Physician offices don‘t require facility licenses. initiating new services. Medical facilities must show that a need exists in the community. It is thought that health care supply creates its own demand. b. Capital expenditure for major medical equip. contrary to trad‘l monopolist thought. (p. 3.has been no real delegation of authority to JCAH. Consistency w/ State Health Plan b. less costly or more effective methods of service c.1977) (where actions of private organizations were subject to review by wholly public body. ―Need‖ is defined by medical professionals and therefore functions as an expansive. Statewide Health Coordinating Council (SHCC) – drafts State Health Plan 12. iii. purchasing major new equip. no unconstitutional delegation has occurred). physician-induced demand. 4. Changes in bed capacity f. 11. Inc. ―Appropriate applicant‖ 10. What is cost containment strategy adopted by CON law? a.e. 557 F. SHCC v. MRI. CON laws have had essentially no impact on hospital costs. No regulation of prices c. General Hospitals of Humana. Criticisms of CON a. not operating expenses. One common licensing issue: whether a license for a central facility such as a hospital covers satellite facilities (i. rather than limiting. 6. 14. or changing ownership. 5. 410) 26 . (3) termination of social security benefits for Ps in decertified hospitals did not violate substantive due process. Criteria for CON review (AL): a. Partly b/c they address primarily capital investment. concept.

hearings were held in Sept. b. B/c the Bd. (c) the possible economies and improvement in services to be anticipated from the operation of joint central services. 27 . & regulators see cost control as most important.. thereby creating an excess of medical/surgical beds in Essex County. remanded this application to the hearing officer. Physicians see quality as most important. The court reviewed. In light of those established considerations and the general policy of providing the highest quality health care. recognize and accept a need for special services in any local area smaller than the larger health care area established by the Dept. in fact. State agency granted the corporation‘s application. Application should have been viewed in fact that at the time – there was need c. & cost control. it is not sufficient for the Bd.) considered the hearing officer's recommendation. believed that the Bd. 415) a. On remand we direct that the Bd. On May 6. the Board reclassified 150 long-term care beds at Clara Maas Hospital as medical/surgical beds. It would permit the Board to ignore the remaining factors. remand is required. After several delays attributable both to the Department [of Health] and the applicant. as the "area to be served" may not. i. b. erred in giving conclusive weight to the Dept. the agency was without authority to grant the corporation's application. . The hearing officer recommended that the application be approved. instructing him to make additional findings of fact "particularly pertinent to the current effect of the reclassification of the beds in the area.a. as it did here. Facts: Irvington General Hospital submitted an application for a CON in Nov. Board cant rely solely on bed statistics. the second one: "the need for special . iv. be provided. . consumers see quality & accessibility as most important. iv. It must also take into account all of the factors and must. (b) the need for special equipment and services in the area. Most CON programs contain 3 competing goals: quality. particularly where the area designated by the Dept. 1975. Total reliance upon bed statistics would permit the Bd. in deciding whether to grant a CON. to consider only the # of beds available in the area. notably. and Oct. iii. (e) the availability of sufficient manpower in the several professional disciplines. Holding: Court agreed w/ P‘s contention that the Bd. 1973. Holding: The hospital-bed-to-person ratio was a maximum limit that could be exceeded only if the circumstances fell w/in the ambit of specific exceptions. failed to make those considerations. Facts: Corp sought to build a hospital in an area where the bed-to-person ratio established by federal and state regulations had been exceeded." The remand hearing was held. services in the area. The court held that there was no showing that the circumstances at issue fell w/in any of the listed exceptions. (d) the adequacy of financial resources and sources of present and future revenues. . Ct. 1976 the Bd. coincide w/ the area for which the services will. to take into account several factors: (a) the availability of facilities or services which may serve as alternatives or substitutes. accessibility. Department of Health (p. Irvington General Hospital v. may not. The Legislature has required the Bd." ii. . Exceptional conditions: (p. rely solely on bed need statistics. and (f) such other factors as may be established by regulation. to make its decision solely on the basis of the first factor noted. The state plan is not a mere guideline that can be disregarded. in this case. d. B/t the time of the hearing and the time when the Health Care Administration Board (Bd. and thereafter the hearing officer recommended that the application be denied solely on the ground that Department of Health statistics now showed an excess of medical/surgical beds in the county . It sought permission to construct an addition to the hospital and to add 19 medical/surgical beds.‘s statistics. c. Goals are of different importance to 3 groups. . take into account an additional factor: At the time of the original hearing the Dept. if appropriate. in fact. statistics showed that the County needed 73 more medical/surgical beds. Thus. 412) 15.

In 1971. Queen was entitled to carry on activities other than operating a hospital but essential to all those activities was continued operation of a hospital. B/c most hospitals and some HMOs are organized as nonprofit corps. Moreover.e. Compromise of religious Order's claim for past services was not a proper exercise of sound business judgment or fiduciary duties of hospital bd.‖ d. Facts: Queen of Angels Hospital was established and incorporated in 1927 as a nonprofit corporation in California. May also be evidenced by oral and informal declarations of the corp. fed. who argued that using the assets from the sale for outpatient services constituted an abandonment of the nonprofit‘s dominant charitable purpose.C. then ct will usu. 3. Org‘s new purpose must still pursue main charitable aims. 7. Public hospitals are subject to similar restrictions.g. 28 . bond issues (tax exempt). consistent with the trust imposed upon it. NPs get capital from profit-margins. exclusively for the purpose of operating outpatient clinics. the appellate court concluded that Queen of Angles abandoned its primary charitable purpose and violated the terms of the charitable trust imposed on its assets by using the assets.'s charitable purposes. status (state law) & tax exempt status (fed & state law). Its articles of incorporation and other formal manifestations of its declared purposes first evidence the expressly declared charitable purposes of a charitable corporation. Queen of Angels applies 3 doctrines of nonprofit & charitable trust law: a. Member of hospital bd. Inc. Ultra vires (―beyond its powers‖) or charitable purpose – Asks whether proposed transaction goes w/ nonprofit‘s charitable purpose or is against it (i. such purposes may be deduced from the corp. if not impossible.C. Nonprofit Corporations (422-433) 1. the CA Appellate Court reversed the ruling in favor of the AG. i. it was intended to and did operate a hospital and cannot. There is a distinction b/t corp. Cy pres (―as near as possible‖) – determines what alt. Queen of Angels filed a declaratory relief action against the California Attorney General. PP: The lower court ruled in favor of Queen of Angels. donations. use to make of proceeds from sale of a nonprofit org. i. Queen of Angels Hospital v. Doctrine created to deal w/ problem of dead-hand control. OK use of the funds in a charity serving a similar purpose. c. In order to determine the validity of their lease agreement with W. governance and tax rules. Duty of loyalty and conflict of interest 5. running clinics instead of hospital in Queen of Angels). b. who assisted in negotiating lease was entitled to fee. State Law Nonprofits a. programs. Duty of care or the business judgment rule c.. It would be difficult. Corporate Form i. where there was no basis for such claim & neither Order nor hospital had a reasonable basis for believing in its validity. abandon the operation of the hospital business in favor of clinics. etc.'s dominant activities and its representations to tax authorities and the public. Holding: However. including the proceeds from the lease. b. but retained ownership of an outpatient clinic and a convent house. 422) a. to share ownership of a NP corp. the nonprofit leased its hospital to W. 8. 6. Vanderbilt Hypo 2. despite not being a licensed real estate broker where he was a licensed attorney & rendered legal services to hosp. ―[U]nder its articles of incorporation. Courts sometimes require strict adherence when gifts are given that have specific strings attached. 4. b/c no profits can be distributed. In its ruling. they are subject to a special set of corp. Queen of Angels intended to use the proceeds from the lease to establish and operate outpatient medical clinics that would provide free medical services for the indigent in Los Angeles. ii. Younger (p.D. Services. Basically says that where donee has a general charitable intent & that intent is proved impracticable.D. i.

