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Spring 2007 Health Law Vantage Point

Spring 2007 | Vol. 2, Issue 1

Spring 2007 | Vol. 2, Issue 1

 Michael Skindrud
, Editor | Michael Skindrud& Chuck Vogel, Godfrey & Kahn Health Care Team Leaders


In This Issue:
(To read any article of interest in this newsletter, simply click on the article title below.)


From the Editor

Michael Skindrud
We lead this issue of the Godfrey & Kahn Health Law Vantage Point with a piece from Mike Wittenwyler, who chairs our Political Law Practice Group. Governor Doyle is proposing several health care initiatives in his budget that is now before the legislature. Many of you will wish to participate in the political process. Mike reminds us that certain activities to influence government are regulated and provides guidelines to keep your political activities within the legal limits of Wisconsin law.

Can we hire women OB/GYN physicians in preference to men OB/GYNs, because that is what many of our women patients are requesting? Can we do this without violating laws prohibiting discrimination based on sex? We’ve included a piece by Tom Shorter, Christine Liu McLaughlin and Tom O’Day of our Labor and Employment Law Team, providing an answer to that question.

What happened to the nurse charged with criminal conduct last fall in the death of a teen mother at a Madison hospital? Mark Frankel answers that question. You may recall his article on this topic led our last newsletter. Mark’s article includes the fact statement to which the nurse and the state stipulated. The statement provides a vivid picture of the conduct that led to the patient’s death. You be the judge of whether the conduct was negligent human error, or as the prosecutor thought, criminal conduct. We hope you find one or more articles useful.

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At What Point Does Advocacy Become Regulated?

Mike WittenwylerBy Mike Wittenwyler

Whether it is speaking out against the proposed hospital tax or in support of the electronic records initiative, there are many reasons why health care professionals are communicating with state public officials this year. In making these communications, it is important that individuals and organizations are aware of Wisconsin’s lobbying registration and reporting requirements. 1

“Lobbying” and “Lobbyists” in Wisconsin
The Wisconsin Ethics Board regulates lobbying, lobbyists and those organizations that employ lobbyists in Wisconsin.2 Wis. Stat. § 13.61. A lobbyist is generally “an individual who is employed by a principal, or contracts for or receives economic consideration, other than reimbursement for actual expenses, from a principal and whose duties include lobbying on behalf of the principal.” Wis. Stat. § 13.62(11). Symmetrically, a principal is “any person [including organizations] who employs a lobbyist.” Wis. Stat. § 13.62(12).

An individual is required to be licensed and to register as a lobbyist if the individual is compensated for his or her attempts to influence state legislation or administrative rules on behalf of a business or organization. This requirement applies, however, only if the individual communicates with elective state officials, agency officials, or legislative employees on five or more days within any six-month reporting period (January to June or July to December). Wis. Stat. § 13.62(11).

In other words, an organization is required to register with the State Ethics Board as a lobbying principal if the organization retains an individual lobbyist:

  • For compensation;
  • To communicate with elective state officials, agency officials or legislative employees;
  • In an attempt to influence state legislation or administrative rule making on the organization’s behalf; and
  • The individual communicates (in the form of a lobbying contact) with elective state officials, agency officials or legislative employees on five or more days during either the first or last six months of any calendar year. Wis. Stat. §§ 13.62(12), 13.64.


It is important to recognize that the registration requirement for each individual is triggered by the number of days on which each individual has lobbying contacts--regardless of the number of meetings on those days, the length of the meetings, or whether the lobbying communications were on several different topics. That is, in determining whether registration is required, an individual should track the number of days on which he or she communicates about specific matters, however briefly, with elective state officials, agency officials, or legislative employees. The number of meetings held or topics discussed on any given day are irrelevant.

The term “lobbying” broadly encompasses virtually every attempt to influence anything the state legislature may do as well as the promulgation, repeal or modification of any administrative rules.3 A lobbying communication may include matters that do not yet have a bill or clearinghouse rule number--a lobbying topic. Wis. Stat. § 13.67(1). Talking to a state official or legislative employee about the possible introduction of legislation, for example, can be a lobbying communication. So can discussing with a legislator why legislation would be a bad idea or a good idea or discussing with an agency employee why an administrative rule may be needed.

Lobbying Registration and Reporting
Any individual who engages in lobbying--with the lobbying activity not otherwise exempt from registration--must be licensed as a lobbyist, and the person or organization that hired the individual should be registered as a lobbying organization or principal. Wis. Stat. §§ 13.63, 13.64. The principal should formally authorize and designate each of the individuals lobbying on its behalf and file a publicly available authorization form with the Ethics Board.

To register, a person or organization that hires a lobbyist should complete a Registration of Organization Engaged in Lobbying Activities and Authorization of Lobbyists form, Eth. 5, State Ethics Board. If the individual does not already have a license to lobby, he or she will need to complete an Application for Lobbying License, Eth. 7. Registrations and authorizations become effective when the Ethics Board receives a completed form and correct fees, and both registrations and authorizations expire on December 31 of even-numbered years. The Ethics Board recommends that an organization register and authorize its lobbyists prior to engaging in any lobbying activity. See“Does your organization need to register as a lobbying principal,” Eth. 513, State Ethics Board (Oct. 2003).

