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Winter 2006 Health Law Vantage Point

Health Law Vantage Point
November 2006

November 2006 | Vol. 1, Issue 2
 
Michael Skindrud, Editor | Michael Skindrud& Chuck Vogel, Godfrey & Kahn Health Care Team Leaders

From the Editor, Michael E. Skindrud

Michael SkindrudThese are uncertain times for health care, but our lawyers have a good vantage point from which to observe. We are counsel to hospitals, physicians, health insurers, and high tech companies that commercialize university research into new drugs, medical devices, and other technologies. We are particularly proud to represent the Wisconsin Health Information Organization and the Wisconsin Collaborative for Healthcare Quality, two exceptional organizations on the cutting edge of national efforts to improve quality, efficiency, and transparency in healthcare.

From our vantage point, we send our clients and friends timely updates on developments in the law that we believe merit their attention. We also distribute a newsletter containing items of interest that don't need immediate attention, but that we feel are noteworthy.

Mark Frankel writes our lead article on when the actions of providers can be deemed criminal. Before joining our firm as senior litigation partner, Mark presided over criminal and civil cases as a Dane County Circuit Court judge for twenty years. We asked him to help explain the issues and implications of the criminal charges filed on November 2nd against a hospital nurse.

You receive health news from many sources. We hope you find our Godfrey & Kahn Health Law Vantage Point e-newsletter a useful addition.

In This Issue:


Human Error or Criminal Conduct – How Can One Tell the Difference?

Mark FrankelBy: Mark A. Frankel

On November 2, 2006, in a controversial decision, the Wisconsin Department of Justice charged a hospital nurse with criminal conduct in connection with the death of a pregnant 16-year-old hospital patient. While most in the medical community are familiar with relatively common claims of civil negligence arising from bad medical outcomes, it is very rare for these events to result in criminal prosecution. This surprising announcement has left the health care community with a troubling question-- “when does conduct cross the line from ordinary civil medical negligence (malpractice) and criminal neglect?”

Background
According to the criminal complaint, the patient allegedly died as a result of the nurse’s inappropriate injection of epidural medication, administered intravenously, to a maternity patient. The nurse was charged with the felony offense of neglect of a patient that caused great bodily harm to that patient under Wis. Stats. §§ 940.295(3)(a)(3) & (3)(b)(3). The criminal statute defines “neglect” as, "[A]n act, omission or course of conduct by another that, because of the failure to provide adequate … medical care …, creates a significant danger to the physical or mental health of a patient or resident.”

The specific allegations against the nurse focused on the following alleged misconduct:

  • Failure to obtain authorization to remove lethal chemicals from a locked storage system (the attending doctor reported that he never ordered administration of the epidural medication administered to the patient).
  • Disregard of hospital protocol in failing to scan the bar code on the medication administered (scanning the medication is designed to ensure there are physician orders in place for the medication before it is administered and the allegation is that the defendant intended to scan the medication after it was administered).
  • Disregard of a clearly written warning on the bag containing lethal chemicals, prior to injecting them into the child’s bloodstream (the medication was labeled as only appropriate for epidural use and the medication was administered intravenously).
  • Failing to follow the approved rate by injecting the lethal chemicals in a rapid fashion in order to save time thereby hastening the death of the patient.
  • Disregarding hospital protocol and professional nursing procedures by not considering the “five rights” of patients (right patient, right route, right dose, right time, and right medication) prior to administering lethal chemicals to the patient.


There is no allegation in the criminal complaint that the nurse acted with the intention of causing harm to her patient. Rather, there is a suggestion that the bag of epidural medication was obtained for the purpose of educating a young maternity patient about its potential use later on during delivery and that the medication was tragically administered intravenously to the patient by accident instead of penicillin that had been ordered by the patient’s physician and delivered to the patient’s room. The offense carries maximum penalties, upon conviction, of a fine not to exceed $25,000 and/or imprisonment not to exceed six years.

Criminal Intent vs. Criminal Negligence
Most, but not all, criminal charges involve some element of wrongful intent (sometimes described as “mens rea” or guilty mind) on the part of the defendant in order to sustain a conviction. Statutes that provide for prosecution of criminal negligence do not contain the common element of wrongful intent. Instead, the “State must satisfy jurors beyond a reasonable doubt that the defendant engaged in conduct, which under all of the circumstances present, the defendant should have realized created a substantial and unreasonable risk of death or great bodily harm to another person.” State v. Schutte, 2006 WL 1699586, ¶ 29 (Ct. App. 2006). Stated another way, criminal negligence has been defined as, “something less than willful and wanton conduct which, by the law of this state, is the virtual equivalent of intentional wrong.” State ex rel. Zent v. Yanny, 244 Wis. 342, 347, 12 N.W.2d 45 (1943).