patient flow. When nonprofits are dissolved. 433) i. and better contractual terms w/ HMO. There is likely a problem w/ the trustees getting an ownership percentage. Charitable Tax Exemption a. The focus is mainly on process instead of substance (business judgment rule). Facts: Various health/welfare organizations & several private citizens. Also problems relating to the obligation of MWH‘s trustees.R. in holding that Rev. ii. Some nonprofits have members instead of shareholders and they elect directors. c. and (2) the term ―Charitable. It is similar to an SEC disclosure document. & whether those characteristics also allow others in health care sector to qualify for exemption. § 501(c)(3) to require private nonprofit hospitals to provide free or below cost treatment to individuals unable to pay to qualify for tax-exempt status as "charitable" organizations.‖ may be broadly interpreted so as to allow private NP hospitals to qualify as ―charitable‖ institutions under Code w/o requiring them to admit & provide free or reduced service rates to persons unable to pay. There might also be an AKS problem in that MWH wants HMO‘s patient flow. Rul. 69-545. PP: USDC for DC granted the summary judgment motion for health and welfare organizations and indigent persons. d. Eastern Kentucky Welfare Rights Organization v. Nonprofits are not owned by anyone.432-33) .e. f. but modern trends have moved to make them equal. Some donors and org. all alleging indigence & inability to pay for hospital services. MWH wants to invest $10M (35% of HMO value) from sale of its nursing home into HMO in return for 30% ownership in HMO & 5% ownership for trustees. iii. c. Do charitable directors owe a higher duty of care than for-profit directors? Traditionally – they did. business relationship w/ HMO. brought action seeking relief regarding validity of IRS policy. MWH trustees have a duty of care (diligence) & a duty of loyalty to MWH. which related to qualifications for tax-exempt status under I. e. Nonprofits cannot distribute profits. and was promulgated by the commissioner. MWH & HMO each own a nursing home. Main difference b/t nonprofits & for-profits is called the ―non-distribution constraint. i. entities.‖ both as a matter of state & fed law. Permissible definition of ‗charitable‘ wasn‘t contrary to any express congressional intent & such ruling didn‘t constitute an abuse of discretion & shouldn‘t be set aside. It is a violation of the non-distribution constraint. the commissioner interpreted I. § 501(c)(3). They are typically set-up through charitable donations.Nonprofit MWH wants to est.C. members would have standing to challenge the proposed transactions.‖ d. a.  Nonprofits still have to file forms w/ the IRS each year despite being tax exempt. Rul. 69-545.C. but now they would be set up as incorp. but last resort is state attorney general. does must be consistent w/ charter. 69-545 was not invalid b/c it was not inconsistent w/ § 501(c)(3) and modification of the prior ruling was not determinative. b. Rul. Tax-Exempt Status (433-448)  Question you should ask is how nonprofit hospitals differ from for-profit hospitals.b. the business judgment rule. It isn‘t to be restricted to narrow sense of relief for poor. MWH is also expecting profit distributions. For-Profit Joint Venture Problem (p. If nonprofit is ever dissolved. Ultra vires (beyond the powers) question: Do constraints imposed by MWH‘s charter block the transaction? Everything corp. the assets never go back to ―shareholders. Simon (p. ii. Cy pres not good argument for MWH b/c nursing homes are still in need & not outdated. Many nonprofits have a selfperpetuating bd of directors. Overview: Court reversed judgment and held: (1) Rev. 9. The organizations and indigent persons alleged the ruling was invalid as an improper modification of previous policy and interpretation and sought to enjoin its implementation. was invalid. In Rev. For a 29 . 1. money either goes to another charity in the same general area or back to the state.R. i.

or assets upon dissolution. in whole or part. iv. for purposes of determining charitable tax exemption. you don't have to have one or if the hospital is a specialty one i. 5. either by substantial imbalance b/t paying/charitable service or alleviating state gov‘t burden. to qualify as tax exempt. constituted an unconstitutional expansion of the charitable exemption. 3. iii. Factors which must be weighed in determining if particular institution is using its property exclusively for charitable purposes are: 1. can be identified either by a substantial imbalance in exchange b/t charity & recipient of its services or in lessening of gov‘t burden through charity's operation. 4. Dissent (Majority View): The hospital is a charitable institution because its income is used solely to further its charitable purposes. Inc. are available to private interests. whether restriction bears a reasonable relationship to entity's charitable objectives. Why NP health care might be better than for-profit and justifications for tax exemption: i. and generally require patients to pay for treatment. Is it enough that hospital is just providing health care to the community? a. b. For-profit businesses are more likely to exploit consumers. Gift to the community. & 7. Issue: Whether state law exempting from taxation hospitals meeting certain requirements. Whether recipients of charity are required to pay for assistance received. Whether income received from all sources produces a profit to entity in sense that income exceeds operating & long-term maintenance expenses. it relieves the government of a burden by its sheer existence (better than no hospital at all). 1. ii. Ct also didn‘t like that hospital sought payment from everyone that came in. they had: 1. even if they didn‘t always collect. by donations & gifts. Nonprofit hospitals don‘t engage in cream-skimming. must be giving a gift to community. & to what extent. Whether stated purpose of entity is to provide a significant service to others w/out immediate expectation of material reward. Whether beneficiaries of charity are restricted or unrestricted &. residency program. 1983 Ruling liberalized rules – if an ER isn‘t needed in a community. 30 . education ii. Majority: Hospitals no longer represent a charitable institution as they tend to be money-making ventures. 435) i. it does not turn away indigent patients. Whether entity is organized & operated so that any commercial activities are incidental to charitable ones. do not relieve the state of a significant burden (state still pays Medicaid). Even if they didn‘t have ER room. UT says org. Argument that for-profit follows money (in suburbs) and nonprofits are left w/ indigents in urban pops. Need a list of things that point to a charitable purpose ⬆ c. 2. (Non-profits can get a pass on CPMD by charitable immunity) (p. 2. For-profits divert large amounts of $ towards compensating execs and shareholders. Board of directors drawn from community 2. Whether entity is supported. Fed gov‘t arguably says yes. Open medical staff policy 3. Treatment of Medicare and Medicaid patients 4. d. Surplus is applied to ―good things‖ – facility betterment. if restricted. Utah County v. provision of free or below cost service to those unable to pay is no longer essential. Entity may be granted a charitable tax exemption for its property only if it meets the definition of a ―charity‖ or if its property is used exclusively for ―charitable‖ purposes. Facts: State tax case. reducing money in pot for charitable services. ii. Charity exemption is therefore denied. Whether dividends or some other form of financial benefit. Intermountain Health Care. Problem is that state says hospital isn‘t providing enough indigent care. iii. 6.

