The Legal Issues of Healthcare Reform
Wednesday, Aug. 10, 8-9: 30 a.m.
When creating new provider networks, a host of state and federal legal issues come into play, and a role-playing exercise during the American Hospital Association's annual meeting next month will bring those issues into focus.
Ross Stromberg, a healthcare attorney in the Los Angeles office of Jones, Day, Reavis & Pogue, will lead the educational segment. He'll likely be assisted by several healthcare executives who've set up networks and have dealt with many of the same legal issues.
"We'll do some role playing to not only spot important legal issues but key operational issues as well," Mr. Stromberg said.
A network's legal structure is one of the first issues to be considered, Mr. Stromberg said. Will the provider components be connected by contract or by common ownership? Will the organization be for-profit or not-for-profit?
Another issue is the extent physicians participate in the network's operation, Mr. Stromberg said. Will physicians be co-owners? Will they have seats on the network's governing board? Or will they be employees under an employment model of physician participation?
In addition to issues unique to network development, putting together a system of providers touches on some standard legal issues, such as tax exemptions, fraud and abuse, and antitrust.
For example, one important legal issue facing newly formed provider networks is tax status. Under the federal tax code, no earnings of a tax-exempt organization can inure to the benefit of an individual. Hence, when a not-for-profit hospital begins to form a network by acquiring physician practices, it must make sure it isn't overly generous in paying physicians lest it be accused of diverting tax-exempt money to private interests.
The same monetary concerns bring the fraud and abuse laws into play during network development. The anti-kickback provisions of the Medicare and Medicaid fraud and abuse statutes bar any form of remuneration to induce patient referrals. Hence, the money that hospitals spend on physician practices to develop their networks must be for demonstrable assets or services, not for future referrals.
On the antitrust front, at least two issues face provider networks.
First, networks, like any merging or acquiring entities, must be conscious of their market shares. Controlling too much of the market could give rise to concerns that a network could take anti-competitive actions against other providers or payers.
How much is too much is a question often debated by providers and antitrust law enforcement officials. But the federal government's new healthcare antitrust guidelines, released last September, say networks whose physicians represent no more than 20% of the physicians in a medical specialty in the relevant geographic market fall within a "safety zone" and won't be challenged by the federal antitrust agencies.
The other antitrust issue is whether providers in the networks are true business partners or simply competitors using a third party to set prices. Under antitrust laws, competitors who share significant financial risk in a venture are considered single economic units incapable of conspiring with one another.
There's no bright-line test on what constitutes enough financial risk to insulate competitors from price-fixing charges. But in a recent publicly available antitrust advisory opinion, the FTC said a 15% withhold on fees paid to physicians by their network wasn't enough to convert the otherwise competing physicians into partners.