Could ObamaCare Cause Hospitals To Lose Tax Exempt Status?

       I just read an interesting post by David Whelan on The Health Care Blog. In short, he points out that on full implementation, ObamaCare will drastically reduce the number of uninsured patients seen at most tax exempt hospitals in the United States. Since uninsured patients currently make up the bulk of the "charitable care" required for hospitals to maintain tax exempt status, will the virtual disappearance of the uninsured mean that hospitals can no longer justify their tax exemption? Remember -  the fact that a payor (governmental or otherwise) pays less than cost generally does not qualify a patient's care as "charitable."

       As Mr. Whelan points out, tax exempt hospitals are already working hard to demonstrate they provide the level of "community benefit" required by the IRS, and the dramatic reduction of uninsured could come on rapidly. One possible response is a political solution that mandates a recognition of "charitable" work in the form of below cost services to minimally insured patients. The problem there will be that for-profit hospitals will likely be saddled with the same sort of "charitable" underpayment from their patient mix.

       It may be, as Mr. Whelan suggests, that tax exempt hospitals will need to turn to something truly different from what their for-profit competitors do in order to justify tax exemption in the post-ObamaCare world. That will take some real collaboration by all of the hospitals' constituencies. It won't be as easy as dropping some money in the meter.

[Image: A kindness meter, using a former parking meter, which allows people to donate money to charity rather than giving it directly to panhandlers, August 16, 2011, Ottowa, Canada, by OttawaAC.]

AHLA Offers Enhanced ADR Training Opportunities

     For many years, the American Health Lawyers Association ("AHLA") Alternative Dispute Resolution Service has offered basic (one day) training courses in arbitration and mediation. I just heard from Geoff Drucker, Manager of the ADR Service, that the Service is taking a big step towards expanding its educational and service capabilities.

     From October 19-21, the ADR Service will provide some enhanced arbitration and mediation training opportunities. Offered in partnership with Hamline University School of Law (one of the nation's preeminent ADR and health law programs), the training sessions will be held in Minneapolis, MN. Details are available on the AHLA website.

     As Geoff explained it, these training sessions will break from the past in that (1) they will be longer and thereby permit more in-depth coverage of the material through role playing; (2) they will take place at a university conference center rather than a hotel meeting room; and (3) they will embody the quality associated with programs at Hamline.

     The courses' instructors appear to be top notch. The two and one-half day mediation training will be given by Debra Gerardi, President of Emerging Healthcare Communities ("EHCCO")  and Professor Sharon Press of Hamline School of Law's Dispute Resolution Institute. The one and one-half day arbitration training will be given by a panel of experienced health law arbitrators from around the country, including Marcia Augsburger, Elise Dunitz Brennan, Anthony DiLeo, and Michael Jordan. Debra Gerardi will speak at a joint plenary luncheon.

     According to Geoff, the ADR Service's foray into more in-depth training is hopefully the first of other steps to improve its offerings. On the horizon may be higher training requirements for neutrals who are new to the Service (with these new courses meeting that higher standard). He also sees the potential for an entire AHLA conference devoted to ADR (similar to the AHLA's regular subject matter offerings, e.g., Medicare/Medicaid, Tax Exempt Organizations, Antitrust, Fraud & Abuse). Both of these would be welcome developments.

     Registration for these training sessions is limited. You can register here.

[Image: University Hall - Old Main, Hamline University, Saint Paul, MN, March 19, 2008, by William Wesen]

NJ Bar Health Law Section Opens With Program On Health Reform

     The New Jersey State Bar Association's Health Law Section kicks off its 2012-2013 meeting year on September 11th with a program entitled: "Health Reform Is Alive And Well...Sort Of...The View From Providers And Insurers." It begins with a light dinner at 6:00 p.m. at the Law Center in New Brunswick.

     Three outstanding speakers will address the current status of the Affordable Care Act from the standpoint of hospitals, physicians and health insurers, the client constituency groups represented by most members of the Health Law Section.

     Russ Molloy, Esq., V.P. of Government Relations at Meridian Health, will examine the law's impact on hospitals, including the aftermath of the recent Supreme Court decision, and the political climate in New Jersey for Medicaid expansion and a health insurance exchange.

     Lawrence Downs, Esq., CEO and General Counsel of the Medical Society of New Jersey, will address the effects of the ACA on practicing physicians in New Jersey.