improving patient care. etc. Eastern KY & modern IRS regs say anything promoting health could serve a charitable purpose. Inc. IRC §501(c)(3): Groundwork for Tax-exempt status i. Is it really true that nonprofits generate appreciably different levels of indigent care? Operate differently than for-profits? ii. will operate. educational programs. 2. discounted fees for low-income subscribers. 31 . Tax-exempt status of nonprofits provides govt w/ desirable regulatory leverage. h. or for-profit under state law. must be organized & operated exclusively for charitable purposes. Take surplus funds & apply them to improving hosp.e. community rating. Looking at a number of factors in the aggregate. requires looking at how the org. education. etc. Operational Test – must operate for a charitable purpose. Facts: The hospital commenced a civil tax refund suit to recover $ 141. g. hospital‘s location may be better indicator of amt of indigent care than nonprofit/for-profit. or shareholder.iv. Private inurement & unrelated business income are 2 issues that could threaten an entity‘s tax-exempt status. 1. & support for research & education. which was the situation here. f. Nonprofits provide more charity care. Organizational Test – look at org‘s stated charitable purpose. United States i.. e. IRS requires tax-exempt HMOs to offer open enrollment. iii. Fed Tax Exempt Status: i. Harding Hospital. § essentially imposes 3 requirements for exemption: 1) corp. and it was not operated exclusively for charitable purposes. Harding gives an example of private benefits: a hospital that doesn‘t open its med staff to all physicians in community. Nonprofits provide other. v. ii. Non-Inurement Requirement . H was operated almost exclusively for the benefit of associates of the hospital. Accept Medicare/aid patients. It is possible to be nonprofit under state. There is not necessarily a connection b/t corp. is it clear that nonprofits are more desirable? iii. vi. ii. less tangible benefits. Hospital was a nationally recognized psychiatric institution. more likely to engage in research. iv. i. Other factors (in addition to having ER): a. law (think Utah County v. Bd of directors drawn from community. H‘s participation in some educational and training programs was not sufficient to merit tax-exempt status. does charter contain non-distribution constraint? Easy to meet.. Competitive fairness. but tax exempt under fed. If talking about indigent care. Arguments against: i. Intermountain Health Care). & 3) it cannot engage in certain lobbying & political activities. why should charity hosps be put in better position than forprofits when both operate in competitive markets. Open med staff policy. the court found no error in the district court's determination. which represented the aggregate amount of income taxes paid by the hospital for 3 years. i.Specific prohibition about paying dividends to insiders (―private individuals‖). More difficult to meet. iii. HMO exemption appears limited to staff model HMOs. but not tax exempt. Shouldn‘t for-profits get credit for paying tax. status of a hospital & tax-exempt status. which treated mental and nervous diseases. etc. Under § 501(c)(3). buying equip. ii. unprofitable centers (burn units).730 from the US government. v. 2) no part of net earnings may inure to benefit of a private ind. In context of present case. whether it is for research. and when that is taken into acct. Holding: Court affirmed the finding that the H did not qualify under § 501(c)(3). tax exemption was not available if there were substantial non-charitable purposes for the organization.

It is global (meaning it doesn‘t just apply to insiders). How did they violate the rule? 1. you can‘t do this type of corp. Public policy – accepting Medicare/Medicaid patients. Joint Ventures (448-459) a. so that it could provide the highest level of service at lowest price to public. Z-LPs were to allow med staff participation in operation of 4 Z-H outpatient depts. 1. that‘s why they created an intermediary sanction 3. Blanket prohibition on involvement in campaigns. The profits cannot inure to the benefit of the private individuals 2. not violating fraud and abuse laws. v. as long as everything is at FMV. can oppose tax exempt status. Can only engage in such activities if they are an insubstantial part of operations. & serve as GP in 4 LPs (―Z-LPs‖). etc. (2) they confer more than incidental benefits on private interests. iv.Also seen as private benefit prohibition. 2. Some transactions can occur. Commissioner i. tax exempt b/c it is described in §501(c)(3). Safe harbors for small monetary contributions. iii. vii. 2. 1. have an opportunity to control or influence its activities. Issue: Whether a hospital. IRS claims that the Caracci family owes over $250 million ii. etc. vi. structure b/t hospital & docs (Greber. 2. “Substantial part” test.448) – i.). b/c of their particular relationship w/ an org. 4 departments represented in aggregate about 4% of Z-H‘s gross revenues. or service. Here. 4. PPACA – has additional requirements  If engaged in operation of health care & have ER open to everyone. Intermediate Sanctions a. 3. Analysis: These transactions must be viewed as jeopardizing a hospital's tax exempt status for 3 reasons: (1) they allow inurement of part of a charitable org's net earnings to benefit of private individuals. etc. etc. Currently. ii. jeopardizes exempt status by forming a joint venture w/ members of its med staff & selling to the joint venture the revenue stream derived from operation of an existing hosp dept. etc. Stark laws. you can qualify for 501c3 exempt status. GCM 39862 (p. However. Caracci v. AKS. they took all the value out of the tax exempt org without paying for it – this is what the government alleges 3. Stated reason for proposed transactions was to maintain or increase utilization of Z-H's various services. Facts: (See Flowchart) Z-Hospital proposed to est. Proscription against inurement generally applies to persons who. & (3) they may well violate federal law (prohibiting referral fees). even w/ insiders. Must also perform an AKS analysis. Med staff members are deemed insiders at hospitals. Must gauge amount of benefit community receives against what hospital is paying out. Can‘t take surplus generated by tax-exempt org and pay out to people who have control over it. Presence of a % compensation arrangement 32 . even if they are not directors. that would be jointly owned in equal shares by hosp & its med staff. New corp. 3. would in turn est. This is an absolute requirement. a for-profit stock corp. Community Benefit Requirement . the tax exempt statuses are rarely yanked.1. The inurement proscription doesn‘t prevent payment of reasonable compensation for goods or services. Prohibition against lobbying (and political involvement) 1. Z-H maintained that ventures would help it by creating incentives for med staff to increase admissions.

will destroy org's exemption where it transforms principal activity of org into a joint venture b/t it & a group of docs or is merely a device for distributing profits to persons in control. Also. New access. moreover. In order to be exempt. If everything is accurate. iii. One reason for this tax is because it creates an unfair advantage against other competitors in the same business (Ex: NYU and pasta factory) iii. it is ―incidental‖ or a side-effect to the hosp‘s fulfillment of its charitable mission. g. Therefore. If the amount made off the unrelated business becomes too substantial. 1. greater accessibility of physicians. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. isn‘t it just a completely equivalent exchange? Not really. More efficient Private Inurement – A § 501(c)(3) organization must not be organized or operated for the benefit of private interests. c. In all partnership cases. Put another way: ask whether & how engaging in transaction furthers hospital's exempt purposes. they will revoke tax exempt status v. Private benefit proscription doesn‘t require monetary payment & isn‘t limited to ―insiders. f. Private benefit – see green and pink on p. hosp‘s purpose couldn‘t be achieved w/out it. New treatment.‘s position/argument better? Argue that proposed transactions would make the following more likely to occur. other designated individuals. Profitability to LPs depends on future increase of revenue stream. or persons controlled directly or indirectly by such private interests.‖ How could you make hosp. structures: i. It‘s not contrary to hosp‘s purpose. but is not a benefit to the community. b/c revenue stream is set at current year rates. Violation of fraud and abuse law ―Obtaining referrals or avoiding new comp. or is done for those purposes: i. There are 2 basic tax exemption issues in complex corp. but not those that merely reallocate existing revenue streams. Gist of GCM appears to be that joint ventures that create new facilities may be permissible. may improve comp. position of the hosp. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.‖ but it does have a de minimis exception. The tax imposed on businesses when they engage in business that is unrelated to their charitable purpose ii.451 for things that might have saved this arrangement if they had occurred. initial focus should be on whether joint venture org furthers a charitable purpose.452. 3 legal issues involved in GCM 39862: i.b. Physicians being on staff at hosp don‘t create a private benefit that is an issue. or any other direct benefit to the community. See p. j. that it is not organized or operated for the benefit of private interests. In instant cases. i. d. an org must est. Private inurement ii. Unrelated Business Income Tax i. arrangements don‘t appear to result in improved patient convenience. such as the creator or the creator's family. i. it could create a ―tail wagging the dog‖ scenario iv. shareholders of the organization. Proper starting point for analysis of the net revenue stream arrangements is to ask what hospital gets in return for benefit conferred on physician-investors. requires finding that benefits received by LPs are incidental to public purposes served by partnership. Which subsidiaries will lose exemption if their functions are examined separately from the hospital‘s functions? 33 . e. Test: (1) Result of a trade or business (undertaken with a profit motive?) (2) That is regularly carried on (3) And not substantially related to the entity‘s exempt purpose Finding private inurement can be fatal to tax exemption. h. This incentivizes LPs to send their business to Z-H & its clinics.