Twice a year (in January and July), a lobbying principal files a Statement of Lobbying Activity and Expenditures, Eth. 10, summarizing all of the lobbying activity engaged in by the principal. See Wis. Stat. § 13.68. The reports include a summary of the amount of time and money spent on the principal’s lobbying activities as well as an overview of the subjects lobbied. As part of these reports, each lobbying principal must provide a daily itemization of the time its contract lobbyists and employees (lobbyists as well as certain non-lobbyist employees) spend on lobbying and lobbying-related activities. See “Reporting requirements once an organization is registered as a lobbying principal,” Eth. 514, State Ethics Board (Aug. 2004). Through the Ethics Board’s web site (ethics.state.wi.us), a great deal of information on lobbying activity in Wisconsin is publicly disclosed as soon as it becomes available.

If you would like more information or assistance with your participation in the political process, please contact Mike Wittenwyler (608-284-2616 or wittenwyler@gklaw.com), or another member of our Godfrey & Kahn Healthcare Team.

Footnotes
1 Organizations communicating with members of Congress and other federal officials should be aware of the requirements under the federal Lobbying Disclosure Act. Similarly, any health care institutions operating as section 501(c)(3) charitable organizations should be familiar with the limitations on lobbying activities under the Internal Revenue Code. We regularly advise organizations on these issues as well and can answer any questions you may have on either topic.

2 Under 2007 Wisconsin Act 1, the Ethics Board will be replaced later this year with a new regulatory agency: the “Government Accountability Board.” While the creation of “GAB” is a significant change in who regulates lobbying in Wisconsin, the new law does not modify what lobbying activities are regulated.

3 Certain communications, however, are not considered “lobbying” for purposes of determining whether an individual must register as a lobbyist or whether a communication must be included on a lobbyist’s time reports. The statutory exceptions include:

  • Communicating through the media or public addresses to audiences principally composed of persons other than legislators or agency officials (Wis. Stat. § 13.621(1)(a)); or,
  • Providing responses to requests for information from agency officials (but not responses to requests from elective state officials or legislative employees) (Wis. Stat. § 13.621(1)(f)); or,
  • Participating as a member of an administrative advisory committee or a committee of the legislature (Wis. Stat. § 13.621(1)(e)); or,
  • Communicating only with a state senator or representative who represents the area in which the individual resides – whether or not such communication is made on behalf of the individual or on behalf of another person (Wis. Stat. § 13.621(6)(b)).


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Can We Use Gender in Our Hiring Decisions? The Discrimination Bona Fide Occupational Qualification (BFOQ) Applied to Health Care


Tom O'DayChristine Liu McLaughlinTom ShorterBy Tom Shorter, Christine Liu McLaughlin and Tom O’Day

The Wall Street Journal always offers thought-provoking articles, but one article titled “Companies that Mirror Their Consumers Can Gain a Competitive Advantage” was especially intriguing. April 11, 2006, at B11. Is that general premise true in the field of health care? Amazingly, the marketplace has found a niche for matching patients with physicians and other providers of the same race. For instance, http://www.findablackdoctor.comoffers African American patients--or patients of any other race--the opportunity to locate an African American physician in their area. The founder of the web site, Dr. Dina Strachan, stated: “The purpose of this web site is to give an option to people who think [race] is important. It’s the same way some women feel more comfortable with a female gynecologist.” Damon Adams, Web Sites Let Patients Find Like-Minded Physicians, American Medical News, March 27, 2006, at A1. Dr. Strachan’s comment that the idea behind her website is not far removed from a woman seeking a female gynecologist shows the potential for the consumer preference argument in the context of health care. Just how far reviewing courts will go to protect consumer preferences remains to be seen.

Title VII of the Civil Rights Act: Statutory BFOQs
Title VII of the Civil Rights Act of 1964 states: “It shall not be an unlawful discrimination practice for an employer to hire and employ employees…on the basis of his religion, sex, or national origin in those certain instances where religion, sex or national origin is a bona fide occupational qualification reasonably necessary to the normal operation of that particular business or enterprise….” 42 U.S.C. § 2000e-2(e)(1)(emphasis added). The final clause is known as the “business necessity” standard. Arguments in support of a consumer preference bona fide occupational qualification (BFOQ) are rooted in the belief that consumer desires and demands necessitate some consideration in the name of profitable business.

Such arguments that equate consumer demands with legal discrimination have historically been rejected. Title VII itself was passed in response to open discrimination in restaurants, theatres and similar establishments. Racial discrimination in restaurants, despite demands from consumers, was a large part of why Title VII was passed in the first place. Gender, however, was treated differently than race in Title VII. The business necessity standard does not include race as a potential characteristic that is subject to a BFOQ. Only religion, sex and national origin made the cut. By the literal terms of the statute, there are no racial BFOQs. Despite the fact that sex is one of the characteristics open to the business necessity/consumer preference argument, it too had a rough start of it in reviewing courts.

In 1971, Pan American refused to hire male flight cabin attendants, and the male flight cabin attendants took them to court. Diaz v. Pan American World Airways, 442 F.2d 385 (5th Cir. 1971). The issue before the court was whether, for purposes of cabin attendants, being a female was a BFOQ “reasonably necessary” to the normal operation of the flights. Pan Am advanced two main arguments: a consumer preference and a business convenience argument. General experience, customer feedback and psychological evidence supported the preference for female cabin attendants. The trial court hearing the evidence agreed that Pan Am passengers overwhelmingly preferred female cabin attendants. The evidence was sufficient to justify such discrimination.