     Wardell Sanders, Esq., President of the New Jersey Association of Health Plans, will discuss insurance market reforms under the ACA, including health insurance exchanges, essential health benefits, reinsurance, risk adjustment and risk corridors.

     The program has been approved for 1.6 Credits (50 minute hour) by NJ ICLE. If you attend, please stop by and say hello.

 [Image: Impending Storm, by David Wright, September 25, 2005]

Ken Feinberg (And Me!) On How To Settle A Dispute

     Ken Feinberg is probably America's most well-known neutral - an attorney, mediator and special master in administering mega-settlements such as those formed to compensate the victims of the 9/11 attacks, the Virginia Tech massacre and the BP Gulf Coast oil spill. Although some might say its not difficult to make everyone happy when you have virtually unlimited funds to disburse, not everyone is happy with the outcome of his work, and that's probably how it should be.

     Having read about his work and heard Mr. Feinberg speak in person, he impresses me as someone who deserves the recognition he's achieved. That's why I was anxious to learn what he had to say when asked about his "priority list" for how to settle a dispute. Appearing in the 7/29/12 NY Times one page magazine (hat tip to the ADR Prof Blog), Mr. Feinberg told Spencer Bailey -

In all the negotiations I do, there's a priority list: One, know the facts. Two, be dogged. Three, keep an open mind. Next, be creative in getting to "yes." Finally, a very important basic proposition: Put yourself in the other person's shoes.

     Amazing, I thought to myself. These are exactly the priorities I would have listed in answer to the same question. What does that tell me? It probably says that I've had some great mediation instructors, and enough experience to have learned what works and what doesn't.

     It is quite another matter to have the ability to carry out the priorities Mr. Feinberg identifies. That's where the work really begins. Harder still is convincing parties to mediation (and their counsel) that you know the right priorities and have the ability to make mediation worth their effort. Ken Feinberg has their trust and confidence when he walks in the room. The rest of us work to earn it every chance we get.

[Image: Ken Feinberg, NY Daily News photo, 2010]

Should Mandatory Arbitration Be Regulated?

     "Mandatory arbitration" provisions have come under harsh criticism in recent years. (Since all pre-dispute agreements to arbitrate are "mandatory," it would be more precise to state that pre-dispute arbitration agreements between parties with unequal bargaining power have raised concerns about their "fairness," but I will use the shorthand "mandatory arbitration" here.) Such provisions are common in consumer, financial and employment agreements, and increasingly seen in healthcare. Opponents of mandatory arbitration assert that agreements to arbitrate in certain circumstances can be fair only if freely entered into after a dispute arises. The proposed Arbitration Fairness Act of 2009 (now 2011) adopts this stance, and would render unenforceable all pre-dispute arbitration agreements in employment, consumer, franchise and civil rights matters.

      A welcome alternative to the drumbeat of the "Arbitration Fairness" movement is presented by Miles B. Farmer's Note in the Yale Law Journal entitled "Mandatory and Fair? A Better System of Mandatory Arbitration."  If you have any interest in the debate over "mandatory arbitration" and the Arbitration Fairness Act, I recommend that you read this Note in its entirety.

     Mr. Farmer identifies arbitrator bias resulting from the "repeat player" phenomenon as the primary source of unfairness in mandatory arbitration. But he concludes that outlawing all predispute arbitration agreements between parties of unequal bargaining power would be like throwing the baby out with the bathwater. As he explains, the benefits to society and the parties from the widespread use of arbitration in these cases should be maintained.

     The Note proposes the creation of a state or federal regulatory regime under which providers of arbitration services (e.g, the American Arbitration Association) would be required to report data on the selection and use of particular arbitrators for repeat players, and the arbitrators' awards in those repeat cases. Arbitration providers would be required to demonstrate that the arbitrator selection process resulted in decisions which, in the aggregate, appeared fair to both sides when compared with (i) a range of outcomes deemed "fair," and (ii) outcomes reported by other arbitration providers. A failure to report required data, to abide by the required arbitrator selection process, or to achieve a "fair" balance of outcomes (in the aggregate), would subject the arbitration provider and the drafter of the arbitration provision to an enforcement action by a designated law enforcement agency (including financial remedies).

     Mr. Farmer would not provide for a challenge to the outcome of any particular arbitration award (thereby retaining each arbitration's finality, and avoiding preemption by the Federal Arbitration Act). Further, he would not provide for a private right of action to enforce the regulatory regime.

