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.]

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]

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.

NJ Bar Section Offers Brown Bag Lunch On Antitrust Developments In Healthcare

       The New Jersey State Bar Association's Health and Hospital Law Section is offering an interesting program in an alternative format. The program will address antitrust developments related to various forms of integration among healthcare providers: hospital - hospital, hospital - physician, and physician group - physician. Antitrust specialist David A. Ettinger, Esq. will speak on these subjects, with Frank R. Ciesla, Esq. focusing the discussion on the landscape in New Jersey.

       The format for the program, a "brown bag lunch," is a first for the Section. Rather than an in-person presentation in the evening at one central location, this program will be offered on March 22 from 12:00 to 1:00 p.m. via teleconference at six law firms throughout the state. Choice of location can be made upon registration on the NJSBA website. CLE credit is included.

[Image: Lunch scene at the National Cancer Institute, 1989]

Medicaid Cuts Will Strain Hospital - Physician Relations

     Kevin Sack wrote earlier this week in The New York Times about the effect Medicaid cuts are having on patients throughout the country. The focus of that article was the hardship resulting from the decision by more and more doctors to simply stop participating in the Medicaid program rather than accept payment rates that assure an operating loss. As states look for ways to balance their budgets, further cuts in Medicaid appear inevitable, even as the sluggish economy forces more people onto Medicaid rolls.

     Hospitals depend on physician participation in Medicaid in a variety of ways:

- Physicians who see Medicaid patients in their offices keep those patients from using the Hospitals' emergency rooms for non-emergent care.

- Hospitals required by law to provide care to all patients without regard to their financial means must have a medical staff that is prepared to provide the full range of professional services to all, including Medicaid patients.

- Hospitals have "on call" and "coverage" requirements that mandate physician service, as needed, to all patients who enter the hospital without a prior physician relationship.

- Hospitals routinely have numerous exclusive contracts with particular physician groups to provide all of the services within a specialty (e.g., radiology, anethesiology, pathology) as required by all hospital patients. These contracts typically require the physicians' participation in the Medicaid program.

- Hospitals frequently develop outpatient and ancillary facilities separate from the main hospital campus to reach more profitable segments of the healthcare market (e.g. surgicenters, ambulatory care centers, diagnostic imaging centers). These efforts involve physican participation, whether as co-owners, tenants or professional service providers. The hospitals involved frequently mandate Medicaid participation of such facilities to satisfy regulatory requirements, tax exemption criteria or the hospitals' mission statements.

When Medicaid payment rates sink low enough, and too many physicians want out, something will have to give.

           

     Physicians will argue that they cannot afford to give their services away, at least not to the percentage of patients that may be included in expanded Medicaid enrollments. Hospitals will argue that patient service is a shared mission, and the hospitals' rates of payment from Medicaid are equally miserable. Physicians will counter that the mandates driving the hospitals (as noted above) are hospital mandates, for which the hospitals must bear the cost. Hospitals will counter that they have no source of funds from which to pay those costs.

     This is where mediation can help. Hospitals and physicians facing this problem need to have an ongoing relationship after the current dispute is resolved. A heavy handed, litigation driven, "win or lose" approach to solving the problem is inconsistent with that need. It also ignores the opportunity to identify and build upon common interests, including interests separate from the Medicaid problem. Finally, a neutral with substantive knowledge of the industry can help hospitals and physicians identify solutions that are both financially feasible and legally sound.

[Image: Delancey Street, Bowery, Manhattan, New York City, September 13, 2005]

Mediating The Healthcare Reform Debate

     Even before watching the bipartisan healthcare summit on February 25th, I began to think about how I would mediate the divide between the Obama/Reid/Pelosi reform proposal and the position staked out by the Rupublican leadership.  Without knowing it, I was not alone in imagining a mediated solution to this conflict. Mediator Christopher Annunziata wrote in his CKA Mediation and Arbitration Blog that If Anyone Needs a Mediator, It's These People:

"Both sides need to move from their entrenched positions and discuss real options, not just talking points prepared by pointy headed people in Ivory Towers or tucked inside the Beltway.  Having a mediator involved would be very useful."