The 5th Circuit disagreed, adopting the Equal Employment Opportunity Commission recommendation that the BFOQ exceptions in Title VII be interpreted narrowly. The word “necessaryto business operations” was important to the court. They rejected the idea that mere business convenience could justify discrimination. The court instead applied a “business essence” test which has been used by courts ever since. “Discrimination based on sex is only valid when the essence of the business operation would be undermined by not hiring members of one sex exclusively.” Id. at 388.

“It would be totally anomalous if we were to allow the preferences and prejudices of the customers to determine whether the sex discrimination was valid. Indeed, it was, to a large extent, these very prejudices (Title VII) was meant to overcome. Thus, we feel that customer preference may only be taken into account when it is based on the company’s inability to perform the primary function or service it offers.” Id. at 387. The court, applying their new test, rejected Pan Am’s arguments and male cabin attendants were soon flying the skies. The Diaz test and precedent has been a formidable hurdle for businesses to overcome ever since.

The Gender BFOQ
Federal regulations regarding gender BFOQs are more detailed than other kinds of BFOQs. Federal regulations specifically forbid an employer from refusing to hire a person of a certain gender because of coworker, client or customer preferences. 29 C.F.R. § 1604.2(a)(1)(iii). The regulations also contain an exception for the purpose of authenticity or genuineness as an actor or actress. Section 1604.2(a)(2). This exception, however, is only for gender—not for national origin, religion or race.

Businesses have made efforts to equate consumer demands with business necessity despite the explicit regulations against doing so. In Fernandez v. Wynn Oil Co., 653 F.2d 1273 (9th Cir. 1981), a petro-chemical business working with Latin American clients refused to promote a female employee because company officials feared foreign countries would not deal with a representative of the company who was a woman. The 9th Circuit, reversing the decision of the lower court, held that accommodating a foreign country’s sex discrimination is not a valid BFOQ. The Court cited an EEOC decision stating that the need to accommodate racially discriminatory policies of other countries cannot be the basis for a valid BFOQ. Id. at 1277 (citing EEOC Decision No. 72-0697, CCH EEOC Decisions 1971, ¶ 6317, at 4569).

The court, noting the limited BFOQ business necessity exception and narrow interpretation of that exception, rejected the business’ contention that the discriminatory practice was necessary to protect the essence of the business. The court ruled for the plaintiff and against the business. In general, courts and especially the EEOC have been hesitant to allow consumer preferences to drive discrimination against one gender over the other.

The Consumer Preference Coupled with Privacy BFOQ
The Consumer Privacy BFOQ has roots in the legislative history of Title VII. In the final stages of deliberation over the Act, one Congressman stated: “There are so many instances where the matter of sex is a bona fide occupational qualification. For instance, I think of an elderly woman who wants a female nurse.” That comment gave rise to the argument that Title VII allowed discrimination based on consumer privacy concerns. The consumer preference argument is significantly stronger in favor of businesses, and especially healthcare providers, when the preference is rooted in privacy concerns. Courts have held that nursing home attendants, hospital orderlies and OB/GYN physicians all regularly handle issues that give rise to privacy concerns. In those circumstances, and in those courts, gender-based discrimination is acceptable.

The most recent surge of activity has been in the OB/GYN field. These cases are just starting to make their way into court systems. The typical scenario is a male suing for gender discrimination based on the employer’s perceived need to hire female OB/GYN physicians or nurses. An example of this type of case is found in Veleanu v. Beth Israel Medical Center, 98 Civ. 7455 VM, 2000 U.S. Dist. LEXIS 13948 (S.D.N.Y., September 25, 2000).

A male OB/GYN physician brought a discrimination claim against Beth Israel, alleging that he was discriminated against on the basis of his gender because the hospital accommodated female patients who requested female doctors. The court distinguished Diaz and other consumer preference cases by noting the special circumstances of privacy concerns of health care patients. The court noted that “giving respect to a deep-seated feeling of personal privacy involving one’s own genital area is quite a different matter from catering to the desire of some male airline passenger to have…an attractive stewardess.” Id. at #22. “Because such care implicates the patient’s privacy rights, personal dignity and self-respect, the court believes that healthcare presents unique circumstances that may justify reasonable efforts to accommodate a patient’s expression of preference of doctor by gender and that female patients may have a legitimate privacy interest in seeking to have female doctors perform their gynecological examinations.”

Id. at #23-24. The Court found the male plaintiff failed to meet his burden of proving discrimination and affirmed the strength of the consumer privacy BFOQ.

Analysis and Application to Health Care Providers
It is not as clear, however, that Diaz is as inapposite as the Veleanu court states. Pan American argued for a consumer preference BFOQ not because female stewardesses are more attractive than male stewardesses, but because people flying felt more comfortable and more relaxed with female stewardesses. The airline even offered psychological evidence that customers felt more comfortable with female stewardesses. In a way, the Veleanu court demeans the substance of the Diazdecision. The Veleanu court mischaracterized the argument in Diaz as simply a consumer preference for attractive stewardesses in order to more easily distinguish their ultimate conclusion of law from that of the Diaz court.

If the Diaz case were heard in a contemporary court, and an airline argued along the lines of a business necessity BFOQ (supported with the same psychological evidence), would the employer come out with a victory? The answer is likely not. What truly distinguishes Veleanu from Diaz is the additional element of privacy. The consumer preference argument when coupled with a privacy element is much stronger and offers the ability for employers to satisfy consumer and patient demands within the framework of the law. In the context of healthcare, where privacy is an overarching concern in almost every instance, the potential for a consumer preference BFOQ is at its greatest.

