Hospitals & Health Systems

A New Jersey Supreme Court case earlier this summer has New Jersey lawyers re-examining their clients’ business structures under the State’s corporate practice of medicine doctrine.

Many states prohibit the corporate practice of medicine (“CPOM”) in order to prevent or limit a lay person from interfering with a physician’s independent medical judgment. In New Jersey, for example, the State Board of Medical Examiners’ regulations prohibit a licensee with a more limited scope of practice (e.g., physical therapists, chiropractors, nurse practitioners, etc.) from employing physicians.

In Allstate Ins. Co. v. Northfield Med. Ctr., P.C., 2017 BL 148804 (N.J. May 4, 2017), the New Jersey Supreme Court  ruled that a chiropractor (and his attorney that advised on the structure) may have violated the Insurance Fraud Prevention Act because, under the structure,  a chiropractor could terminate a physician’s employment at any time and had more control over the practice’s profits than the physician (who is required to own a majority interest of the practice in New Jersey).  Thus, the court ruled that the medical practice was controlled by the chiropractor instead of the physician in violation of the New Jersey CPOM prohibition.

Submitting claims while a practice is structured in violation of the CPOM doctrine can lead to insurers recouping payments as false claims. Individual physicians, corporations, and attorneys can also face disciplinary action for their involvement in setting up or operating the fraudulent entity.

It is important that the organizational documents are set up to give the physician control over the practice, but this control should be exercised in reality and not just on paper. Physicians often have managers run many of the business aspects of the practice, but the physician should have the final say with respect to the medical and financial decisions of the practice and the hiring and firing of professionals.  Courts may look past the face of the documents to see who is really calling the shots on a daily basis.

While this recent case is spurring attorneys to evaluate their clients’ structures in New Jersey, this is a good reminder to take a fresh look at CPOM restrictions in other states as well.  Make sure your structure works at the outset and re-examine every so often to adapt with evolving laws and court interpretations of such laws.

On September 19, 2017, the Tennessee Department of Health (“TDOH”) granted the request for a Certificate of Public Advantage (“COPA”) from Wellmont Health System and Mountain States Health Alliance.  This approval paves the way for the two entities to form a single corporate entity called Ballad Health.  According to the TDOH, both health systems “agreed through the legislative process to meet a clear and convincing standard that their merger would create a public benefit to the residents of Northeast Tennessee that would outweigh any downsides of a monopoly of services.”  Notably, the Department observed that a Terms of Certification document accompanying the approval “includes how active supervision by the state of the new entity will look.”  This fact is important because the Federal Trade Commission (“FTC”), which is not a fan of COPA regulations, has made clear that it will closely analyze and challenge defenses based on asserted state action immunity where the state fails to provide adequate active supervision.
Continue Reading Tennessee Department of Health Grants COPA Request for Health Care Alliance

On Monday, September 11, our colleagues in the Antitrust Section published an alert describing a developing antitrust lawsuit against Franciscan Health System (“CHI Fanciscan”): State of Washington v. Franciscan Health System, et al. No. 3:17-cv-05690 (W.D. Wash. Aug. 31, 2017). The Washington State Attorney General’s office accuses CHI Franciscan of accumulating a controlling share of the “Orthopedic Physician Services” market through incremental acquisition which has led to substantial lessening of competition and illegal price fixing, in violation of Section 7 of the Clayton Act and Section 1 of the Sherman Act, respectively, as well as Washington State antitrust laws.

The alert cautions that health care provider acquisition strategies may come under antitrust scrutiny, even when acquisitions target multiple small physician practices, if the cumulative effect of such acquisitions results in substantial condensation of market share in a particular area of health care services.

For greater insight on this issue, read the full alert here.