     A week later, Mediator Lee Jay Berman posted at Eye On Conflict that Real Political Reform Requires Adding a Neutral To the Mix:

"What makes mediation work is the introduction of a neutral third party. Having an unbiased person at the table can bring big picture perspective into the room when all others are mired in the fog of their power games and can't or won't see another approach...A real neutral, who wouldn't be a politician campaigning for reelection, would turn off the cameras, close the door, and encourage everyone to disclose his or her needs, pressures and underlying interests in the privacy and confidentiality of the mediation process."

     Leaving aside all of the ways in which the healthcare reform debate does not resemble the setting required for effective mediation, I began to imagine what I would do if thrust into a room with a commitment from both sides to mediate in good faith.  Having reviewed the parties' respective positions on numerous, individual proposals for reform, I first thought that there must be a way to parse and compromise among these proposals to reach a mutually acceptable outcome. But the more I thought about it, the clearer it became that such an effort would fail. I had an intuitive sense of why it would fail, but I struggled to explain that result in terms familiar to traditional mediation theory. In fact, I started a blog post on this subject, but put it aside, unfinished.

     Shortly after that, I read a description of the Frank Sander Lecture to be given by Professor Lawrence Susskind as the opening plenary of the ABA Dispute Resolution Section's Annual Spring Conference on April 8th: "Values and Identity Conflicts: Proposing a New Dispute Resolution Doctrine." The summary, which appears in the ABA Section of Dispute Resolution's February Just Resolutions Enews (members only), turned on the light bulb in my head.

                       

 

     As the description of Professor Susskind's lecture puts it:

"Sometimes...disputes are more about values and identities than about interests; when this happens, traditional mediation tactics may not work."

                                                 *  *  *

 "We define values-based disputes as those in which the parties' values and identities are so important to the dispute that they interfere with the parties' ability to settle interest-based issues, or in more severe circumstances, even to proceed with the process of dispute resolution.

                                     *   *  *

Values-based disputes, thus, present special challenges for a mediator.  These include: the usual interest -based techniques may lead to superficial agreements that do not really satisfy the parties' most important concerns (and, thus, may not be durable). This is especially likely when parties conceal their values and identities and initially act as if disputes are really about interests" (emphasis added).

 

     This is exactly the problem in the healthcare reform debate. For one side, the values associated with providing high quality healthcare insurance coverage to everyone in  America are central to that party's identity, and transcend all of the policy details and budgetary considerations that might be viewed as "interests." For the other side, the values associated with maintaining individual responsibility and promoting smaller government are paramount.

     To really address these differences in values, Democrats would have to acknowledge that, in the end, it doesn't matter how much their healthcare reform will cost, because in their view it assures a fundamental right, and the country will just have to figure out how to pay for it somehow, someday. Not a message suitable for anyone seeking reelection in the current environment. Similarly, Republicans would have to acknowledge that it would not be a bad result if millions of people had no prospect of enjoying high quality healthcare insurance coverage, and instead had to rely on the "safety net" of Medicaid, charity care, and hospital emergency rooms until they could work their way out if it. No great sound bites to campaign on there, either. This is why the proponents on both sides of this public debate speak only in terms of the regulatory nuts and bolts, dollars and cents and parliamentary machinations that continue to make our heads spin.

     I don't know how Professor Susskind's lecture will suggest the mediator should approach this dispute. My guess is that after getting the parties to acknowledge their core values, the mediator would need to facilitate a discussion in which each side accepts those aspects of the other's values that it can agree with, and then builds upon those shared beliefs. Even when values are not shared, each side can be urged to at least respect the other's values, and adopt a willingness to permit the other side to pursue those values in fashioning a mutual resolution to the conflict. I know this probably will not happen in Washington, but the thought process is instructive, and you never know who might be listening to Professor Susskind on April 8th.

Pay Doctors Less And They Will Work Less

     Really?  A recent article in The Washington Post by Carla K. Johnson points out that doctors have steadily cut their work hours over the last decade, largely in response to a decline in pay for doctors' services.

"It's not that doctors are terrible slackers. Average hours dropped from about 55 to 51 hours per week from 1996 to 2008, according to the analysis, appearing in Wednesday's Journal of the American Medical Association.

That's the equivalent of losing 36,000 doctors in a decade, according to the researchers."

     Is it just me, or does this headline belong with that group of newspaper clippings routinely deadpanned by Jay Leno, e.g.: "Obesity Study Blames Overeating," or "Police Raid Gun Shop - Find Weapons."