At this point, few courts have authorized the use of a consumer privacy BFOQ. Discrimination in favor of female OB/GYN physicians is not widely accepted by the courts. If a health care provider is willing to take a risk on the argument that a consumer privacy BFOQ does apply, it should have a carefully crafted policy in place. In addition, the health care provider should take measured steps to document the consumer’s preference as well as the basis for the privacy concerns. Like many areas of health care, the consumer privacy BFOQ is constantly growing and may soon apply to more and more instances within the health care field and, potentially, beyond.

If you would like more information on the use of gender, race or other protected categories in your hiring and other employment decisions, please contact Tom Shorter (608-284-2239 or tshorter@gklaw.com), Christine Liu McLaughlin (414-287-9232 or cmclaughlin@gklaw.com), Tom O’Day (414-287-9523 or today@gklaw.com), or another member of our Godfrey & Kahn Healthcare Team.

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Do Physician Non-Compete Agreements Violate Public Policy?

Robert DrepsBy Robert Dreps

The Illinois Supreme Court recently answered that question “no,” and ruled that any change in that policy would have to come from the legislature. The same rule applies in Wisconsin, although this state is more likely to find activity, temporal, and geographic restrictions in non-competition agreements unreasonable and, therefore, unenforceable.

Physician Non-competition Agreements in Illinois
The Illinois case involved two cardiologists who had been employed by St. John Heart Clinic in Chicago. Mohanty v. St. John Heart Clinic, S.C., No. 101251, N.E.2d, 2006 WL 341970(Illinois,December 21, 2006). Their employment agreements prohibited them from engaging in the practice of medicine upon termination of their employment at any of the four hospitals where the clinic’s sole owner had privileges. One physician was restricted for a period of three years at the four hospitals and within a two-mile radius of the clinic’s two offices; the other physician was restricted for a period of five years at the four hospitals and within a five-mile radius of those offices. The court found both agreements reasonable.

The Illinois court rejected the argument that physician non-competition agreements should be held void as against public policy because they restrict patient choice. Although attorneys may not enter into non-competition agreements in Illinois and most states, including Wisconsin, for that reason, the court noted that the AMA’s Council on Ethical and Judicial Affairs merely discourages such agreements and has not found them unethical as they are under the Rules of Professional Conduct for attorneys. (See, AMA Opinion 9.02.) The court further noted that those states that do prohibit non-competition covenants in medical employment contracts (Colorado, Delaware and Massachusetts) did so by legislation and not court rule.

The court went on to find the agreements’ activity, temporal, and geographic restrictions reasonable under Illinois law, in stark contrast to the rule in Wisconsin. Looking at the more restrictive of the agreements, the court ruled that plaintiffs faced no undue hardship because “they are free to practice medicine outside the five-mile limit, which, given the heavily populated Chicago metropolitan area, would not deprive them of employment.” Yet, the same agreements would be held unreasonable and, therefore, void under existing Wisconsin law.

Physician Non-competition Agreements in Wisconsin
Non-competition agreements are only enforceable in Wisconsin if they meet the following five requirements:

  1. Are necessary for the protection of the employer;
  2. Provide a reasonable time restriction;
  3. Provide a reasonable territorial limit;
  4. Are not harsh or oppressive to the employee; and
  5. Are not contrary to public policy.


The Wisconsin Supreme Court ruled in 1971, with little discussion, that physician non-competition agreements are not contrary to public policy. Oudenhoven v. Nishioka, M.D., 52 Wis. 2d 503.190 N.W. 2d 920 (1971). A case currently pending in our court of appeals shows that the remaining requirements are strictly applied in Wisconsin.

In Fox Valley Thoracic Surgical Associates, S.C. v. Ferrante, M.D., Outagamie County Circuit Court, Case No. 04-cv-716, Appeal No. 2006 AP 3201., the circuit court refused to enforce a non-competition agreement that prohibited a physician from practicing heart surgery or thoracic medicine within a 30-mile radius of Neenah, Menasha or Appleton for one year. Temporal restrictions of up to two years are generally held valid in Wisconsin, but the court found this agreement unreasonable both as to activity and territory.

The court found the agreement overbroad as to activity because the employer’s practice was limited to heart and thoracic surgery. The agreement went further, prohibiting Ferrante “from practicing any type of medicine related to the thorax” within the restricted area. This was held unnecessary to protect the interests of the employer. The court also found the employer had not justified the territorial restriction by presenting sufficient evidence “as to its geographic distribution of client base.”

The employer has appealed both of these rulings, but if either one is upheld, the non-competition agreement is void in its entirety. To discourage employers from overreaching in these agreements, Wisconsin by statute makes the entire non-competition provision unenforceable if any part of it is found unreasonable. Wisconsin courts continue to strictly scrutinize non-competition agreements to protect employees and promote competition. Employers must therefore exercise great care in drafting non-competition agreements, and periodically review them in light of subsequent court cases, to ensure that they will be enforced as intended.

