QUESTION:
We’re a hospital located in Pennsylvania and want to enter into a services agreement with a company in South Carolina.  The company has a good reputation, but has filed lawsuits against a few hospitals for breach of contract.  One of our concerns is that if the relationship doesn’t go well, it would be extremely expensive and disruptive to defend a lawsuit in South Carolina. What can we do?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY NICHOLAS CALABRESE:
You should make sure the agreement contains a “Choice of Law and Venue” provision that favors the hospital.  This provision states where a lawsuit is to be filed (venue), and which state’s law applies.  If the hospital drafts the agreement, it should give itself the home field advantage by stating that Pennsylvania law applies and any lawsuit is to be filed in courts having jurisdiction over the county in which the hospital is located.  If the company drafts the agreement, it will most likely give itself the advantage.  However, even if the company drafts the agreement, you can still try to negotiate with it so that the hospital has the advantage.  How the negotiations turn out is, of course, about leverage.

Home field advantage is huge too – the party that has it knows the state’s law, knows the judges, and knows the courtroom.  Also, the party with the advantage does not have to find local counsel to work with its in-house lawyers, or incur costs for itself and/or its lawyers by traveling to and from the location of the lawsuit (which can be an enormous cost and inconvenience in the case of extended litigation).

If you have a quick question about this, e-mail Nick Calabrese at ncalabrese@hortyspringer.com.

QUESTION:
Why the concerns with private equity groups acquiring and/or managing physician practices?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY HENRY CASALE:
Concerns have been voiced by many observers about private equity acquisition of physician groups and other health care providers. A number of studies have concluded that private equity acquisitions lead to:  decreased quality of patient care and increased patient safety risk, higher costs for patients, taxpayers, and payers;understaffing and high employment turnover in hospitals, as well as anti‑competitive practices and possible fraud and abuse.  Additionally, according to one recent study private equity accounted for about one-fifth of the bankruptcies of healthcare companies that were filed in 2023 (a trend that is projected to continue).

One particular area of concern is anti-competitive practices involving hospital-based physicians.  Hospitals have historically entered into exclusive contracts with hospital-based physician groups to provide anesthesia, radiology, pathology and emergency medicine services.  Both the FTC and the courts have long recognized that exclusive contracts with hospital-based physicians can be pro-competitive. See, e.g., Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984); In re Burnham Hospital, 101 F.T.C. 991 (1983).  In almost every case where exclusive physician contracts with hospitals have been challenged, they have been upheld.

Recently, private equity groups have been acquiring hospital-based physician groups with the express purpose of obtaining market dominance and leverage in payer negotiations.  Some have been so bold as to boast about this business model to investors and capital sources, saying that their objective is to gain critical mass in markets to gain negotiating leverage with hospitals and payers.  National physician management companies first acquire hospital-based physician groups that have exclusive contracts with a number of hospitals in a given market.  They then bind the physicians and other providers in the group to non-compete covenants.  This locks the physicians into their current positions since leaving the employ of the group would require them to relocate.  This in turn tends to suppress wages for the physicians due to their lack of alternative employers and leads to staffing shortages due to the suppressed wages.  This business model also leaves the hospitals with little alternative but to stay with the private-equity owned group, since the group’s restrictive covenants with providers would prevent the hospital from hiring the providers after the contract with the group expires. This further adversely affects competition since the hospital would be barred from directly contracting with the providers employed by the exclusive group, as would other physician groups that might be interested in bidding for a new exclusive contract when the existing one expires.

Private equity owned groups have also used the threat of litigation to get their way in states where non-compete covenants with physicians have been banned or restricted by statute or court decisions.  Whether they rely on creative interpretations of the law or the shear in terrorem effect of litigation on individual physicians, this tactic is likely to continue notwithstanding the FTC’s recent final rule on noncompete agreements absent specific enforcement actions targeting these practices.

Other areas of concern include improperly directed referrals, abuse of the Stark in-office ancillary services exception, and management services agreements.  These are just a few examples of practices by private equity firms that have led to decreased competition and increased costs in the healthcare industry. As the HHS Office of Inspector General recently stated:

The growing prominence of private equity and other forms of private investment in health care raises concerns about the impact of ownership incentives (e.g., return on investment) on the delivery of high quality, efficient health care.  Health care entities, including their investors and governing bodies, should carefully scrutinize their operations and incentive structures to ensure compliance with the Federal fraud and abuse laws and that they are delivering high quality, safe care for patients.  An understanding of the laws applicable to the health care industry and the role of an effective compliance program is particularly important for investors that provide management services or a significant amount of operational oversight for and control in a health care entity.^[1]

Federal agencies are being urged to look more closely at these abusive practices and bring enforcement actions where appropriate.

If you have a quick question about this, e-mail Henry Casale at hcasale@hortyspringer.com.

If you want to learn more about the OIG, the Anti-Kickback Statute, the Stark Law, the False Claims Act, exclusive agreements, the recent FTC regulations on noncompete agreements, and much more, check out our latest episode of the Kickback Chronicles podcast and also join us at the Hospital-Physician Contracts and Compliance Clinic Seminar in Las Vegas from November 14-16, 2024!

^[1]  General Compliance Program Guidance, U.S. Department of Health and Human Services Office of Inspector General at pages 79-80 (Nov. 6, 2023) https://oig.hhs.gov/documents/compliance-guidance/1135/HHS-OIG-GCPG-2023.pdf.