     I suspect the same headline would occur if the circumstances applied to lawyers, teachers, auto mechanics, construction workers or anyone else used to being paid for what they do. As our leaders in Washington debate the various ways to pay doctors even less, keep this headline in mind when planning your next negotiation. 

   

     [Image: "A Very Difficult Case," c. 1905]

Healthcare Self-Disclosure - "I'm Sorry" Revisited

     I just read an excellent article on the decision process for in-house corporate counsel considering self-disclosure of a regulatory infraction.  Richard Marshall's piece in Corporate Counsel, aptly titled "Uuuhhh, Look, We Messed Up Here," provides solid, practical advice that applies to the healthcare industry as well as the more general business audience for whom it was written.

     At the heart of any effective self-disclosure are the same elements often associated with effective apologies in the healthcare malpractice setting. As with patients and families who have suffered harm, just saying "I'm sorry"  to a regulator is not enough. The healthcare provider in both cases must offer an explanation of what happened; proof that corrective measures have been taken; appropriate compensation for any harm caused; and a sincere acknowledgment of responsibility.

 

     Having taken these steps, the self-disclosing provider has framed the discussion of future regulatory compliance in a more favorable way. Although a regulator receiving such self-disclosure will not be legally bound to approve a fair and reasonable resolution, most will. 

 

[Image: Mea Culpa, by Robert Bryce Muir 2006, Sculpture from Grizedale Forest, photo by Russ McGinn, June 2006]

Will Healthcare Reform Spread The Wealth To Primary Care?

         

 

          Yesterday's Wall Street Journal Health Blog had a post by Jacob Goldstein on the potential struggle brewing between primary care physicians and specialist physicians over the need to free up more money for primary care -  a widely accepted element of necessary healthcare reform.  Earlier that day, the American College of Physicians called for more federal funding for primary care, not through "budget neutral" adjustments in the Medicare physician fee schedule (i.e., by reducing payments to specialists), but simply by paying more upfront for primary care.  The WSJ Health Blog interpreted the primary care position paper this way:

"Congress could try to pay primary care docs more by cutting Medicare payments to some of the rich specialists.  But the rich specialists would fight that tooth and nail, and nothing would ever get done."

          Reading this, I couldn't help but recall a time in my former life when I heard a newly proposed law firm partnership compensation system described by one of its proponents this way: "It will work well because some partners will make more, and everyone else will make about the same."  Regrettably, law firm profits are a zero sum game.  There may be enough "stimulus" mania (i.e. printing of money) in Washington these days to save the primary care docs and the specialists from a zero sum fate, but probably not for very long.

          More than two months ago, this primary v. specialist conflict was predicted and thoroughly dissected by Maggie Mahar and Niko Karvounis in The Health Care Blog, where they dubbed it the "Spread the Wealth Controversy."  In the end, they concluded that money alone would not be the answer to the problem:

"Ultimately, we will probably need to grapple with primary care as a cultural issue within the medical community....in medical schools, students are sometimes looked down upon for choosing to specialize in cognitive care.  Further, research has shown that the medical school curriculum actually drains students of empathy, which may contribute to de-valuing communicative, interpersonal care....The bottom line is that we need to take a multi-faceted approach to the primary care crisis."

          For a more provacative treatment of the need for systemic reform of primary care, see "Mythology and Healthcare Reform" by Monte Uyemura, M.D., also in The Health Care Blog.  Better yet, just subscribe to The Health Care Blog - its a great read on all matters concerning the health care system.

          I have friends and colleagues on both sides of this primary v. specialist conflict.  Most of them don't see it as their conflict at all, and find it unpleasant to talk about.  Unfortunately, it won't likely go away.

[Image: "Artwork" with 20 Dollar bills]

Welcome Betsy Ryan's Healthcare Matters Blog!

                    

 

       I recently learned that Betsy Ryan, the President and CEO of the New Jersey Hospital Association, has started a blog called "Healthcare Matters."  It appears as part of the New Jersey Hospital Association's public website

"Healthcare Matters eamines the many issues confronting New Jersey's hospitals and their patients. Readers are encouraged to join the discussion, because healthcare matters- to all of us."