If you would like more information on physician noncompete agreements in Wisconsin, please contact Robert Dreps (608-284-2606 or rdreps@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

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Health Care Employers of H-1B Aliens Must Notify Government of Terminations

Gene SchaefferBy Gene Schaeffer

A recent decision by the U.S. Department of Labor’s Administrative Review Board highlights the importance of an employer giving notice to the U.S. Citizenship and Immigration Services when the services of the H-1B alien employee is terminated. Health care organizations often use H-1B visas to bring alien physicians to their areas where the recruitment and/or retention of U.S. physicians has proven challenging. H-1B status is specifically tailored for alien professionals with at least a bachelor’s degree who are filling a specialty (professional) occupation. Physicians certainly meet those criteria.

Notice of Employment Termination Requirements
When employers terminate an individual employee who is in H-1B status prior to the expiration of the individual’s authorized status, they likely will follow the company’s established termination policies and procedures to the letter. However, employers will sometimes forget an important step that applies to individuals in H-1B status--notice to United States Citizenship and Immigration Services (USCIS) that the approved employment relationship no longer exists. A recent case from the Department of Labor’s Administrative Review Board makes clear that the failure to notify the USCIS of the end of the employment relationship can lead to additional costs for the employer. Federal regulations (8 C.F.R. B'214.2(h)(11)(i)(A)) require that the petitioner (employer) must notify the USCIS if it no longer employs the beneficiary (alien) under the approved H-1B petition prior to the expiration of the approved status. 20 C.F.R. B'655.731(c)(7)(ii) states that “INS (now the Department of Homeland Security) regulations require the employer to notify the INS (now USCIS, part of DHS) that the employment relationship has been terminated so that the petition is canceled.” Despite the stated obligation, many employers fail to notify the USCIS.

Back Pay Damages for Failure to Effect Bona Fide Termination
In a recent case, Amtel Group of Florida v. Rungvichit Yongmahapakorn, ARB Case No.04-087, 2006, which was decided by the Department of Labor’s Administrative Review Board, the Board ruled that an employer had not effected a bona fide termination as required by H-1B regulations. In that case, Amtel had provided the employee with a dated memorandum of termination notifying her of her firing, which the alien read and signed. However, as the Board stated, “even though Amtel terminated its employment relationship with Rung, the issue in this case is whether Amtel ultimately effected a bona fide termination.” The Board stated that notice to the alien is necessary, but not enough. The Board then ruled that to effectuate a bona fide termination, the employer must notify the USCIS that it has terminated the employment relationship with the individual, which ends its obligations to pay the required wages. Amtel’s failure to notify USCIS led the Board to require it to pay the alien for back wages from the date of termination until the end of her approved H-1B status.

The Amtel case underscores the importance of notifying the USCIS whenever an H-1B employment relationship is ended. If you have further questions about your obligations under H-1B regulations, please contact Gene Schaeffer (608 284-2655 or gschaeffer@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

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Block Leasing of Imaging Services May Violate State Law

Choua VangChuck VogelBy Chuck Vogel and Choua L. Vang

Block-leasing arrangements for diagnostic imaging services are fairly common in the health care industry, particularly between diagnostic imaging providers and physicians and/or their practice groups. Under such arrangements, physicians usually lease space, equipment and technicians from the diagnostic imaging provider for a designated period of time--such as four hours per day--then bill and receive payment from third-party payors for the technical and/or professional component of the services. Due to certain payment restrictions under the laws governing Medicare, many of these arrangements are intentionally limited to privately insured patients. While this strategy generally insulates such arrangements from application of the laws governing Medicare, it does not insulate them from a range of state laws, including provisions regarding fraudulent insurance billing, unfair trade practices and fee splitting.

A recent lawsuit filed in Illinois against certain MRI service providers serves as a sharp reminder that block-leasing arrangements can also be vulnerable under state law.

Illinois Attorney General Action
On January 17, 2007, the Illinois Attorney General intervened in a lawsuit previously filed by a private plaintiff against certain MRI service providers. The lawsuit alleges that the defendant MRI service providers paid illegal kickbacks to physicians in exchange for patient referrals, and that the kickbacks constituted violations of the Illinois Insurance Fraud Act and the Illinois Consumer Fraud Act. The complaint further alleges that the kickbacks were disguised in the form of lease agreements between referring physicians and the defendant MRI service providers. Despite the lease agreements, the complaint alleges that the referring physicians had no involvement in the provision of the MRI imaging services. The defendant MRI facilities allegedly provided or arranged for all of the technical and professional components of the MRI imaging services and the referring physicians’ involvement was allegedly limited to billing and collecting for the MRI imaging services.

(To view a copy of the complaint, click on: http://www.illinoisattorneygeneral.gov/pressroom/2007_01/people_v_MIDI_complaint.pdf)

Wisconsin Fraud Claims
The Illinois lawsuit bears watching because it could trigger a similar action in Wisconsin, as well as other states. Whether such a lawsuit could be filed would primarily depend on the legal provisions in the applicable state. For example, in Wisconsin a criminal law provision prohibits the fraudulent submission of insurance claims; however, violations of the law would be enforced by the district attorney’s office or the state’s attorney general, not a private individual, as was initially the case in Illinois. For now, the Illinois case is a reminder that block-leasing arrangements must comply not only with the laws governing Medicare, but also with the applicable laws of the state in which the arrangement is entered into. Specifically, current arrangements should be reviewed, and restructured if necessary, to avoid violations of applicable state laws and new arrangements should be structured for compliance at the outset of the arrangement.

