Hinshaw's Health Law Newsletter is provided to our clients and contacts in the health care industry to keep you informed of significant legal issues and cases. You may click on the article headings below to read the entire content on our website and find the contact information of Hinshaw health law attorneys (names include email links) who will answer any questions you may have. If you wish to be added to or removed from our list of subscribers who receive complimentary copies of the Health Law Newsletter via email, or if you have any comments or suggestions, please contact the editor, Stephen Moore at (815) 490-4903.
In This Issue:
Hinshaw Partner Roy Bossen Elected President of Illinois Association of Healthcare Attorneys
Hinshaw congratulates Partner Roy Bossen on his recent election as President of the Illinois Association of Healthcare Attorneys. Roy has been a member of the Association for more than 15 years and recently served as the Chair of the Program Committee for the IAHA annual meeting. We applaud Roy on his continued efforts on behalf of the health care community.
Contact for more information: Roy M. Bossen
IRS Approves Tax Exempt’s Plan to Offer Insurance to Address Malpractice Crisis
On Nov. 21, 2002, the Internal Revenue Service (IRS) published an Aug. 29, 2003, Private Letter Ruling concerning tax issues related to the organization of a for-profit insurance subsidiary by a tax-exempt private foundation. The IRS approved the foundation’s organization of a for-profit reinsurance company whose purpose is to offer medical malpractice reinsurance services to share some of the risks associated with writing medical malpractice insurance in the state. The foundation sought to organize the reinsurance company in order to address the state’s medical malpractice crisis, which resulted in physicians abandoning their practices, retiring early and relocating to other states. The IRS concluded that the proposed transaction would not jeopardize the foundation’s tax-exempt status and that any benefit to the physicians would be merely incidental to promoting the health of the community. The IRS stated: “Your proposed investment in the Reinsurance Company is intended to make it financially feasible for physicians to locate or continue to practice in the State and thus to ameliorate the adverse health consequences resulting from a lack of medical providers, particularly in high risk specialties.”
This ruling provides one potential means by which health care systems may work cooperatively with physicians to address the medical malpractice crisis without jeopardizing their tax exempt status. However, the ruling does not address other concerns presented by the arrangement, including questions relating to Medicare Fraud and Abuse and Stark self referral prohibitions.
Contact for more information: Stephen T. Moore
Hospital May Lose Tax Exemption for Participating in Whole Hospital Joint Venture with Non-Exempt Organization
In a case of significant importance, the Fifth Circuit Court of Appeals in St. David’s Health Care System, Inc. v. United States, ruled that an exempt organization may lose its tax-exempt status if it forms a partnership with a for-profit entity and does not retain control over the partnership. In St. David's, the government revoked the hospital's tax exemption when St. David's entered into a 50-50 partnership with a for profit entity, HCA. The Circuit Court of Appeals sent the case back to the trial court to determine whether St. David's retains, and in fact exercises, sufficient management and ownership controls to assure the partnership is operated primarily in furtherance of the charitable purposes of St. David's and will promote community benefit, rather than operate for the financial benefit of HCA. If this test is not satisfied, St. David's may lose its tax exemption.
While St. David's involves a whole hospital joint venture, the legal principles apply to ancillary joint ventures as well. If the tax exempt partner in such arrangements does not retain and exercise the right to control management and operation of the joint venture activities in furtherance of the tax exempt's charitable purposes and for the benefit of the community, rather than for the financial benefit of the for-profit partner, then the revenue from the venture will be treated as unrelated business income subject to federal and state income tax. Moreover, a tax exempt organization may lose its tax exemption if its involvement in such an ancillary venture, together with its involvement in other activities unrelated to its charitable purposes, is substantial as measured in the aggregate by either assets or revenue in comparison to the tax exempt organization's other activities.