       For those not familiar with Betsy Ryan, she was recently appointed to the NJHA's top management post after years of service as the organization's Chief Operating Officer and General Counsel.  She has extensive experience in the legislative, regulatory, financial and operational issues facing New Jersey's hospitals.  As a result, her blog is well positioned to address a subject not currently covered directly in the blogosphere.

       So far, Healthcare Matters has captured some of Betsy's personal perspectives on current events affecting New Jersey's hospitals.  She has already attracted some lively discussion.  Subscription by RSS is easily done, and I encourage all to join in and expand this dialogue.

[Image: welcome kitty, by Portraitlady4306, August 27, 2007] 

AHLA Offers Practical Toolkit For Managing Healthcare Conflicts

     Before you head off for the long Thanksgiving weekend, consider signing up for a teleconference to be held next Tuesday that you might otherwise miss in the post holiday crush.  The American Health Lawyers Association ("AHLA"), through its ADR Task Force, is offering "A Practical Toolkit for Managing Healthcare Conflict" from 3:00 to 4:00 p.m. Eastern Time on December 2, 2008.  You can read the full description of the program and sign up on the AHLA's website.  It is open to AHLA members and non-members.

      Presumably, the teleconference will be based on the "Practical Toolkit for Managing Healthcare Conflict" just published by the AHLA, which is available as a PDF on the AHLA website.  This document is a good summary of the need for conflict management in the healthcare (particularly hospital) setting, and provides a framework for hospital management to approach conflict management comprehensively.  It also addresses the specific requirements for internal hospital conflict resolution processes mandated by the Joint Commission.

       

     No doubt the current economic crisis affecting hospitals in New Jersey and throughout the country  will only make conflict more prevalent and important to manage.  It will be interesting to see whether some of the suggestions made in the AHLA's toolkit, which will carry a new and significant price tag, will gain traction.  I believe what they say about "an ounce of prevention" applies here, but those with the checkbooks may need more convincing. 

     Joining in to hear this program would be a step in the right direction.

 

[Image: A toolbox, by Per Erik Standberg, May 13, 2006] 

Stark IV Rules Create Traps For The Unwary - But Mediation Can Help

Fellow LexBlog powered blogger Todd Rodriguez, writing in the Physician Law blog, points out that the Centers for Medicare & Medicaid Services ("CMS") recently made a number of substantial changes to the Stark self-referral regulations that may affect existing business arrangements of physicians, hospitals and their partners.  Some of these changes went into effect on October 1, 2008, while others will take effect one year later.  In particular, these changes include the following:

1. Physician owners of an organization are now deemed to "stand in the shoes" of that organization with respect to its financial relationship with a provider of services to whom patient referrals are made.

2. The definition of "entity" for purposes of Stark prohibitions has been expanded to include a person or entity who actually provides the service "under arrangements" with the person or entity who submits the claim for payment to Medicare.

3. "Per service/per click" and percentage based rent arrangements under space and equipment leases between physicians and entities to which they refer will be prohibited.

An earlier post by Michael Cassidy in another LexBlog product, the Med Law Blog, also discussed these and other Stark IV changes here

The message for physicians, hospitals and others in a position to provide Stark designated health services or refer patients for such services is clear.  Many financial arrangements previously blessed by counsel may need to be reviewed and restructured, either immediately or within the next year. 

Sometimes the agreements creating these financial arrangements will contain "unwind" or "renegotiation" provisions to address material changes in law and regulations.  When the agreements are silent, the parties often have a mutual interest in renegotiation, although in some cases one of the parties may seek to escape from the deal entirely by claiming it is "void for illegality."

Whether or not mandated by their agreements, the parties to a transaction thrown out of compliance by the new Stark regulations can often benefit from a mediated restructuring of their deal.  As contrasted with a litigated solution (and many direct negotiations), the mediation process in this context offers confidentiality, speed and reduced legal expenses, while enabling the parties to control their own destiny.  It also enables the Byzantine requirements of the healthcare regulatory scheme to be met effectively, while preserving the parties' relationship that extends beyond their monetary interests of the moment.

[Image:Computer mouse caught in a mouse trap, by Karen Rustad, October 18, 2005]

Let Governing Boards, Not State, Decide Hospitals' Fate

     
         [Image: Marionette puppet show for kids in Asbury Park,  NJ,  July 23, 2006,  by Jackie.]