you usually look first to FMV. 472) a. most H have not changed b/c they are operating under their original charter & by-laws. How do you distinguish b/t private inurement & benefit as matter of law? i. avoiding competition doesn‘t count.g.  Hospital medical staff has historically been its own governing authority. Private benefit occurs b/t exempt org & any person. new or enhanced services do count. FMV question: Is Hospital paying out too much in terms of what it receives from Jost? 2. – Jost isn‘t a ―DQ‘d‖ person automatically or b/c of family relationship. For private benefit analysis. Must connect private benefit w/ some cognizable charitable purpose. k. iii. John’s Hospital Medical Staff v.173-74 of Int. cont. St. Holding: The court held that the original bylaws were binding upon the medical center. i. Test for private benefit? Benefit conferred on private individual has to be incidental to the charity‘s achievement of the permissible benefits it is seeking. i.. Physician Recruitment 1. Organization: Medical Staff Structure (17-20)  In an H. income guarantees. Private inurement problems might also be created when exempt orgs assume most. court ridiculed idea of hospitals being required to accept any qualified doc wanting to practice there. (E. Private benefit really focuses solely on question of private benefits conferred on anyone.‖ l. They must be conferred as incidental or ancillary to the purpose of the exempt org. Keeping doors open a viable reason? Maybe b. qualify for exemption even though it is a ―shell‖ corp. The bylaws contained an article stating that the bylaws were equally binding on both parties. Amendments would have to be passed by the hospital admin and medical staff.) h. office support. You can only have private inurement when there is a transaction b/t exempt org & insider. Physician recruitment/Jost Problem. might show that nonprofit has veto powers over certain types of transactions or is at no bigger risk than other partners. a private shareholder/ind = an ―insider. that offers no charitable service directly. Hospitals are required to have separate bylaws for admin & med staff by state licensure laws. which aren‘t likely if the staff is to lose authority. if not all. Also. and even though a # of its subsidiaries are run as forprofit ventures? Usually – ―yes‖ under the ―integral parts test. Under statute. look at ―operated exclusively for charitable [read community benefit] purposes‖ language in statutory text. of the risk/liability associated w/ a joint venture. Board unilaterally adopted new bylaws not approved by the med-staff. If H can show a need (e. Facts: The med-staff bylaws were adopted and approved by the medical center. John Regional Medical Center (strong-contract view of medical bylaws) (p.g.ii. there are 2 org. iv. Insider status is not as automatic under int. Having more beds filled? No c. See §501(c)(3). Facts and Circumstances Test: See p. 1: hospital admin & 1: med staff.  In Mahan. GCM 39862 says that having a competitive advantage doesn‘t count. ii. structures.  Even though restrictions of corp. but that is almost precisely how it has happened in the past. m. iii. b. o. IRS has approved a list of limited recruitment incentives to assist w/ transitional costs of moving & setting up a new practice. ii. St. subsidized malpractice insurance. Will the parent co. and loan guarantees. Sanctions Handout. sanctions as private inurement. p. For private inurement. any amendments to the bylaws should have been made in accordance w/ the due 34 . control on med staff have loosened. n. the bylaws provided a specific procedure for amendments (due process). In order to make venture look good to IRS. in an underserved area) for a particular doc. Medical Staff Bylaws (472-484) 1. Thus.‖ It also appears essential that the network is hospital-run. 1. Will hospital needing Jost‘s referrals satisfy the private benefit test? a. 3.

The medical staff had no authority over any corporate decisions unless specifically granted that power in the corporate bylaws or under statute. or instead of. it won‘t be gone any time soon. Unionizing would allow docs protection from antitrust laws. it was acting within its powers under its corporate bylaws. Aluko (p. b. Newcomb Hospital (NOT a majority rule) a. Medical Staff Disputes (485-498) 1. Attack H‘s position by arguing that board is making decision on doc‘s med competence or that it creates conflict b/t admin and medical staff bylaws. a. bd would have authority summarily to suspend a doc‘s staff privileges. Does he have standing to sue bylaws when they don‘t yet apply to him? 35 . as Mahan did. Notes 1 & 2: Is the tripartite division the best structure for efficient operation of hospital? In places with strong CPMD. The decision was a reasonable administrative decision to ensure the continued viability of the hospital. Mahan v. law is concerned w/ public law rights of groups of health care employees. Because the actions by appellant were permissible under the corporate bylaws and done in good faith. b.process procedure contained in the bylaws. physicians on hospital or HMO med staffs.479) case says you should look to intent of H in making decision to close medical staff. John’s that med staff bylaws constitute a K & cannot be amended or ignored unilaterally by hospital bd. Most courts also agree w/ Mahan that hospitals are free to enter unilaterally into Ks or stop admitting new members to a portion or all of the med staff. Might also argue med staff would be biased towards doc. The court held that hospital‘s exclusion was arbitrary. Economic credentialing – hospitals consider economic factors in choosing physicians. hosp. Many other courts have agreed w/ St. Facts: Hospital challenged a requirement that hospital consider plaintiff doctor's application for membership on the med-staff. allowed unilateral change of bylaws d. Covers only employees & would seem to exclude ind. Conflict credentialing – Hs refuse privileges to physicians who est. HYPO: Instead of deciding to close a portion of med staff to new applicants. there was no breach of contract between the appellant and its staff. specialty facilities that compete w/ the H‘s services. 3. Pub. staff bylaws protect only the former. Facts: Docs. reasoning that med. Mahan court would likely say that board was making an admin decision concerning H‘s liability. Priv. i. 2. filed suit against hospital seeking a permanent injunction for H‘s decision to close its staff w/ respect to physicians requesting privileges for certain procedures. c. c. Is it an economic or quality decision? ii. law rights = labor L 9. Avera St. Lukes a. under theory that there is a conflict of interest b/t the parties 8. Holding: When appellant made its decision to close the medical staff. not the latters 6. They distinguish. Greisman v. 10. bd unilaterally amended bylaws to provide that in the event there had been an incident report suggesting a danger to patients. Court held that the medical center breached the K w/ the medical staff by ignoring procedure and unilateral amendments were void. Hospital contended that it was a private rather than a public hospital and that no legal ground existed for judicial interference with its refusal to consider plaintiff's application for membership. Hospital‘s survival at stake. b. between administrative decisions reserved to the hospital board versus medical decisions made by the medical staff. in addition to. 4. law rights = employment L. quality-of-care factors 7. NLRA allows employees to unionize. they fall in the board‘s realm to act unilaterally b. Courts also distinguish b/t the possession of clinical privileges and the right to exercise those privileges. but has exception for managerial employees. In addition to private law rights of independent docs. Then the reasons for action are economic. Courts reconcile these two lines of authority in two ways: a. although bylaws established that applicant must have graduated from AMA approved medical. 5. The public interest and considerations of fairness and justness pointed unerringly away from the hospital's position.