Wisconsin courts have struggled with other criminal statutes, such as the one here, that criminalize negligent conduct without a specific requirement of intended harm by the defendant. Our Supreme Count provides one explanation of the difference between criminal statutes that require a criminal intent and those that rely only on criminal negligence as follows:

To understand “criminal negligence” we must first define ordinary negligence. A person is negligent when he fails to exercise ordinary care. Ordinary care is the degree of care which the great mass of mankind ordinarily exercises under the same or similar circumstances. A person fails to exercise ordinary care when, without intending to do any harm, he does an act or omits a precaution under circumstances in which a person of ordinary intelligence and prudence ought reasonably to foresee that such act or omission will subject the person of another to an unreasonable risk of injury. Wis JI--Criminal 1260 at 1-2 (footnote omitted). Criminal negligence differs from ordinary negligence in that criminal negligence requires serious harm, which means death or great bodily injury, rather than just simple harm, and the risk of such harm must be unreasonable and substantial. Id. at 2. “Criminal negligence means the creation of a substantial and unreasonable risk of death or great bodily harm to another, of which the actor should be aware.” State v. Bodoh, 226 Wis.2d 718, ¶ 26, 595 N.W.2d 330 (1999).


A classic example of criminal negligence without an intention to cause harm is a motorist who drives a car down a busy street with many pedestrians in plain sight at a very high rate of speed. If the motorist injures or kills one of those pedestrians, the motorist is subject to prosecution for criminal negligence, even if the motorist did not intend to injure anyone in particular.

Violation of Known Medical Safety Standards as Criminal Negligence
In this instance, the challenge for the Wisconsin Department of Justice will be to prove to a jury that the nurse was so oblivious to known safety standards and procedures that her actions were the functional equivalent of the speeding motorist who chooses to speed on the busy street with many pedestrians present and, as a result, maims or kills a pedestrian without having intended to do so. The nurse will have the opportunity at trial, if her lawyer so chooses, to present mitigating evidence to show that there may have been extenuating circumstances that resulted in the death of her patient.

Ominously, for institutional providers such as hospitals and clinics, it is also possible for corporations in Wisconsin to he held criminally negligent. An employer can be held responsible for the acts of an employee performed within the scope of their employment, even though the conduct of the employee is contrary to the employer”s instructions or stated policies. State v. Steenberg Homes, Inc., 223 Wis.2d 511, 520, 589 N.W.2d 668, Ct. App.1998, (corporation liable for not ensuring that its employees properly utilized safety chains that kept trailers from becoming unhitched on the highway).

One reason it is particularly difficult to apply criminal negligence in the medical field is that the risk of serious harm or death, from even the most simple negligent mistakes, is already very high in many circumstances. Second, the task of distinguishing those medical mistakes or omissions that carry with them an unreasonable risk of injury or death from those that do not is exceedingly difficult. There are also serious policy concerns that accompany criminalizing medical negligence that need to be carefully considered before embarking on regular criminal prosecutions in the medical arena. For example, there is already a considerable degree of both internal and external oversight of virtually all aspects of medical care delivery both pre- and post delivery.

Recommendations
Obviously, health care providers must adopt safety protocols, train their staff to use them, continuously monitor to ensure that the protocols are used, and remove practitioners who with any frequency fail to use them. In addition, providers should closely monitor and document the outcome of civil or disciplinary charges against practitioners. Providers should also note the policy and safety issues that can be addressed to avoid medication events as outlined by the Wisconsin Department of Health and Family Services on October 11, 2006 in BQA Memo 06-24 (http://dhfs.wisconsin.gov/rl_DSL/Publications/06-024.htm).

If you would like more information on the recent charge filed by the Wisconsin Department of Justice, or would like assistance addressing professional negligence claims, please contact Mark A. Frankel (mfrankel@gklaw.comor 608-284-2601) or another member of the Godfrey & Kahn Healthcare Team.

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Wisconsin Practitioner Disciplined by State for Violating HIPAA Privacy Rule

Choua VangBy: Choua L. Vang

For the first time, the Wisconsin Department of Regulation and Licensing, through the Chiropractic Examining Board (the Board), has issued a disciplinary order for violations by a license holder that include a violation of the regulations implementing the Health Insurance Portability and Accountability Act of 1996 (HIPAA Privacy Rule).