         I read an op-ed in yesterday's Courier News online entitled "New Jersey Ought To Map Out Its Hospital Closings."  The position stated there was that economic forces are going to result in the closure of a certain number of hospitals in New Jersey, and it would be better for the legislature to "compile and publish a roster of hospitals it believes should be targeted for closure," and then to act on that list.  The author sees this as a better outcome than the current course, which might be called "survival of the fittest."  Admittedly, it has resulted in a string of bankruptcies and closings over the last few years, with no end in sight.  However, leaving aside what I believe is a false assumption - that a fair and politically unbiased "roster" of hospitals could be formulated - this theory is more fundamentally flawed.
          There are other options open to the governing boards of New Jersey's struggling hospitals besides filing for bankruptcy and closing down. I wrote here previously that  hospital boards need to candidly assess their financial condition and prospects long before bankruptcy becomes imminent, and collaborate with the other stakeholders involved to arrive at their optimal result.  Far better for these governing boards and their constituencies to decide their hospitals' fate than someone at the Department of Health.  But this will require hospital boards to assess, deliberate and collaborate as few have done to date. 
          Writing an editorial in the current  Metropolitan Corporate Counsel, Andrew Sherman and Boris Mankovetskiy amplify this theme by asking, "Is Bankruptcy The Cure For Distressed Hospitals?"  They point out the inherent limitations and difficulties of using a bankruptcy filing to cure a financially ailing hospital, and suggest that other options (debt restructuring, strategic alliance or sale) will often yield a better result.
          The governing boards of New Jersey's financially troubled nonprofit hospitals have the duty and the authority to assure that their hospitals' missions are fulfilled.  That means doing something other than "flying them into the side of a mountain" (a phrase favored by one of my former partners), and then handing the keys to a bankruptcy judge.  We can only hope that they will seize the opportunity to determine their own fate.

Who Wants To Sell Their Hospital On The Auction Block?

       
          [Image: Auctioneer and assistants, Cheviot, Ohio, 2004, by Rick Dikeman]
     

         Less than three months ago, I wrote here (with reference to Boston's Carney Hospital) about the need for financially distressed hospitals to involve all stakeholders in a collaborative process in order to achieve the best overall result.  Now I see that two New Jersey hospitals have long since passed that moment of opportunity and find themselves up for auction in bankruptcy proceedings.  Yesterday, The Record reported that auctions were set for Pascack Valley and Barnert Hospitals.  Today, reports indicate that Barnert's fate awaits the outcome of further creditors' wrangling in the Bankruptcy Court, while one of the bidders for Pascack Valley  is seeking to delay the auction of that facility scheduled for February 4.
          It is hard to imagine that any of the "stakeholders" involved in the early days of a financially distressed hospital scenario would purposefully choose to resolve their common problem by way of an auction sale in Bankruptcy Court.  Such proceedings are intended and designed to yield the best result for the hospital's creditors.  Although the interests of other constituencies (the hospital's Board, employees, medical staff, patients and community) may be brought into play, the creditors (and more precisely, certain creditors) are driving the bus.  This is not inappropriate given the underlying purpose of the Bankruptcy Code to fairly allocate the debtor's assets among its creditors.  But it makes no sense for these other constituencies to get on this bus if they have any choice in the matter.
          They often do have that choice, but fail to seize the opportunity.  It occurs well before the "B" word is first openly discussed, but when leadership of the hospital knows (or should know) that the status quo cannot be maintained.  Once that moment passes, the options available to the stakeholders begin to diminish, little by little, until one day there is no choice but to close the doors and hold an auction.
          The recently released Final Report 2008 of the New Jersey Commission on Rationalizing Health Care Resources (a/k/a the "Reinhardt Commission Report") addressed this problem to some extent by recommending (at Chapter 15, page 181) that state regulators create an "Early Warning System" to monitor and detect negative financial trends, and "to intervene at the level of hospital governance and management in a graduated fashion based on severity of financial problems and responsiveness of management."  Although a laudable effort, my guess is that this process will in many cases come too late, and when it does, will put state regulators in the driver's seat. 
          The hospital's stakeholders need to do better.  They can, but only through exercise of  leadership that acknowledges the realities of the hospital's predicament, and moves beyond pointing fingers and posturing into a collaborative process to find a solution.