Whether H can use economic criteria to determine if certain docs are given med staff privileges. Hospitals may adopt bylaws concerning a doctor‘s inability to work with nurses and other doctors. even though of a hearsay nature. Thus courts should sustain a hospital‘s standard for granting staff privileges if that standard is rationally related to the delivery of health care. Nanavati v. The by-laws presume that there must be a procedure done before she can be let go  What if someone is applying to the hospital for the first time? o Courts have said there is a liberty interest to practice medicine and the government must give due process when reviewing the initial application 36 . liberty. This violated bylaws and the hospital sought termination b. which is restricted from discrimination.i. (p. Option 3: Can hospital suspend privileges for docs that continually lose money? Facial validity: be concerned that it is tailored narrowly enough. This is a corporate hospital  Suppose she works for a county H – does she have a protected interest?  Yes. He became disruptive when privileges not granted. but the social/competence issues were the stated reasons. Test: is it being done for a lack of individual merit or a reason unrelated to sound hospital standards and not in the furtherance of the common good? 2. Seeks to get EKG privileges. she‘s a member of the medical staff. admin. Burdette Tomlin Memorial Hospital a. tortuous interference.‖ ii. b. particularly patients. some docs just aren‘t allowed to treat patients. however the ―mere fact that a doctor is irascible‖ does not constitute good cause for termination of hospital privileges. the hospital or those who are essential to the hospital‘s operations. d. Judy Jones Problem: Possible Causes of Action:  Due Process: Public H– can sue under the Constitution due to State-action & Private Hospitals (Greisman – not universally available. It would be difficult to defend hosp. Yes. Facts: Cardiologist. d. Court remanded to the hospital to redo the proceedings in accordance with due process provisions of bylaws. Difficult to sell to cts. Option 2: medical staff might. Economic Credentialing Problem (484) . A decision is so related if it advances the interests of the public. taking this position when the real reason was economics. Hosp. such as doctors or nurses. AL doesn‘t have this type of review) o Procedural – have to have a protected interest (life. Test for judicial review of such a decision is whether it is supported by ‗sufficient reliable evidence. 4.‘ (Relaxed standard of review) iii. which acts as a public utility. Option 5: highly unlikely even though no staff privileges are revoked. gets hospital privileges. e. i. antirust. The bylaws regulated the only hospital in town. c. Holding: Bylaws not followed at termination proceedings. to justify the result. for example. Option 4: like Nanavati (Ct seems to say that hosp. e. has to at least take into acct the staff‘s recommendation. Might can make a business efficiency (Mahan) argument. or property) with notice and opportunity to be heard  Probably would not have a PDP claim b/c there is not a state action. Option 1: medical staff is unlikely to go along w/ this amendment. only one in county. or if H can amend bylaws to provide such? a. deserves some deference). but probably won‘t go along w/ this amendment. ―Reasonable and constructive exercises of judgment should be honored. Hospital does not need to wait for a doctor to harm a patient before terminating their privileges (gives hospital latitude) but need more than general complaints. 492) 3. Allegations of disharmony should not be used as a ruse to terminate staff privileges (pretext) 1. ―Right to procedural fairness‖ often only inferred under special circumstances. public/patient interest.

she could allege breach of K  Maybe within the duty of good faith and fair dealing they fired  Antitrust iii. if they fired her for pretext.  Is 3 months a reasonable time period?  May be reasonable if a deprivation hasn‘t already occurred but since deprivation has already occurred. (Common law right to fair procedures) (p. you cannot bring a cause of action for negative peer reviews  Public policy – encourage hospital to have honest peer review and that it wont be chilled by the process of defamation liability  Breach of K claim o Most courts consider the by-laws to be a contract b/t the hospital and the doctor o If they didn‘t follow the by-laws o Also. the action does not seem arbitrary but there‘s a suggestion in the problem that the protection of the hospital‘s patients is not the real reason  If you can show that the reason that they stated is a pretext. Metropolitan Life Insurance Co. However. 498)  37 . you don‘t have the same goals  Is the analogy b/t this scenario and the common carrier doctrine sound?  How do they bridge the gap? o They are vindicating patients  Patients follow their doctors to the hospital and not being able to go there keeps them out  Greisman allows us to apply DP analysis to a non-state actor hospital  Equal Protection  Title VII: o Possible sex discrimination claim. Potvin v. maybe not so timely o Substantive – have a right to be free from arbitrary government (state) action – must be a rational basis  If we accept the hospital‘s story. they will argue that she is not an employee but an independent contractor  Courts are split on whether med staff members are subject to Title VII  Defamation: o They say that she is difficult o They make it seem like she is a bad doctor and kills people  One defense the H may have is if they are correct and she is a bad doctor o In some states. Membership in Managed Care Networks: Managed Care Contracting (498-508) 1.It is not clear for the due process claim whether they follow the specified process but whether they have some level of protection  There is an argument that a post-deprivation hearing is valid here b/c she could be a danger to other patients. you want to separate yourself from Greisman?  Argue that you‘re not the only hospital in town  You‘re not non-profit. you can try to show the real reason that they let her go  What if her excess # of Medicaid patients is the real reason? o Probably not acceptable to be the reason for a government hospital to let her go  What about the competition from other OBs? o The administrators may not want to upset them b/c they may have a large share of the patients in the town and can take their referrals elsewhere o Any state law due process claims that may apply to a corporate or charitable H?  Common law fairness doctrine  If you‘re representing the corporate hospital.