If you would like more information on the issues relating to block-leasing of imaging services or the regulatory concerns of such arrangements, please contact Chuck Vogel (414-287-9502 or cvogel@gklaw.com) or Choua Vang (920-831-6351 or cvang@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

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Medicare Pay-For-Performance: 2007 Physician Voluntary Reporting Program

Barbara ZabawaBy: Barbara J. Zabawa

In an effort to push pay-for-performance and health care quality data collection initiatives, President Bush signed into law Public Law 109-432 on December 20, 2006, which includes a financial bonus incentive for the 2007 Physician Voluntary Reporting Program (PVRP). One year ago, in January 2006, the Centers for Medicare and Medicaid Services (CMS) launched the PVRP to help capture data about the quality of care provided to Medicare beneficiaries. Physicians who registered to report to CMS 16 various quality measures, such as whether a patient received aspirin shortly after arrival in the emergency department or whether adult patients diagnosed with major depression were documented as treated with antidepressants, were eligible to receive confidential feedback in December 2006 on their reporting rate and performance rate for each measure reported. However, there were no financial incentives to report the measures, until now.

Physician 2007 Bonus Payments
Beginning July 1 through December 31, 2007, physicians who participate in the PVRP can qualify for a 1.5% bonus payment. The list of quality measures available for reporting has increased from 16 to 66 and the number of applicable measures will vary by physician specialty. (The new law also requires CMS to propose quality measures for 2008 that have been adopted or endorsed by a consensus organization, such as the National Quality Forum. CMS must publish these measures in final form by November 15, 2007.)

To be eligible for the bonus payment, physicians who have three or fewer quality measures applicable to their practice must report on those measures in at least 80% of the cases in which the measures apply. For physicians who have four or more applicable measures, physicians must report on at least three of the measures in at least 80% of the cases in which the measures apply.

CMS Procedures for Bonus Payments
CMS has tried to facilitate participation in the PVRP by creating worksheets that physicians can fill out and give to billing personnel to assist in submitting the correct codes with the physician’s Medicare claim submission. These worksheets, as well as additional information about the PVRP, can be found at http://www.cms.hhs.gov/PVRP/. Unless the 110th Congress amends the PVRP again, the financial bonus is only temporary and does not apply to the quality measures that physicians can report beginning in 2008. So physicians wishing to take advantage of the bonus payment should register their intent to participate through the secured link, http://www.qualitynet.org.

If you would like more information on the PVRP initiative or any related questions, please contact Barbara Zabawa (608-284-2639 or bzabawa@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

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IRS Issues Proposed Guidelines on Good Governance Practices

Melissa Auchard ScholzBy Melissa Auchard Scholz

On February 2, 2007, the IRS released and requested comment on draft guidelines entitled “Good Governance Practices for 501(c)(3) Organizations.” Although the guidelines are only in draft form, they are worth reviewing as they provide a good window into the IRS’ thinking on the governance of 501(c)(3) organizations. The full text of the guidelines can be found at http://tinyurl.com/229e67.

The guidelines recommend the following nine practices:

1. Have a clearly articulated mission statement.

2. Adopt and regularly evaluate a code of ethics that communicates a strong culture of legal compliance and ethical integrity. Establish effective whistleblower policies.

3. Put in place policies and procedures to help directors meet their duty of care, which includes ensuring that each director:

a. Understands the charity’s mission and goals.

b. Is fully informed on its financial status.

c. Has full and accurate information to make informed decisions.


4. Make sure directors understand their duty of loyalty. Adopt and regularly review a conflict of interest policy.

5. Adopt and monitor procedures to ensure that charity’s Form 990 and other annual reports are complete and accurate and posted on the organization’s website or made as accessible as possible to maximize the charity’s transparency.

6. Ensure the fundraising solicitations meet federal and state law requirements and that fundraising materials areaccurate, truthful and candid.

7. Take seriously the role of an independent audit committee and consider changing audit firms every five years (note: this recommendation has received significant criticism).

8. Discourage director compensation and only pay it if an independent, uncompensated committee determines that compensation is essential to attract the necessary expertise.

9. Establish an up-to-date document retention policy that includes guidelines for handling electronic files.



The IRS released these guidelines through an informal process and has not yet asked for formal comments. We will send out client updates as the IRS issues further information or issues its final guidelines. If you would like more information on the regulation of Section 501(c)(3) health care organizations, please contract Melissa Auchard Scholz (608-284-2610 or mscholz@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

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The Push For Electronic Medical Records Technology: Where are We Now?

Choua VangBy Choua L. Vang

In the last few years, there has been a significant level of interest in, and commitment to, the creation of electronic medical records and making those records accessible to a defined group of users, such as all those involved in the treatment of the patient ( i.e., for the purpose of improving the quality, safety and effectiveness of health care). Such interest and commitment have been exhibited by various stakeholders, at all levels, including federal and state government as well as the private sector. In fact, in the last few years, we have seen a number of significant policy and legal developments that are intended to advance the goal of electronic medical records. This article briefly summarizes these developments and comments on the legal challenges to moving this new effort forward. 

Stark & Antikickback Developments
At the national level, the most critical development occurred on August 8, 2006, when the Centers for Medicaid and Medicare Services (CMS) and the Office of Inspector General, both of the U.S. Department of Health and Human Services (HHS), issued final rules under the Stark and Antikickback laws, respectively. These final rules permit entities, such as hospitals, to donate ( i.e., furnish for below market value), certain health information technology (HIT) to referral sources, such as physicians. Under the new rules, entities may furnish HIT for electronic prescribing and electronic health records and removes one hurdle in the move toward electronic medical records.