     The Note focuses the attention of the "mandatory arbitration" debate where it belongs: on the abuses that can taint the outcomes in repeat player cases. It correctly rejects the Arbitration Fairness Act as overkill and protects individual arbitration awards from challenge by unhappy parties. Requiring arbitration providers to demonstrate fairness in the arbitrator selection process for repeat players would be feasible and effective, although I would prefer to see this occur as a result of market forces than by way of government regulation.

     Where Mr. Farmer loses me is in the suggestion that the outcomes of all cases administered by an arbitration provider for a repeat player should be assessed, in the aggregate, for their "fairness."  Although an arbitrator who ruled in favor of a repeat player in 100% of a large number of cases probably has some explaining to do, a "50-50" split of outcomes is not necessarily fair and just. A fair and just split is the one that results from the decisions of unbiased arbitrators appointed in accordance with the selection rules Mr. Farmer advocates, whatever that split may be. Setting a "50-50," "60-40," or any other split as the "fair" standard for arbitration providers to achieve would have the perverse result of requiring those providers to recruit, select and instruct their arbitrators on outcomes -  exactly the kind of interference that created the original problem.

     Rules for the selection of qualified, unbiased arbitrators should be strictly applied, as should ethical constraints relating to cases involving repeat players. A sufficient rotation of arbitrators should be appointed for any repeat player to assure that undue familiarity will not occur. Arbitration providers should embrace these efforts, and make them an important and transparent part of what they offer both parties to a "mandatory arbitration." But arbitration providers and the government should stay away from selecting particular arbitrators in an effort to assure some preconceived, "fair" mix of outcomes.

     Bias for and bias against a repeat player are equally bad. You either trust the arbitrators you've picked or you don't. If you don't, you should look elsewhere.

NJ Bar Health Law Section Announces Programs For 2012-2013

     I am honored to serve as Chair of the New Jersey State Bar Association's Health Law Section for the upcoming year. The Section includes 446 members of the Bar who represent healthcare providers and other clients relating to the health care field. The Section's Board recently approved a schedule of meetings and programs that I'd like to share with you.

  • September 11, 2012 : The aftermath of the SCOTUS decision on the Affordable Care Act (Law Center)
  • October 19, 2012: Annual Health Law Symposium (Seton Hall Law School)
  • November 13, 2012: The View From Trenton After Election Day - NJ Commissioner of Health (invited) (Law Center)
  • December 11, 2012: Holiday reception and roundtable on in-house/outside counsel relationships and alternative fee arrangements (Law Center)
  • January 8, 2013: Brown bag lunch program on Ethics For Health Lawyers (law firms throughout NJ, t/b/d)
  • February 5, 2013: Medical Staff Due Process v. Hospital's Duty As Employer And A Hostile Work Environment (Law Center)
  • March 12, 2013: Joint program with NJ Hospital Association In-House Counsel on Current Tax Exemption Issues (NJHA, Princeton)
  • April 16, 2013: Alternative Dispute Resolution in Healthcare (Law Center)

     These programs are open to all members of the NJSBA. If you are not a member, please consider joining, or request to attend as a guest. In most cases, CLE credits and dinner are provided, and you will not be disappointed. Contact me directly if you have any questions.

My Favorite Analysis Of Justice Roberts' Decision On The Affordable Care Act

I recommend that you read Jeff Goldsmith writing in The HealthCare Blog.  Be sure to watch the wrestling video.

Why Not More Corporate ADR?

     A fundamental premise of the alternative dispute resolution ("ADR") movement is that when properly applied, ADR can resolve most disputes faster, cheaper and better than conventional litigation. I'm convinced this is true, as are most ADR practitioners. When asked, most lawyers will say something positive about ADR, but fall short of endorsing its universal application (e.g., "I think ADR is great for the right case").

     This week I noticed two articles that brought home just how far ADR has to go in penetrating the world of corporate and commercial disputes. Writing in Corporate Counsel at LAW.COM, Craig Bleifer listed 10 Questions CEOs Should Ask GCs About the Legal Business Plan. It's a thorough list that attempts to remind GCs that in-house legal operations should make sense from a business standpoint, just like every other major department of the corporation. Notably absent from the article are the words "alternative dispute resolution" or anything else to suggest a rethinking of how the company handles disputes.