respondent wielded power so substantial as to significantly impair an ordinary. Actually says that termination w/o cause in provider K is void. which prohibits monopolization ii. c. Introduction (508-513. including treble damages in private actions c. Sherman Act §1 a. Elements: i. May be legal c.‖ b. What counts as a good purpose? 1. if removal of a doc from an insurer's preferred provider list would reduce doc‘s income below that guaranteed min. is declared to be illegal. . doc alleged he should have been given reasonable notice and an opportunity to be heard before his removal. or conspiracy. Common law right to fair procedures. (States have not gone the same way on this issue) d. . The Rule of Reason (judicial gloss) a. Most courts will not go that far. a public interest such as reduction of rate variability) i. ii.a. Will ―worthy‖ purpose justify anticompetitive conduct?) iii. Concerted act requirement – have to have more than one person acting a. thereby affecting an important. Citing the common law right to fair procedure. Why can lawyers in the same firm fix prices? d. i. income &. Secondary purposes? (e. .. Courts usu. Intent ii. physician sued. Proof of doc‘s allegations could establish that. ―Every contract. .. Purpose i. 3. Why are noncompetition agreements ever valid? iv. in terminating a physician's preferred provider status. which allows docs to challenge no-cause terminations only if they can show true reason violates public policy. 531-540) 1. combination . Ct found the agreement void to the extent it limited the important public policy of the common law right of fairness. Limited exemption from antitrust laws for professional services 38 . . b. **This is an extremely pro doc case.‖ 2. Antitrust: i. §1 does not reach unilateral conduct b. byproducts of legit relationships i. object is to restrain trade among competitors a. ―every contract . Doc waived it in K w/ MCO i. . 2. Holding: SC concluded that appellant alleged that among the adverse effects of removal from respondent's preferred provider lists were rejection by physician groups which were dependent upon credentialing by respondent and devastation of appellant's practice. ―in restraint of trade‖ 1. Criminal and civil remedies. substantial economic interest. adopt dissent‘s theory.g. Naked v. But see §2. Ancillary restraints – subject to Rule of Reason. in restraint of trade or commerce . ―contract. Often used as a shield for naked restraints b. Ancillary restraints: 1. Facts: After removal from insurance company's preferred provider lists. Quality 1. Harper (p. combination or conspiracy‖ 1. Note that insurers often have a virtual monopoly and if they choose to exclude a doctor they can ruin his career. doc is entitled to a hearing & judicial review that would inevitably follow upon an adverse decision. majority declares that it is public policy of this state that docs are entitled to a min. Naked restraints: (only purpose is to exclude competitors) are illegal per se. Dissent: W/ its decision today. 502): Forbids ―bad faith‖ use of termination w/o cause provisions i. competent physician's ability to practice medicine in a particular geographic area.

Be careful w/ this b/c a lot of stuff depends on how you define the market iii. Market division iii. Sherman Act §2 a. One product has to come with another iv. Per se condemnation amounts to a (virtually) conclusive presumption of illegality b. Regardless of effect. Less restrictive Alternatives? i. Sup Ct has never found professional activity having adverse price & output effects justified by concerns over the quality of service provided. . See Note 2 on p. or attempt to monopolize . Market share percentage as proxy for market power 1. Shifts the vocabulary of health care policy debates i. . Monopoly power 2. Product market 2. Price fixing ii. From regulated system to competitive marketplace ii. Power i. . Procompetitive effects: Product innovations. Ordinary competitive factor? a. These are dangerous arguments b/c of the unlikeliness of their legal success 6.. . Deals with Monopolization i. Harms to competition: Higher prices. the intent was to do good 5. From traditional doctor/patient roles to efficiency 39 . Cf. Good purpose? a. . . stare decisis c. professional restrictions on advertising a. Regulate but permit? e. Geographic market c. ―Every person who shall monopolize. Simple definition: the power to charge a higher-than-competitive price for a good or service in a market ii. Improving the market iii. Some group boycotts 4.‖ b. More output.g. Effects i. Categories of conduct prohibited per se: i. Lower prices. Horizontal v. Ban advertising altogether? b.any part of the trade or commerce . Social benefit (effects) separate from competitive analysis? a. Vertical Relationships d. Elements 1. Goldfarb and n. May be true that the market has been tied up but it has been done for social benefit 3. Cf. The Symbolic Importance of Antitrust Law a. shall be deemed guilty of a felony .a. Exclusion of competitors ii. . Could procompetitive purposes be achieved in a manner less restrictive of competition? 1. among the several States . E. Defining the ―relevant market‖ 1. Reduced output. Applies to unilateral conduct ii. 510 3. Per Se Rules a. 17 – the court leaves a safety valve 2. Either in acquisition of monopoly power or in exercise of such power once achieved 5. Engineers – engineers union didn‘t want shoddy work so they didn‘t want a price focus 4. b. . Some tying arrangements 1. Exclusionary conduct a.

Promote economic competition. Protect small business? 8. Re-imagining health care relationships i.iii. The Substantive Importance of Antitrust Law a. Insurers as ―purchasers‖ not ―payors‖ 6. ―profession‖ or ―cartel‖ ii. under the law. as a matter of law. The Court also instructed the jury. however. Anytime med staff meets. Physicians as ―sellers‖ not ―providers‖ 1. Med staff cant conspire w/ board itself i. Courts will go back and consider hospital & med staff could conspire under certain facts ii. Policy Goals of Sherman Act a." incapable of conspiring. 3 main views that courts have concerning whether a hospital entity can conspire with itself a. legally capable of conspiring with York Hospital or its Medical and Dental Staff. E. could constitute conspiracy b. Independent Practice Association 40 . it was careful to distinguish the actions of the individual members of the medical staff. Allocative efficiency c. Professional Rules inhibit competition a. We agree with the Ps that. Boycotts 1. The key to this case is the distinction between the medical staff as an entity unto itself and the individual physicians who make up the medical staff. 1. Business arrangements i. Hassan v. Medical Staff Disputes (514-530) 1. b. iii.... Medical staff (under Weiss) could conspire together (―walking conspiracy‖) but not as an entity with hospital b/c they are one with the hospital i. There justification is that they don‘t want quality to suffer ii. independent economic entities . Goldfarb – an attorney wants to buy a house and all the real estate lawyers quote the same price. Facts: Plaintiff had sued the medical staff itself as an independent entity. Of uncooperative physicians 7. Relationships with other health professionals iii. Payment terms 2." 2.g. which is seen as a stimulant to lower prices and better quality in the goods and services consumers purchase b. the medical staff is a combination of individual doctors and therefore that any action taken by the medical staff satisfies the "contract. Limits private professional regulation i. Of disfavored arrangements 2. that if they found that some or all of the individual Defendants took action against the Plaintiffs "in whole or in part in their individual capacities and motivated in whole or in part by independent personal economic interests. Decentralization of economic and political power i. then such individual-named Defendants are. Typically implemented through concerted action ii. or conspiracy" requirement of § 1. Although the trial court instructed the jury that the medical staff was an "unincorporated division" of the hospital and thus the two were a "single entity. Court looks for unity of economic interest c. From science and ethics to economics b. Weiss v. Rules against contract practice iii. York Hospital a. ii. combination. Holding: Court found that the medical staff had no independent legal existence but accepted the plaintiff's allegation that the individual physicians were engaged in a conspiracy as defined in section 1 of the Sherman Antitrust Act: i.