New Jersey Decision Throws Physician Owned Facilities Into Confusion

        
          [Image: Confusion of Tongues, illustration by Gustave Dore (1832-1883)]


          In a decision filed November 20, 2007, Judge Robert P. Contillo, sitting in the Superior Court, Chancery Division, Bergen County, decided cross-motions for summary judgment filed by all parties in Joseph Garcia, M.D., et al v. Healthnet of New Jersey, Inc. v. Wayne Surgical Center, LLC, et al (the "Wayne Surgical Center" case).  In a very thorough, 31 page opinion, the Court disposed of numerous claims by all parties on a variety of legal theories, all of which revolved around the propriety of the billing of Healthnet's insured patients for same day surgery services provided at the Wayne Surgical Center by otherwise unrelated surgeons who owned investment interests in that surgi-center.  Although the resolution of all of the issues was interesting and important, one aspect of the decision potentially throws into confusion the legality of physician ownership of many facilities in New Jersey to which the investor physicians make referrals.
          In addition to the federal anti-kickback and Stark Law restrictions on investments by referring physicians, those practicing in New Jersey are subject to a state statute, N.J.S.A. 45:9-22.4 et seq. (commonly known as "the Cody Act"), which generally prohibits all referrals to a health care service (other than certain named modalities) in which the physician has a significant beneficial interest.  Notwithstanding the apparently clear language of the Codey Act, the prevailing wisdom in New Jersey's healthcare community for some time has been that there is an implied exception for referrals by physicians to facilities at which the referring physician would perform the required professional service - a so called "extension of practice" exception.  This view gained support in the form of an advisory opinion issued by the New Jersey Board of Medical Examiners (the agency charged with enforcing the Codey Act's restriction on medical practice) which seemed to endorse the notion of an exception for self-referrals.  It also gained support from the presumption that ownership arrangements permitted by federal law should not, as a practical matter, have much enforcement risk under state law.
          After distinguishing the NJ BME's advisory opinion and questioning its authority to alter statutory mandates, the Court in Wayne Surgical Center made it clear that the Codey Act prohibits all referrals by physicians to surgical centers in which they hold an investment interest.  Although the Court found that the investor physicians in this case reasonably believed their referrals were proper at the time (based on the prevailing industry view), and thus dismissed Healthnet's claims of billing fraud, the  unstated conclusion of the opinion seems to be that all future referrals by the physician -owners of Wayne Surgical Center may risk exposure to such claims (that is, that the Court's decision effectively puts them "on notice").  Presumably, the same could be said of any other physician-investor at another New Jersey facility who has notice of this Court's decision.  Although it is only a trial court opinion, and is subject to appeal, it appears to me that the Court's reasoning in the Wayne Surgical Center opinion will be difficult to escape.
          Rumors abound about the fallout from this decision.  Are all physician-owners' referrals at risk immediately?  Are hospital-physician joint ventures at risk, or do they remain protected by the NJ BME advisory opinion (which the Court distinguished, in part, based on hospital involvement in that situation)?  Will emergency legislation be passed to "correct" this result?  Can anything be done by the NJ BME?  Does the Wayne Surgical Center opinion constitute the kind of event that triggers a "regulatory jeopardy" provision in existing deal documents?  Time (and I think not much time) will tell.
          Meanwhile, Congressman Pete Stark recently told David Whelan, as reported in Forbes.com, that he regrets having written the law that commonly bears his name.  I first saw mention of this in Robert Laszewski's post in the Health Care Policy and Marketplace Review, and just had to read it.  Apparently, Congressman Stark now recognizes that he has created a Byzantine morass of laws, regulations and advisories, but seems surprised that healthcare providers and their lawyers have been working hard to do business while complying with the law, calling such efforts the pursuit of "loopholes".  Don't expect much relief from the Stark law anytime soon.
          Confusion brings uncertainty - but with it opportunity.  Stay tuned.                

         

Financially Distressed Hospitals Need More Talk Less Walk

                
          [Image: You talking to me? Photo by Ped Xing, Austin, Texas, 2005]


          Writing in his HealthBlawg, David Harlow tells the tale of Boston's financially distressed Carney Hospital and asks the question: When do you pull the plug on a hospital?  The story is one that has already played out at several other hospitals in the northeast over the last year, and which looms at many others.  Recounting a story and an editorial appearing in the Boston Globe, Mr. Harlow's account captures the familiar push and pull between the major "stakeholders" in these cases: the governing board (or owner) of the facility, the state regulatory authorities, the city in which the hospital is located, the financing agency or bondholders of the facility's debt, and the facility's rank and file employees (or their union). 