The St. David's case is not over, but the hospital has been dealt a big blow by this opinion. Because of the uncertainty of the outcome of this case, and because the stakes are so high, we continue to caution tax exempt organizations to maintain ownership and management control in all joint ventures with for-profit entities. Alternatively, joint venture activities should be carried on by an affiliate of the tax exempt organization in order to avoid the risk of loss of its tax-exemption.
Contact for more information: Roy M. Bossen
Final EMTALA Regulations Require Adoption of Policies and Procedures
The Centers for Medicare and Medicaid Services (“CMS”) has issued interim guidance regarding how it will enforce the Sept. 9, 2003, Emergency Medical Treatment and Active Labor Act (“EMTALA”) regulations. These regulations became effective Nov. 10, 2003, and deal with the Hospital’s responsibility for providing medical screenings to patients who present to the Hospital with emergency medical conditions. CMS has also indicated that it is in the process of developing interpretive guidelines for the EMTALA regulations.
The Sept. 9, 2003, regulations reflect the change in policy from regulations issued in April 2002. The latest regulations do not apply the medical screening requirement of EMTALA to off-campus outpatient clinics that do not routinely provide emergency services. In addition, the regulations clarify the meaning of “comes to the Emergency Department” and define what is considered a dedicated emergency department. Significantly, the final rules require hospitals to have written policies and procedures that address situations in which a specialist is not available or the on-call physician can’t respond because of circumstances beyond the physician’s control. Compliance with the EMTALA statute and regulations is required in order to meet the Medicare Conditions of Participation for facilities that have a Medicare Provider Agreement. All such facilities should review existing policies and procedures to assure compliance with the new regulations.
Contact for more information: Roy M. Bossen
JCAHO Revisits Proposed Standard Regarding Unilateral Amendments to Medical Staff Bylaws
On Nov. 14, 2003, the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”) released a letter withdrawing a proposed 2004 standard that would have barred hospitals from including in their governing body or medical staff bylaws any language that would assert an authority to unilaterally amend medical staff bylaws. Current standards only prohibit the act of unilateral amendment, but do not prohibit hospitals from adopting governing body or medical staff bylaws giving them the authority to unilaterally amend the medical staff bylaws. JCAHO staff have been instructed to “work through its consensus/building process to create a new leadership framework that would re-define the respective responsibilities of hospital management, the governing body, and the medical staff in relation to each other; establish new expectations regarding conflict resolution; and focus priority attention on the collective accountability of the three groups to the patients and the communities they serve.” We recommend that governing body and medical staff bylaws be reviewed to examine the authority of the governing body with respect to medical staff bylaws amendments.
Contact for more information: Stephen T. Moore
Can Cerebral Palsy be Prevented?
Dr. Karin Nelson, a pre-eminent researcher at National Institutes of Health authored an article in the Oct. 30, 2002, issue of the New England Journal of Medicine in which she states: "For overall births and within major subgroups defined according to birth weight and gestational age, industrialized nations have not yet succeeded in reducing the frequency of cerebral palsy." This article is particularly useful for its discussion of interventions based on potential causes. In her discussion of birth asphyxia as a potential cause of cerebral palsy, Dr. Nelson quoted the article written by Clark and Hankins (Am. J. Obstet Gynecol, March, 2003) which concluded, based on data from nine industrialized counties, that "despite a five-fold increase in the rate of cesarean sections based, in part, on the electronically derived diagnosis of 'fetal distress', cerebral palsy prevalence has remained stable." Dr. Nelson's article concludes with criticism of courts that allow experts to testify that cerebral palsy is preventable despite the "consistent evidence of randomized clinical trials, metra-analysis, case-control studies, and population-based time trends" to the contrary.
There is an excellent bibliography supporting Dr. Nelson's article. Please note that the Dr. Hankins quoted by Dr. Nelson was one of the authors of the report of the ACOG Task Force on Neonatal Encephalopathy and Cerebral Palsy. He was also a speaker at a seminar entitled "Toward a Better Understanding of Neonatal Encephalopathy and Cerebral Palsy" sponsored by Hinshaw & Culbertson in May 2003. Videotapes of the presentation and written materials are available upon request. Contributing author: Karin Nelson.