Last week, a number of health care industry associations sent letters to Congress detailing ways in which the government could relieve them of the burdens associated with “red tape.” The letters are in response to the first stage of a House initiative dubbed the “Medicare Red Tape Relief Project,” which was announced earlier this summer by the House Committee on Ways and Means’ Subcommittee on Health.  Continue Reading Hospitals and Others Respond to “Red Tape Relief Project” Requests

On the eve of trial, and after years of litigation (including an appeal to the Sixth Circuit), all claims by Dayton, Ohio hospital The Medical Center at Elizabeth Place (“MCEP”) against Premier Health Partners (“Premier”) have been dismissed with prejudice. This case represents an important development in the body of case law addressing the antitrust risk introduced by joint ventures.  Continue Reading District Court Finds Hospital’s Joint Venture Not “Per Se” Unlawful

In the recently published proposed rule related to the CY 2018 Hospital Outpatient Prospective Payment System (OPPS), the Centers for Medicare & Medicaid Services (CMS) announced that it is considering changes to the regulation governing the date of service (DOS) for clinical laboratory and pathology specimens.  The DOS rules are important to laboratories and hospitals because they dictate which party must bill Medicare for certain laboratory testing performed on stored specimens collected during a hospital procedure but ordered after the patient has left the hospital.  If revisions are ultimately finalized, the proposal could have significant business implications for independent laboratories and hospitals.

Continue Reading CMS May Decide to Permit Labs to Bill for Certain Tests Provided to Outpatients

Last week, Mintz Levin’s Health Care Enforcement Defense Group published a new Qui Tam Update, which analyzes 21 health care-related False Claims Act qui tam cases unsealed in May 2017, and the findings include:

  • long delays in unsealing remain the norm;
  • relators overwhelmingly consisted of current and former employees (and physicians); and
  • the most common alleged violation was billing fraud (which was claimed in two-thirds of the 21 unsealed cases).

Also of note in this Update:

  • The targeted entities in these 21 cases included outpatient medical and psychological providers, laboratory testing companies, inpatient hospitals, and home health care providers.
  • Of the 21 cases, the government intervened, in whole or in part, in seven cases and declined to intervene in 10.  (Intervention status could not be determined from the docket in four cases.)
  • The cases were filed in 17 different courts (including the Central District of California, the District of South Carolina, the Eastern District of Michigan, and the Northern District of California).

This Update provides in-depth analysis of three of the unsealed cases, which involve allegations regarding (1) “up coding” by a hospital that allegedly billed routine transport as emergency transport, which was reimbursed at a higher rate; (2) billing for medically unnecessary tests that purported to identify susceptibility to opioid addiction and engaging in a kickback scheme; and (3) processing prior authorization requests for MCOs using automated procedures to expedite processing and circumvent medical necessity determinations, resulting in submission of false claims.

In an opinion written by Judge Posner, the Seventh Circuit on Friday, June 9, 2017, affirmed OSF Saint Francis Medical Center’s summary judgment win in a $300 million antitrust suit brought by a smaller competitor alleging unlawful exclusive dealing and attempted monopolization.  This alert discusses the Court’s decision in this case, which is a notable precedent for hospitals and provider networks — particularly those with substantial market shares — that wish to negotiate narrow and exclusive network agreements with payors.

Earlier this week, my colleagues Bruce Sokler, Robert Kidwell, Dionne Lomax, and Farrah Short published an alert about the federal district court for the Eastern District of Michigan’s recent decision to deny both the government’s and defendant hospital’s respective motions for summary judgment in a suit filed by the Department of Justice and the Michigan Attorney General in 2015 against W.A. Foote Memorial Hospital, d/b/a Allegiance Health (“Allegiance”), Hillsdale Community Health Center (“HCHC”), Community Health Center of Branch County (“Branch”), and ProMedica Health System, Inc. (“ProMedica”).  In this case, the government alleged that HCHC orchestrated agreements among the hospitals not to advertise or otherwise market in each other’s territories for competing health care services in violation of the Sherman Act.  (You can read Dionne’s previous alert on the Allegiance complaint here.)  HCHC, Branch and ProMedica have each settled, leaving Allegiance as the sole defendant. Continue Reading Antitrust Suit Against Michigan Hospital Moves Forward After Federal District Court Denies Both Sides’ Motions for Summary Judgment

Earlier this month, the Office of the Inspector General for the Department of Health and Human Services (“OIG”) published its Semiannual Report to Congress covering the period from October 1, 2016 to March 31, 2017.  The report describes OIG’s work and accomplishments during the 6-month reporting period. Like other OIG reports, including the annual OIG Work Plan, the report gives a good indication of priority areas for OIG and can help guide compliance priorities for providers.  Below are some highlights of the report in the following focus areas: Continue Reading OIG Publishes Semiannual Report to Congress