Wisconsin Developments & Initiatives
At the state level, on November 2, 2005, Governor Jim Doyle established the eHealth Care Quality and Patient Safety Board to review and make recommendations on issues surrounding the creation of an e-health information infrastructure in Wisconsin and to develop guidance for the users of such infrastructure. On January 25, 2007, Governor Jim Doyle also announced he would include $30 million in his proposed budget to fund grants and provide tax incentives to increase the use of electronic medical records in Wisconsin.

As a result of the move toward electronic medical records, various stakeholders in the health care industry have joined together to expand the electronic medical record into an electronic health information exchange system, whereby defined groups of users from various systems and from different parts of the health care industry, may access and view information from the record. These stakeholders include health care providers, health insurers, and employers. One organization, the eHealth Initiative, an independent non-profit organization, reports a total of 165 electronic health information exchange initiatives across the country. Such initiatives span 49 states, the District of Columbia and Puerto Rico. Initiatives in Wisconsin include, for example, the Wisconsin Health Information Organization and the Wisconsin Health Information Exchange.

Undoubtedly, all of these developments have brought the health care industry closer to the ultimate goal of electronic medical records, as well as electronic health information exchanges.

Remaining Legal Challenges
Despite the advancements that have been made, however, we are still a long way from a truly paper-less medical record. Not surprisingly, some of the challenges that must be overcome are legal in nature. First, the exceptions and safe harbors of the Stark and Antikickback laws are fairly limited and do not allow physician offices to receive HIT items that are necessary for creating, maintaining or accessing an electronic health record, such as computer hardware. This could be a major impediment for smaller physician offices that cannot afford to purchase or upgrade existing hardware.

Second, the exceptions and safe harbors under Stark and Antikickback do not preempt state law, meaning that organizations in states with mini-Stark or Antikickback law provisions would be operating without complete assurance that donated HIT would not be subject to prosecution under state law.

Finally, donors that are tax-exempt must be mindful that their provision of HIT does not constitute private inurement or private benefit to any individual under federal tax-exempt laws. While there is a strong public policy in favor of electronic medical records, the IRS has not issued any guidance on the furnishing of HIT for below market value by non-profit entities. Recent legislation introduced in Wisconsin would create income and franchise tax credits for the purchase of certain information technology equipment by health care providers and health facilities. In particular, a health care provider could claim a credit equal to 50 percent of the amount the provider paid in the taxable year for information technology hardware or software that is used to maintain medical records in electronic form. The full text of Wisconsin Assembly Bill 111 is available at (http://www.legis.state.wi.us/2007/data/AB-111.pdf).

Until these legal challenges are removed, the move toward electronic medical records and electronic health information exchanges will be impeded. We will continue to analyze and report on developments on this issue.

If you would like more information on implementing a program to provide electronic medical records technology and navigating the related regulatory concerns, please contact Choua Vang (920- 831-6351 or cvang@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

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Human Error or Criminal Conduct: How Did It Resolve?

Choua VangBy Mark A. Frankel

At the time this article appeared in our last newsletter, the Madison nurse who mistakenly administered the wrong medication resulting in a patient fatality was facing a felony charge of Negligent Abuse of a Patient – Causing Great Bodily Harm under Wis. Stats. B'940.295(3)(a)3. This felony charge carried a potential penalty of up to six years in prison, a fine of up to $10,000 or both. The magnitude of the potential penalty facing the nurse was a very serious and potentially threatening outcome. As a result of negotiations, the criminal case has been resolved in Dane County Circuit Court with a plea to reduced criminal misdemeanor charges and the licensing sanction against the nurse in question has also been resolved before the Nursing Board at the Wisconsin Department of Regulation & Licensing.

As a follow-up to the last article on this topic, summarized below are the details of how the criminal case was resolved, what happened before the Department of Regulation and Licensing concerning the nursing license of the defendant in the case, and finally the stipulated facts to which the state and the nurse agreed. These facts present an opportunity to consider directly what may be the line between negligent and criminal conduct leading to a patient death.

Resolution of the Criminal Case
In the criminal case, the felony charge was reduced to two misdemeanor offenses: Nonpharmacist Dispensing of a Prescription under Wis. Stats. §450.11(3) and Possessing/Illegally Obtaining a Prescription under Wis. Stats. §450.11(7)(h). Upon the nurse’s pleas of no contest, Judge Daniel Moeser withheld sentencing and placed the nurse on two years probation with conditions that the nurse not engage in critical care nursing, including OB/birthing units, intensive care ICU’s, pediatric ICU’s, neo-natal ICU’s, cardiac care units, cardiac catheter labs, telemetry units, progressive care units, emergency departments and recovery rooms. No jail time or fines, other than standard court costs, were imposed.

Resolution of the Regulation & Licensing Case
As part of a stipulated disposition before the Department of Regulation & Licensing, the parties stipulated to a nine-month suspension of the nurse’s license to practice nursing commencing July 6, 2006. Upon the end of the nine-month suspension of the nurse’s license, her license is to be limited for two years. The details of the license limitations are available at the Department of Regulation & Licensing website (dept/decisions/docs/20061214Thao.htm).