Contact for more information: Alice K. Kush
DOJ and HHS Recover $1.7 Billion from Healthcare Providers Under False Claims Act in FY 2003
In fiscal 2003, the Department of Justice and the Department of Health & Human Services received $1.7 billion from healthcare providers under the False Claims Act. Qui tam whistleblowers collectively received more than $319 million as part of their share of the recoveries. The government is aggressively pursuing any billing errors or questionable accounting practices and oftentimes treating them as intentional fraudulent conduct. It is vitally important that healthcare providers have in place a corporate compliance program that effectively deals with any internal problems. In today's atmosphere, internal problems that are not addressed can easily be provided to the government by a whistleblower who wishes to reap huge rewards. Indeed, in one case a whistleblower received in excess of $100 million. Any allegation of wrongdoing made to healthcare administrators should be taken very seriously. Questions of attorney/client privilege and the conduct of internal investigations mandate that healthcare providers consult with experienced professionals to ensure that they are properly addressing problems and protecting any privileged communications.
Contact for more information: Daniel M. Purdom
Offer Pregnant Patient HIV Test or Risk Malpractice
The Prenatal HIV Prevention Act, which was effective Aug. 30, 2003, requires health care providers to give all pregnant women HIV counseling and an opportunity to receive an HIV test for themselves during their pregnancy and for their newborns. The Act applies to physicians, as well as physician assistants and advance nurse practitioners (and presumably their employers). As evidence of compliance with the Act, health care providers must document that an HIV test has been offered, and that the benefits of treatment for the woman and her unborn child have been explained. The potential claim for malpractice is likely in the event that an HIV-positive pregnant woman exposes her fetus to HIV and the health care provider cannot document compliance with the Act. The benefits of administration of drugs to a pregnant woman and her newborn to prevent the development of HIV in the newborn are well known. Allegations that a health care provider did not comply with the Act (as evidenced by lack of documentation of the conversation and the offer of testing), and thus a pregnant woman with HIV "lost" the chance to learn of her status and take action to treat herself and her fetus/newborn could be quite damaging.
Contact for more information: Clare Connor Ranalli
Illinois Victims of Domestic or Sexual Violence Entitled to 12 Weeks Paid Leave Under New Law
An Illinois law that went into effect Aug. 25, 2003, requires employers with greater than 50 employees to allow employees to take up to 12 weeks unpaid leave for purposes of addressing needs occurring as a result of the employee, or employee's family or household member, being a victim of domestic or sexual violence. This could include obtaining medical and psychological treatment as a result of domestic or sexual violence. In addition, leave must be granted for enumerated items including, but not limited to, attending court proceedings, moving or relocating, and obtaining counseling from a victim's support organization. The law also requires employers to accommodate an employee in the work place if the accommodation relates to domestic or sexual violence. Examples of accommodation might include changing the employee's telephone extension, email address or work assignments (e.g. location of assignment). The Act requires employers to notify employees via a DOL-approved poster of the Act's requirements and how to file a charge if the employer does not comply. In sum, this is a significant change to Illinois employment law. Its requirements are numerous, and its interplay with the FMLA is complicated. We suggest that you consult with counsel in preparing a policy to address the requirements of VESSA.
Contact for more information: Tom H. Luetkemeyer
Illinois Hospital Report Card Act Provides Whistleblower Protection
Most hospitals are now well aware of the requirements of the Illinois Hospital Report Card Act. However, given the significant requirements relating to reports and maintenance of records on staffing, the whistleblower requirements of the Act have on occasion been overlooked. The Act provides "whistleblower" protection for employees who report a violation of the Act or any other law or policy relating to patient safety. It is important that any policy prepared pertaining to the Act include language addressing an employee's rights to be free from retaliation as a result of his or her good faith reporting of alleged violations of the Act or other laws pertaining to patient safety. However, the employee is required, when practical given the nature of the concern and patient safety risk, to allow an employer seven (7) days to address a concern prior to invoking immunity under the Act. This provision seems to encourage open discourse between an employee and management to address patient safety concerns.