     I also noticed an article by Jennifer Smith on the Wall Street Journal's Law Blog entitled Getting More for Less. It covers an announcement by the Association of Corporate Counsel recognizing its 2012 Value Champions, "a handful of business and law firms who came up with innovative ways to boost efficiency and cut legal spending." The focus of the article is on alternative fee arrangements, and does not mention the use of ADR. It also ends by noting that smaller companies (under $5 billion in revenue) can't seem to benefit from alternative fee arrangements, which require "lawyers to predict outcomes and set the appropriate fees." (To be fair, in reviewing the actual ACC list, two of the firm's honored, Whirlpool and Wheeler Trigg, did emphasize an effort to seek "early resolution" of lawsuits, although not necessarily via ADR.)

     Why the devotion to "efficiency" in using law firms but no mention of ADR? The forces that are pushing towards "efficiency" should be having the same effect on increasing the use of ADR in the corporate setting. I think this is not occurring because in-house counsel are still lawyers. They have been trained to think like their outside counsel, are often former outside counsel themselves, and spend much of their time talking with their outside counsel about their corporations' disputes. As for the outside counsel, litigators do what they know best: litigate. In addition, there are more of them now than ever before, all looking for the same work.

     There are ways to bring the forces for efficiency and the value of ADR together. Success fee billing and ADR are made for each other. But more fundamentally, those who run corporations and manage their legal disputes need to be better "sold" on the value of ADR  -  a notion that does not fit neatly within the customs, habits and organizational structures of the law firms these same corporate leaders have come to trust and depend upon.

[Image: Large herd of red deer on Borrobol Estate, Scotland, November 1991, by Evelyn Simak]

AHLA ADR Service Adopts Code Of Ethics For Arbitrators In Commercial Disputes

     Today, the American Health Lawyers Association ("AHLA") Alternative Dispute Resolution Service ("ADR Service") advised its roster of Dispute Resolvers that the Executive Committee of the AHLA has adopted The Code of Ethics for Arbitrators in Commercial Disputes (the "Code"). This replaces the ADR Service's Code of Ethics for Arbitrators.

     The Code was originally adopted by the American Arbitration Association ("AAA") in conjunction with the ABA, and is the standard used by the AAA and other ADR organizations nationwide. This change eliminates the need for arbitrators appointed by the ADR Service to apply a different set of standards from those they use in other settings.

[Image: Mirror Image, by Keith Ellwood, August 13, 2009]

Does Healthcare Reform Require Hospital v. Physician Power Struggle?

     Writing in John Goodman's Health Policy Blog, Larry Wedekind suggests that real healthcare reform will require physicians, not hospitals, to acquire control of our healthcare delivery system. His entire post is worth the read, but it can be summarized as follows:

1. All of the pilot programs and demonstration projects tried by the federal government to date have been disappointing at best.

2. The traditional pattern of de facto hospital control of the delivery system is like letting the fox guard the henhouse. Since hospitals need to fill beds and expand outpatient volume, their efforts to acquire physicians' practices and develop integrated delivery systems should be seen as thinly veiled efforts to feather their own nests.

3. Physicians alone are capable of taking action to improve their patients' health. By putting physicians "in charge" of the delivery system, patient-centered care coordination can become a reality.

     Mr. Wedekind seems to assume that only one side can be "in charge" of the healthcare delivery system. What many hospitals now realize is that only by way of a jointly determined approach will most hospitals and many physicians survive.

     Hospitals cannot prosper in the long run by simply "paying for referrals" and relying on volume rather than measurably improving their patients' health. Physicians lack the skill, time, facilities and capital required to build the infrastructure that patient-centered care coordination will require. Each side has what the other needs to succeed.

     The trick will be how well and how quickly these parties are able to transform their historical relationships into a new and better way of doing business. Some hospitals and their medical staffs are well on their way, while others have yet to begin. All will encounter stumbling blocks along the way. In addition to the usual business issues that arise in any partnership or joint venture, the hospital-physician relationship is incredibly burdened by laws and regulations that preclude many arrangements that would be perfectly legal in any other industry.

     The key for hospitals and physicians will be to realize that both parties have a hand on the steering wheel, and that a failure to steer in the same direction will be disastrous. Essential to this process will be having a means to identify and resolve conflicts early and effectively. Governance by litigation is not an option.

[Image: Two pilots prepare to launch from the carrier USS Harry S. Truman in the Persian Gulf, December 26, 2004]