therefore. Holding: The court held that although there was an agreement on fees among competing physicians. provides desirable insurance and preferential financing arrangements for its members. . Holding: i. National Collegiate Athletic Assn. Issue: Whether this maximum fee schedule constituted unlawful price-fixing? c.. Health Plus was funded by subscribers who paid a fixed premium per month. Respondent FTC brought a complaint. b. . and engages in lobbying. Facts: Petitioner California Dental Association (CDA). See. Board of Regents of Univ. unlike the physicians in Maricopa." and did "not dictate what those doctors can charge to non-Health Plus patients.. Facts: An HMO known as Health Plus of Michigan (Health Plus) and Independent Practice Associates (IPA). and public relations for members‘ benefit. which was withheld to protect IPA against loss if its expenses exceeded the capitation payments received from Health Plus. inter alia. it provided consumers "with a new product: guaranteed comprehensive physician services for a prepaid premium different from fee-for-service physician services. This case fails to present a situation in which the likelihood of anticompetitive effects is comparably obvious. was not price-fixing. for the CDA‘s advertising restrictions might plausibly be thought to have a net procompetitive effect or possibly no effect at all on competition. The existence of significant challenges to informed decisionmaking by the customer for professional services suggests that advertising 41 . The amount paid to IPA members was limited by a maximum fee schedule that all IPA members agreed to accept. the Ninth Circuit sustained the Commission‘s jurisdiction and concluded that an abbreviated or ―quick look‖ rule-of-reason analysis was proper in this case. designed to avoid false or deceptive advertising in a market characterized by striking disparities between the information available to the professional and the patient. e. b. primarily on a fee-for-service basis. marketing. The discount and non-discount advertising restrictions are. Health Plus paid IPA members for medical services. Where any anticompetitive effects of given restraints are far from intuitively obvious. nondeceptive advertising: price advertising.a. It was also critical to the court that "Health Plus. Out of that funding. which. As relevant here. Members agree to abide by the CDA‘s Code of Ethics. 1. 85. In affirming. unlike the foundations in Maricopa ." The court noted also that doc-members of IPA accepted the risk of nonpayment of a part of their fees. alleging that the CDA violated §5 of the FTCA in applying its guidelines so as to restrict two types of truthful." By doing so. v." The facts showed "that IPA member physicians share the risks of loss as well as the opportunities for profit by accepting a capitation payment from Health Plus. and advertising relating to the quality of dental services. 2. a nonprofit association of local dental societies to which about three-quarters of the State‘s dentists belong. of Okla. The CDA has issued interpretive advisory opinions and guidelines relating to advertising. California Dental Association v. An abbreviated or “quick-look” analysis is appropriate when an observer with even a rudimentary understanding of economics could conclude that the arrangements in question have an anticompetitive effect on customers and markets. 468 U. Maximum fee agreement only affected "what IPA member physicians can charge Health Plus members. the court upheld the maximum fee schedule. prohibits false or misleading advertising. litigation. FTC a. an organization of physicians who provided medical care to the subscribers of Health Plus. 3.underwrites and arranges for a comprehensive range of health services for a fixed premium from the consumer." In light of those considerations. ALJ held the Commission to have jx over the CDA and found a §5 violation. the agreement was related to a legitimate health care joint venture and. the Commission held that the advertising restrictions violated the Act under an abbreviated rule-of-reason analysis. particularly discounted fees. the rule of reason demands a more thorough inquiry into the consequences of those restraints than the abbreviated analysis the Ninth Circuit performed in this case.g.S. on their face.

If there is a per se violation. go to the Rule of Reason analysis: i. Is the alleged conduct in Judy Jones Problem a per se violation? a. there is probably not a big difference b/t market power and essential facility iii. Do Defendants have ―market power‖? i. Saying that the 9th Cir. In applying cursory review. – This looks a lot like the rule of reason c. and logic. Wouldn‘t this be a hard rule b. Purpose – real reason or pretext? ii. Her personality creates efficiency problems iii.restrictions arguably protecting patients from misleading or irrelevant advertising call for more than cursory treatment. The obvious anticompetitive effect that triggers such analysis has not been shown. The CDA‘s price advertising rule appears to reflect the prediction that any costs to competition associated with eliminating across-the-board advertising will be outweighed by gains to consumer information created by discount advertising that is exact. is there a legitimate business justification? i. 4. Can we fit this conduct into a per se violation? 1. but it is not implausible. Here. Reducing Medicaid patients is legitimate if you‘re trying to make $ since Medicaid doesn‘t pay well iv. Don‘t want to expand business – isn‘t that a weird justification? 1. It‘s a weird argument b/c antitrust law is designed to increase competition e. Assuming there is concerted action. There is generally no categorical line between restraints giving rise to an intuitively obvious inference of anticompetitive effect and those that call for more detailed treatment. 523) b/c we don't want to ram situations into group boycotts that don't fit. Classic Ex: group of retailers tells a manufacturer to stop dealing with one retailer (usually a discounter) or they will stop buying from him 2. What is required is an enquiry meet for the case. namely that restricting unverifiable quality claims would have a procompetitive effect by preventing misleading or false claims that distort the market. Not every case attacking a restraint not obviously anticompetitive is a candidate for plenary market examination. The CDA‘s plausible explanation for its non-price advertising restrictions. Most likely fits into ―group boycott‖ a. likewise rules out the Ninth Circuit‘s use of abbreviated rule-of-reason analysis for those restrictions. Product Market? Geographic Market? d. Judy Jones Revisited: a. the next question – was there a restraint of trade? i. Male OBs? b. NW Wholesale Retailers – courts back off of harshly applying group boycott analogy (p.‘s conclusion required a more extended examination of the possible factual underpinnings than it received is not necessarily to call for the fullest market analysis. First. it is not open to the D to explain conduct ii. 3. accurate. Who are our possible conspirators? i. the Ninth Circuit brushed over the professional context and described no anticompetitive effects from the discount advertising bar. and neither a court nor the Commission may initially dismiss it as presumptively wrong. Power? 42 . a less quick look was required for the initial assessment of the CDA‘s advertising restrictions. In the medical staff context. and more easily verifiable. Now ask. looking to a restraint‘s circumstances. This view may or may not be correct. details. If there is. They will say that it is in their business interest to get rid of ―bad‖ doctors ii. what is the relevant market? ii.

Peer review action has to be related to the quality of care e. Antitrust actions brought by the state are not immunized iii. What happens in this market as a result of what they do? 2. James E. Established a databank of suspended and revoked licenses. Immunizes anyone who participates in peer review action against doctor. 43 . Claims for injunctive relief are NOT immunized v. Maricopa County Medical Society a. No private right of action b/c it has to be brought by an attorney ii. May not want to demand such precise acts v. Holmes Regional Medical Center a. immunity is limited to damages a. Also. Due process claims (federal) are not b/c they are a civil rights claim iv. The Court stated: i. "[T]the intent of [the HCQIA] was not to disturb.. Peer Review & State Action Immunity 3. this was to help with the problem of doctors moving from state to state after losing licenses c. termination of medical staff privileges" and ii. malpractice claims. HCQIA a." 2. Physician Networks – Price Fixing Law (549-561) 1. However. you should have done Y. Is there a Less Restrictive Alternative? 1. Court of Appeals for the Eleventh Circuit held that hospitals and physicians conducting a peer review of another physician enjoy statutory immunity under HCQIA if their action "would promote quality health care. b. Even this is limited ii. The U. It‘s not really a checklist – it's a totality of factors iii. 2. Hospital or HMO suspends or revoke privileges of a doctor 1. Court may be hesitant to do this b/c they may not want to say – ―Instead of doing X. established the maximum fees the doctors may claim in full payment for health services provided to policyholders of specified insurance plans.iii. Does it matter that this doctor is not longer in the mix? Will she be replaced? Will the remaining doctors be able to step in? iv." restrain "competent" behavior. Could she have been put on probation? Required supervision? 2. by agreement of their member doctors. but to reinforce. by applying HCQIA immunity.. Provides immunity for certain peer review activities 1. The Court reversed an award by a jury in excess of $4 million. Has two primary functions: i. Claims for damages under state and federal law are immunized except for civil rights claims (1983 & Title 7) iv. Arizona v. Facts: Respondent Maricopa County Medical Society and another medical society to promote fee-for-service medicine and to provide the community with a competitive alternative to existing health insurance plans organized respondent foundations for medical care. The role of federal courts on review of [peer review] actions is not to substitute our judgment for that of the hospital's governing board or to reweigh the evidence regarding the . Immunities (540-549) 1. Act was motivated b/c they thought that Hospitals would be too reluctant to discipline dangerous doctors out of fear of being involved in a lawsuit even if the disciplinary action was warranted b. The foundations. What are the effects? 1. What is immunized? i. and "protect" patients. the preexisting reluctance of courts to substitute their judgment on the merits for that of health care professionals and of the governing bodies of hospitals in an area within their expertise. Arizona filed a complaint against respondents. Bryan v. Hospitals are charged with knowledge of what is in the databank d.S.