Contact for more information: Douglass A. Marshall
Illinois Appellate Court Rejects Extension of Time to Convert Physician Respondents in Discover to Party Defendants
In Robinson v. Johnson, the Appellate Court of Illinois, First District, held that Supreme Court Rule 183 does not give a trial court any discretion to extend the six-month statutory period for converting respondents in discovery to party defendants. Under Section 2-402 of the Code of Civil Procedure, a plaintiff in a civil action may designate individuals or other entities, other than named defendants, as “respondents in discovery,” who may possess information essential to the determination of who should be properly named as additional defendants. “The legislative history of Section 2-402 indicates that its purpose [is] to provide plaintiffs in medical malpractice actions with a means of filing suit without naming everyone in sight as a defendant.” Section 2-402 allows for a maximum extension of a statute of limitations of six months, during which a plaintiff may conduct discovery prior to filing a motion to convert a “respondent in discovery” to a party defendant.
In Robinson, the plaintiff sought two extensions of time beyond the aforementioned six-month time period under Section 2-402, claiming that additional time was needed to depose the physician respondents in discovery, and to have the deposition transcripts written up and reviewed by her consulting physician. The appellate court held that trial courts do not have any discretion to extend the six-month deadline imposed under the statute. The court provided three reasons: 1) because Section 2-402 provides for “a special statutory action,” suit must be brought within the specified six-month time period; 2), Supreme Court Rule 183 only allows for the extension of time periods set forth under other Illinois Supreme Court Rules, rather than statutory time limits (i.e., Section 2-402); and 3) the six month time period may not be extended for the simple reason that the respondents in discovery did not timely answer plaintiff’s written discovery or submit themselves for a timely deposition. A plaintiff’s sole remedy for any delay in discovery by the respondent is to promptly seek a court order compelling timely compliance. Contributing author: Frank Marsico
Contact for more information: Alice K. Kush
Illinois Rules Hospital’s Defense Counsel May Have Ex Parte Communication With Treating Physician About Patient Who Sued the Hospital
In Hall v. Flowers (4th district, 2003), the Illinois Appellate Court found that defense counsel could appropriately discuss with the treating physician the care and treatment provided to a patient by that physician, even if at the time of treatment the physician was not an agent or employee. The court relied on the Hospital Licensing Act, which carves out an exception to the Petrillo. The Petrillo doctrine prohibits defense counsel from holding ex parte communications with a plaintiff’s treating physician, except through court-approved discovery methods.
The Hospital Licensing Act states that all patient information gathered by the medical staff (a physician with privileges), agents and employees of the hospital is the property and responsibility of the hospital. Also, a hospital’s medical staff, agents and employees may disclose the nature or details of service provided to patients to those parties responsible for “peer review, utilization review, quality assurance, risk management, or defense of claims brought against the hospital arising out of the care.” Finally, the medical staff members, agents and employees “may communicate, at any time and in any fashion, with legal counsel for the hospital concerning…any care or treatment they provided or assisted in providing to any patient within the scope of their employment or affiliation with the hospital.”
In this case, the physician who communicated with defense counsel for the hospital was a member of the medical staff at the time he performed surgery on the plaintiff. He subsequently became an employee of the hospital, and was an employee at the time of the communication. However, this ruling does not require that the physician be an employee of the hospital in order to trigger the ex parte communication exception. The court indicated that to trigger this exception to the Petrillo doctrine, the physician must treat the patient in the hospital. Once the physician provides treatment to a patient in the hospital, the hospital is entitled to know everything the physician knows about that hospital treatment. The court summarized that “[i]t follows from subsection (b) that any information known by any hospital care-giver with respect to a patient’s care at that hospital is hospital information.
Contact for more information: Suzanne M. Bonds
This newsletter has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. |