Stipulated Factual Basis for Disciplinary Action
The parties also stipulated to the following facts in support of the suspension order, some of which may have had a mitigating effect on the final administrative disposition:

“The nurse’s work history was as follows: On July 4, 2006, the nurse worked two consecutive 8-hour shifts and the second shift ended at midnight. The nurse had volunteered for the shifts some time prior to coming to work on July 4 and had arranged to sleep at the hospital following the shifts because she began another scheduled 8-hour shift on the Birthing Unit, at 7:00 a.m. on July 5th, the date of the fatal medication error.

The parties also stipulated that the unit secretary printed the patient identification wrist band and placed it in a pocket in her medical chart, which was taken to the patient’s birthing room. Wrist bands are to be fastened to the patient’s wrist as soon as possible. Prior to performing any treatment or providing any medication, a nurse is to check the wrist band to make certain it is the correct patient. It was the nurse’s responsibility to fasten the wrist band on the patient’s wrist, but the wrist band was never placed on the patient.

The nurse met with the patient and her family in the patient’s birthing room and spent almost an hour explaining the process and answering questions. This was the patient’s first pregnancy and she was anxious about delivering. The nurse says that much of her focus was on alleviating the patient’s anxiety. At 10:49 a.m. the nurse performed an examination and determined that the patient’s cervix was dilated 2 centimeters and effaced 80%. They had a discussion about the possibility of the patient receiving an epidural. The patient’s mother recalls saying that the patient wanted an epidural only as a last resort. The nurse recalls that the patient and her mother seemed interested in her having an epidural as early as possible. The nurse said that no epidural would be given until the patient was dilated 3-5 centimeters.

11:00 a.m. - The obstetrics resident physician signed the order for the initiation of the initial prophylaxis dose of Penicillin G, 5 million units IV, may add 1ml Lidocaine 1% PRN. The nurse ordered the penicillin from the pharmacy, which is located in a different part of the hospital.

11:15 a.m. - The resident signed the labor admission orders, which included: starting a one liter IV bag of lactated ringers to provide water and electrolytes, oxytocin (brand name Pitocin) to be used during labor to initiate or improve contractions and oral and IV analgesics for pain as needed.

Approx. 11:30 a.m. - The obstetrician ruptured the patient’s membranes to begin labor. The obstetrician did not order an epidural at that time. His practice was to wait and see if it was needed and then order it if it was required.

The nurse went across the hall on the Birthing Unit to the medication room where the Pyxis station was located which contained many of the medications used on the Birthing Unit. 1

1:36 a.m. – The nurse entered the patient’s identification into the Pyxis machine and gained access to and removed the bag of IV fluid (lactated ringers) and several other medications which had been ordered, which might be needed for the mother or the newborn. At the same time, because she believed it likely that an epidural would be ordered for the patient, she removed the epidural medications (a combination of bupivacaine and fentanyl), which had not been ordered. She took all of the medications back across the hall and placed them on the counter in the anteroom to the patient’s birthing room.

At about that same time, the penicillin was delivered to the Birthing Unit from the pharmacy and another nurse brought it to the anteroom to the patient’s birthing room, placed it on the counter and told the nurse it was there.

The penicillin was in 250 cc of liquid in a clear plastic mini-bag. The epidural was also in 250 cc of liquid in a clear plastic mini-bag the same size and shape as the penicillin mini-bag. The penicillin mini-bag is to be administered intravenously and the epidural mini-bag is to be administered into the patient’s spine, but the outlets and connections were the same. However, there were visible differences between the appearances of the two mini-bags:

a. The name of the drug contained in the liquid was printed on each mini-bag.

b. The front of the epidural bag had a bright pink label approximately three inches square which said “Epidural Medication” and the back had a smaller bright pink label which said “Epidural Medication.” The penicillin bag did not have any colored labels.

c. Each bag had a portal adjacent to its outlet with the spike. The portal on the epidural bag had a large dark cap, which cannot be removed and does not allow any additional medications to be inserted in the bag. The portal on the penicillin bag had a smaller light colored removable cap, which would allow medications to be inserted.


Each bed on the Birthing Unit has a computer terminal with a monitor, keyboard and scanner which nurses and other providers use to make entries into the patient’s electronic record. In addition, the terminal had Bridge Medical MedPoint point-of-care patient safety software which uses bar-code scanning to help nurses intercept potential clinical errors at the patient bedside.

a. St. Mary’s had been integrating the Bridge Medical system into its units over a period of time and began using it on the Birthing Unit three weeks before July 5, 2006, after training was provided to the unit’s staff.

b. Using that system, before giving any medication to a patient, the nurse scans the bar codes on: 1) the patient’s wrist band to confirm the patient, 2) the nurse’s ID card to identify who was administering the medication, and 3) the medication container to verify the medication, dose, route of administration and time of administration.

c. A screen then appears on the monitor which verifies that the drug, patient, dose, time and route of administration all match the medication order before the drug is administered. If the medication has not been ordered for the patient, the nurse must check a box on the screen to override the lack of an order.


Shortly before noon the nurse hung the IV bag of lactated ringers, inserted the needle into a vein in the patient’s arm and began the flow of the IV fluid through the line into the patient’s vein. The nurse then began the process of adding to the IV line the mini-bag of penicillin, which had been ordered. The nurse took what she thought was the mini-bag containing the penicillin and spiked it into the IV line into the patient’s arm. However, it was actually the mini-bag containing the unordered epidural medication which is to be administered into a patient’s spine and not intravenously.

Prior to starting the mini-bag to administer the med

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