Court of Appeals affirmed the denial of the motion for partial summary judgment and held that the certified question could not be answered without evaluating the purpose and effect of the agreements at a full trial. training. Concern that messenger becomes the ―union boss‖ if not done carefully and scrupulously.2. as price-fixing agreements. the record in this case is not inconsistent with the presumption that respondents' agreements will not significantly enhance competition. Such a restraint may also discourage entry into the market and may deter experimentation and new developments by individual entrepreneurs. or willingness to employ innovative and difficult procedures in individual cases. distinguished. and their claim that the price restraint will make it easier for customers to pay does not distinguish the medical profession from any other provider of goods or services. That the judiciary has had little antitrust experience in the health care industry is insufficient reason for not applying the per se rule here. i. they fit squarely into the horizontal price-fixing mold. but there is no reason to believe any savings that might accrue from this arrangement would be sufficiently great to affect the competitiveness of these kinds of insurance plans. "[T]he Sherman Act. Problem: insurance company doesn't know how many doctors will say yes i. Horizontal agreements to fix maximum prices are on the same legal footing as agreements to fix minimum or uniform prices. The anticompetitive potential in all price-fixing agreements justifies their facial invalidation even if procompetitive justifications are offered for some. Ex: ABC has 500 doctors – will 50 say ―yes‖ or will 450 say ―yes‖? c. Nor does the fact that doctors rather than nonprofessionals are the parties to the price-fixing agreements preclude application of the per se rule. iii. v." iv. Court denied the State's motion for partial summary judgment. b. experience. Respondents do not claim that the quality of the professional services their members provide is enhanced by the price restraint. ii. these are price fixing arrangements (more or less collective bargaining) i. alleging that they were engaged in an illegal price-fixing conspiracy in violation of §1 of Sherman Act. As agreements among independent competing entrepreneurs. Legal risk: worried that messenger will not behave correctly. in essence. are per se illegal under §1 of the Sherman Act. Even when respondents are given every benefit of doubt. Arrangements like this can prevent competitors from entering the market Implied negative in the Maricopa case is that they want to promote the continuation of fee-forservice payments at the exclusion of managed care. Respondents' maximum-fee schedules do not involve price-fixing in only a literal sense. The agreements do not escape condemnation under the per se rule against pricefixing agreements b/c they are horizontal and fix maximum prices. so far as price-fixing agreements are concerned. Danger that. The most that can be said for having doctors fix the maximum prices is that doctors may be able to do it more efficiently than insurers. 3. Two dangers: a. 4. 5. Holding: The maximum-fee agreements. The per se rule is not rendered inapplicable b/c the agreements in issue have procompetitive justification. Messenger model: Each doctor makes their own unilateral agreement concerning prices. (no longer true) The per se rule is violated here by a price restraint that tends to provide the same economic rewards to all practitioners regardless of their skill. Goldfarb & Engineers. Statements of Enforcement Policy 44 . Each individual doctor says yes or no to fee schedule a. establishes one uniform rule applicable to all industries alike. Basically putting blinder on by not talking to other doctors b. but certified for interlocutory appeal the question whether the maximum-fee agreements were illegal per se under §1. Doctors don't enjoy the same exemptions that Labor unions do b.

Then Apply Rule of Reason o Step One: Define the Relevant Market  Start getting worried at 50% but 45% here looks worrisome b/c no one has been able to come in and contract with the other 55%. ask – to who do the enforcement statements apply? o Physician network joint ventures o Look at definition to see if it fits the elements of a PNJV  Is it physician controlled?  Maybe – the split b/t physicians and directors is 50/50  Leans towards yes: Original board appointed by MDs. you could get worried at as little as 1/3 (33%) o Step Two: Evaluate the Competitive Effects of the Physician JV 45 .6.10) or is it more like North Texas?  There probably isn‘t substantial financial risk here – need to know more facts but looks like a very think case o Couldn't we say that there is something inherently efficient in marketing your services together?  Want you see a bunch of joint-selling agencies?  Wouldn't this just be a recipe for undoing the whole law against price fixing?  If not Per Se. In some cases. selfperpetuating  Leans towards no: nonprofit  Looks like it is physician controlled  Do they collectively agree on prices or price related terms?  DO they jointly market their services?  Next. so as far as we can tell there aren‘t o This tends to lean towards exclusive  Answer: NO  Will this be treated as per se illegal? o Probably not o Even if there is no substantial financial risk – there may be some clinical integration  Is there?  Do they have mechanisms in place to monitor & control costs? o Maybe?  Do they selectively choose physicians like t further efficiency objectives? o Problem doesn't tell us  Is there a significant investment of capital? o Doesn't look like  Can ask: Is the problem more like MedSouth (p. ask – does it fit in the safety zones? o Is it exclusive?  Are they sharing substantial financial risk?  Looks like it may fit under 3(a) (p. Problem: OZIPA  First.5) o However – we don't know what there ―specified costcontainment goals‖ are  Answer: NO o Is it nonexclusive?  Says it‘s non-exclusive but have to look at indicia to see whether they are really non-exclusive  The problem does not say that there are other competing networks.

Problem with North Texas – 1. But the enforcement agencies tell us otherwise. Advantage: allows agent. This is generally fine. b. They disseminate all of the information a. This facilitates the agreement b/c they all know what other DRs want 2. North Texas Specialty Physicians a. there is no collective decision making on fees. Doctors have appointed an agent c.Are they raising the prices for physician services above competitive levels?  Could they prevent or impede the formation or operation of other network or plans? o Step Three: Evaluate the Impact of Procompetitive Efficiencies o Step Four: Evaluation of Collateral Agreements  What about the purposes of this agreement? o Always look at what led up to the formation of the group 7. to have a better idea of how many DRs will be willing to go along with the agreement 1. They weren‘t messengering low offers back to the doctors a. “Black Box” Messenger Model – Alternative Model a. when negotiating w/ payor. Where the ―messenger‖ in this model goes astray.16 Sometimes the Black Box method is coupled with an opt-in or opt-out procedure in which the providers are permitted to opt in or opt out of that fee schedule. however. Power of Attorney Messenger Model (North Texas): i. If a messenger has created a fee schedule. They also allow an ―opt-out‖  46 . Kind of a dicey arrangement 8. so long as the information is collected on an individual basis and the providers do not communicate with each other about the fee information. the opt-in/opt-out method will not save the network from a possible antitrust challenge. is by taking the fee information and developing a fee schedule. 3rd party collects fee information from providers. Drs advise agent upfront of price they would like to get (―This is what I would accept‖) ii. Networks that use this procedure sometimes believe that if the provider makes the decision whether or not to participate. DR names price on their own iii.

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