          These parties may, in fact, be holding productive talks, but more likely remain engaged in "a lot of wishful thinking."  So, as Mr. Harlow asks, what is to be done?

          If Carney is like most distressed hospitals, the stakeholders are approaching their  predicaments with the assistance of good legal counsel, each focused on protecting them against their respective "worst case" scenarios.  There is no lawsuit or other articulated conflict uniting the stakeholders in a common discussion, much less a common dispute to be resolved.  Thus, whatever "talking" there is takes place between only two of the stakeholders at a time and tends to be of the "doomsday" variety.  This approach ignores the fact that each stakeholder is very unlikely to achieve its "best case" scenario by unilaterally imposing it on the others, and that each stakeholder acting unilaterally will probably obtain a worse result than it would if all of them pooled their interests in a common discussion.

          David Harlow suggests one such collaborative outcome, and mentions another offered by Paul Levy in Running A Hospital.  I don't know whether their solutions would work.  My point is that all of the stakeholders need to talk with each other if the best alternative for all is to emerge.  The services of a neutral, whether called a mediator, negotiator, or facilitator, would greatly improve the chances for that best alternative to occur.  By focusing on that end result, and facilitating a collaborative process, the neutral would supply the catalyst needed for the stakeholders to achieve what they currently cannot see.  Surely in the nearby hotbed of dispute resolution there are a number of highly qualified candidates for that role.  It would be time, money and energy well spent.

Werner Institute To Host Health Care Conference

        
         [Image: Omaha jazz great Lewis "Luigi" Waites plays the vibraphone during a tribute to Duke Ellington, July 29, 1999, Photo by Jim Williams, for "Joselyn Art Museum: Jazz on the Green," a Nebraska Local Legacies project]




         I just heard from Debra Gerardi, Chair of the Program on Healthcare Collaboration and Conflict Resolution at the Werner Institute for Negotiation and Dispute Resolution at Creighton University.  Debra alerted me to an upcoming program at the Werner Institute that should be considered by anyone interested in healthcare dispute resolution.  Creating Cultures of Engagement in Health Care - International Conference and Dialogue: New Models for Addressing Conflict, Disruption and Avoidance in Health Care, will be held at Creighton in Omaha on June 3-5, 2008.

        As stated in the program description on the Werner Institute's website, the purpose of the conference is to provide participants with an opportunity to:
  1. Learn how to apply principles and practices from the field of dispute resolution to upcoming mandates for change including the new 2009 JCAHO leadership standards related to disruptive behavior and conflict management;
  2. Learn the principles guiding conflict resolution practice in health care including the essential components for conflict management training programs;
  3. Working with experts in health care mediation, negotiation and collaborative law, create an action plan for advancing the outcomes of the conference dialogues and create an ongoing community of experts.
       A description of the Conference's Premises makes it clear that the Werner Institute is on the mark with this program in matching a discussion of conflict resolution theory with an examination of the current culture of healthcare delivery.  And you can check out Luigi while you're there.

       Thanks again, Debra! 

Choosing Your Healthcare ADR Provider


[Image: New potato releases by Agriculture Research Service scientists give us even more choices of potatoes to eat.  Photo by Scott Bauer.]  


          If you are a party or legal counsel in a conflict or dispute in the healthcare field, and you believe that some form of alternative dispute resolution process may (or must) be utilized to solve it, you must persuade the other parties involved to share that conclusion and select a qualified ADR provider.  Often these tasks are related.  Opinions differ on how to select a neutral, but my view is that he or she should possess the following attributes:


1.  The neutral should be “neutral”.  Although obvious, the ADR provider you choose should be impartial, fair, open-minded and without conflicts of interest. 

2 . The neutral should be intelligent and creative.  Resolving disputes in the healthcare industry efficiently requires the ability to quickly grasp and understand complex facts and legal issues while simultaneously assessing and attending to the expectations of the parties. It often requires the ability to fashion creative alternatives that work both legally and practically.