QUESTION:
Who is included when the MEC meets in executive session?  Just members?  Just voting members?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY RACHEL REMALEY:
There is not a universal definition of the term “executive session.”  With respect to organizations/bodies that are subject to an Open Meetings Act, an “executive session” is often defined by law as a meeting that excludes members of the public.  For other organizations/bodies (not dealing with an Open Meetings Act), the term “executive session” might be used to refer to a meeting that excludes guests, while including all members.  Alternatively, some organizations use “executive session” to refer to meetings that exclude all guests and non-voting members (thus including only voting members).  Some Medical Staffs have historically used the term to refer to meetings that include only physicians or that include only those individuals invited to participate by the presiding officer, though it is not always clear that those organizations are operating as per their Bylaws/policies.

In the absence of Bylaw/policy language authorizing and/or defining executive sessions, it’s always a good idea to check state law to determine whether it might govern the composition and activities of committees.  Some nonprofit corporation codes provide basic rules for how meetings and such should be held (e.g., whether action can occur by ballot in lieu of meeting, whether participants can be present via electronic or telephonic connection).  It is possible that these statutory or regulatory schemes may address the issue of executive sessions.  In most cases, it has been our observation that the general rule is that anyone who is a “member” of a committee (or other body, such as a department or Board) would be entitled to notice of meetings and entitled to attend meetings.  Further, if any Bylaw/policy document gave an individual the right to attend as a guest, that individual would be entitled to notice and to attend (but not necessarily to exercise other duties of membership, such as voting or deliberation).

Whenever the law does not specifically define the concept of executive sessions, it is up to the individual organization to use its discretion in defining the term (and/or deciding whether to use executive sessions at all).  What’s most important is that if you wish to use executive sessions to discuss certain topics (e.g., confidential peer review information), that should be authorized in the Medical Staff Bylaws and related governance documents.  And, in most cases, you would probably want to provide the chairperson/presiding officer with the authority to commence an executive session and have final authority for applying rules regarding who may be present at such sessions.

If you have a quick question about this, e-mail Rachel Remaley at rremaley@hortyspringer.com.

QUESTION:
Can medical staff peer review or quality information be shared with the hospital’s affiliated employed physician group?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY DAN MULHOLLAND:
It depends. All too often the reflexive answer to this question is “No way!  We’ll waive the privilege.”  But that’s not always the case.  In some situations, failing to share information within a hospital or health system could result in liability or even put patients in danger.  While each situation is different, each state’s law is unique and the facts and circumstances of a particular request will dictate the outcome, here are a few questions that might be helpful in analyzing whether sharing information could jeopardize the peer review privilege and the pros and cons of doing so.

• What are you sharing?

o          Is it covered by the statute/privilege in the first place?

• Who are you sharing it with?

o          Is the recipient organization entitled to the privilege or statutory protection?

• What is it going to be used for?

o          E.g., Does the statute limit the use of the information to “peer review purposes”?

• Does the peer review protection statute in question address waivers?

• Do court cases in your state address waivers?

• Does the peer review protection statute just confer a privilege or is there a statutory mandate of confidentiality?

There’s no one answer and a deeper analysis is always a good idea.  But hopefully this simple algorithm will help guide that process.

If you have a quick question about this, e-mail Dan Mulholland at dmulholland@hortyspringer.com.

QUESTION:
Our On-Call Policy requires physicians to have 30 admissions or operating cases at the hospital per year to participate in the on-call schedule.  The Policy also gives discretion to the department chairs, who develop the call schedules, to limit the ability of a particular physician to participate in the schedule for a number of reasons, some of which have nothing to do with the quality of care being provided.  Do these provisions in our Policy pose any legal concerns?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY CHARLES CHULACK:
Yes.  First, conditioning participation in the call schedule on admissions at, or procedures done in, the hospital could be interpreted as conditioning participation on referrals to the hospital.  Such a requirement could present compliance issues with the federal Anti-Kickback Statute.  In Supplemental Compliance Program Guidance for Hospitals, the Department of Health and Human Services Office of Inspector General (“OIG”) cautioned that “conditioning privileges on a particular number of referrals or requiring the performance of a particular number of procedures, beyond volumes necessary to ensure clinical proficiency, potentially raise substantial risks under the [Anti-Kickback] statute.”  Moreover, some state courts have found that participation on the call-coverage roster constitutes a “privilege.”

This issue is something that is on the Department of Justice’s radar as well.  For example, in 2010, a hospital agreed to pay the United States $108 million to settle claims that it violated the Anti-Kickback Statute and the False Claims Act by limiting the opportunity to work at an outpatient cardiology testing unit to cardiologists who referred business to the hospital, giving the cardiologists a percentage of time in the testing unit which corresponded with the gross revenue attributed to the cardiologists’ referrals.  Conditioning participation on the call roster on admissions or performing cases at the hospital presents similar risks.

If compensation is involved in the call coverage arrangements, there is further concern under the Anti-Kickback Statute.  The OIG has warned that under the Anti-Kickback Statute there is “considerable risk” in conditioning compensation for on-call coverage on “doing business at a hospital.”

Finally, giving the department chairs the discretion to limit the ability of a physician to take call poses anticompetitive concerns.  While there may be legitimate reasons to limit the ability of a physician to take call, such as issues with a physician’s quality of care, such decisions should not be made solely by potential competitors in the department.

If you have a quick question about this, e-mail Charlie Chulack at cchulack@hortyspringer.com.