3.  The neutral should understand your business.  Although many neutrals believe they can successfully resolve disputes in any industry, it is not reasonable to believe that they can do so efficiently.

4.  The neutral should understand the legal issues.  The web of legal constraints affecting most healthcare disputes is daunting. No amount of general legal experience at the bar or on the bench prepares a neutral to effectively assist the parties or their counsel in such cases.  Jerry Roscoe made this point persuasively in a particular context with his recent article: Resolving Allegations of Health Care Fraud – Does the Mediator Matter? (posted on the ABA Dispute Resolution Section’s Healthcare Committee website).

5.  The neutral should be committed to ADR.  In order to be consistently effective, a neutral must first and foremost believe that alternative dispute resolution principals actually work. Without that belief, the neutral brings no energy or additional value to the engagement, but merely serves as a technician in guiding the parties through a scripted process.

6.  The neutral should be cost effective.  A major justification for the use of alternative dispute resolution is that processes such as mediation and arbitration will be less costly than traditional litigation.  Although this is generally true, it is also true that some ADR services will cost more than others.  Generally, cost will be a function of the neutral’s hourly/daily rate and the parties’ commitment to work with that neutral.

7.  The neutral should be committed to good service.  As a party or counsel in a conflict subject to alternative dispute resolution, you are a prospective consumer of ADR services.  In evaluating a neutral, you should assess the extent to which he or she will provide the level of service that a professional service client paying significant fees should enjoy.  


Healthcare Conflicts Appropriate For ADR

                                    

           [Image: Cliffs of Moher, Ireland, Photo by Tobias Helfrich, March 27, 2004]


          The range of conflicts arising within the healthcare industry that could benefit from the application of an alternative dispute resolution process is as broad as one’s imagination.  This is a partial list of the circumstances in which conflicts can arise and ADR can be used effectively.

  • Contracts between hospitals, physicians and other providers for professional services  (conflicts arising in their formation, operation, renewal or termination)
  • Contracts with vendors (conflicts arising in their formation, operation, renewal or termination)
  • Joint venture agreements (conflicts arising in their formation, operation or termination)
  • Medical staff relations (conflicts arising in interpretation or amendment of bylaws, inter-department issues or clinical policies)
  • Medical staff privileges (conflicts arising in individual applications or disciplinary matters)
  • Managed care agreements (conflicts arising in their formation, operation, renewal or termination)
  • Disposition of financially distressed facilities (conflicts involving creditors, government regulators, staff and community)
  • Inter-institutional affiliations, mergers and acquisitions (conflicts arising in their formation, operation or termination)
  • Physician practice acquisitions (conflicts arising in their negotiation or unwinding)
  • Governance matters (intra-corporate board conflicts, including conflicts concerning management  performance or bylaws revisions)
  • Patient relations (conflicts arising in consent to treatment, quality of care, medical errors, billing and collection matters)
  • Governmental regulation (conflicts arising in licensing, compliance or enforcement matters)
  • Employment issues (conflicts arising in employee discipline or termination)
  • Professional practices (conflicts arising in their formation, entry of new partners, withdrawal of partners, retirement or dissolution)

Starting a blog on Healthcare ADR

         
[Image: Musher Thomas Knolmayer at the Willow, Alaska start point of the 2005 Iditarod sled dog race, Photo by Tech. Sgt. Keith Brown]


          With this post, I start my first blog and what I think is the only blog site devoted to the topic of alternative dispute resolution in the healthcare industry.   As stated above on the masthead, I intend to blog at the intersection of ADR and healthcare law.  Both of these topics are well covered separately elsewhere (see links and blogs in sidebar), and I will try not to duplicate those efforts. 

          To make this site most useful, and to bring some order to my thoughts, I am dividing the world of ADR For The Healthcare Industry into topics that make sense to consider separately.  In alphabetical order, this blog will discuss alternative dispute resolution in the context of:

Commercial Healthcare Disputes

End of Life and Treatment Decisions

Healthcare Arbitration

Healthcare Mediation

Healthcare Regulatory Actions

Hospitals, Physicians and Medical Staffs

Managed Care Payment and Coverage Issues

Medical Malpractice Claims

These topics will overlap, and undoubtedly will subdivide and recombine over time.  But this is where I will start.  Let me know what you think.