Failure to Comply With HIPAA Is Unprofessional Conduct
In its recent decision, the Board found that the license holder failed to supply patients with required notices of their rights under the HIPAA Privacy Rule. The Board determined that this constituted “unprofessional conduct” under the applicable administrative code. Under Chir. 6.02, the term “unprofessional conduct” is defined to include a violation of a law, or aiding or abetting the violation of any law, substantially related to the practice of chiropractic. Thus, the Board found that a failure to provide a notice of privacy practices as required by the HIPAA Privacy Rule constituted a violation of a law substantially related to the practice.

License Holders Must Comply With HIPAA
This case marks the first time a Wisconsin licensing board imposed sanctions on a health care practitioner for failing to comply with the HIPAA Privacy Rule. The case is significant in that it represents the willingness of professional licensing boards to rely on the broad definition of unprofessional conduct as a catch-all provision for violations of other laws, such as the HIPAA Privacy Rule. This could have widespread ramifications since a similar definition of unprofessional conduct also appears in the rules governing dentists, physicians, podiatrists, dieticians, occupational therapists, nurses and psychologists.

Recommendations
This case serves as an important reminder that compliance with the HIPAA Privacy Rule is to be taken seriously by both health care practitioners and the health care systems in which they work. A health care practitioner’s failure to do so can result in license sanctions, as well as expose the health care entity. Health care practitioners who resist compliance with the HIPAA Privacy Rule should be advised of the risk noncompliance poses not only to the health care entity, but also to their individual license.
 
If you would like assistance with HIPAA compliance matters, or would like more information regarding the decision discussed above, please contact Choua L. Vang (cvang@gklaw.com or 920-831-6351) or another member of the Godfrey & Kahn Health Care Team.

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Ambulatory Surgery Center Payment Changes Proposed


Chuck VogelBy: Charles G. Vogel

In August, 2006 the Centers for Medicare and Medicaid Services (CMS) proposed significant changes to the way in which Medicare pays Ambulatory Surgery Centers (ASCs) for the facility component of surgical services furnished to Medicare beneficiaries.

New ASC Facility Payments Formula
Under the proposal, CMS would replace the current payment system with a new system that would base ASC facility payments on the amount Medicare pays a hospital for the same procedure. The initial proposal is that ASCs be paid approximately 62% of what CMS pays hospitals for the same or corresponding procedures. The 62% relationship would not be permanent, but rather would be recalculated annually. The new payment system would be blended with the current system in 2008, and fully applied beginning in 2009.

New “Exclusionary” Reimbursement List
CMS also is proposing to significantly change the manner in which it determines which procedures will be reimbursable when furnished in an ASC setting. Currently, CMS publishes a list which identifies approximately 2,500 qualifying procedures. The new system would substitute a list of exclusions for the current inclusions schedule. Medicare would thus reimburse for any surgical procedure performed in an ASC, except those that CMS specifically excludes from payment because of concerns about safety or appropriateness. Although office-based procedures would not be on the exclusion list, CMS proposes to discourage the provision of such services in ASCs by capping payment for such procedures at the lesser of the Medicare physician fee schedule non-facility practice expense payment or the ASC rate under the revised ASC payment system.

The impact of these new payment procedures will vary. It appears that orthopedic procedures performed in ASCs will be reimbursed at substantially higher levels while gastroenterology procedures will be reimbursed at substantially lower levels. The impact on ophthalmology, urology and pain management procedures appears to be mixed.

Recommendations
A final rule implementing the revised ASC payment system is expected to be published sometime in spring 2007. ASCs should monitor the proposal and be prepared to adjust to new payment rules. Further, entities considering establishment of an ASC should carefully consider the potential effect of the new payment rules.

If you would like more information on the proposed ASC payment changes or would like assistance with ASC compliance issues, please contact Charles G. Vogel (cvogel@gklaw.com or 414 287-9502) or another member of the Godfrey & Kahn Health Care Team.

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Continued Federal and State Focus on the Community Benefit Standard

Jed RoherBy: Jed A. Roher

Charity care and the community benefit standard continue to be hot topics at the federal and state level. At the federal level, the Internal Revenue Service (IRS) has received more than 400 responses to its Form 13790, an extensive questionnaire regarding community benefit programs and executive compensation practices sent to roughly 550 tax-exempt hospitals in May. Also at the federal level, and following hard on the heels of the IRS questionnaire, the Senate Finance Committee (Committee), currently chaired by Senator Charles Grassley, held a hearing on September 13 entitled “Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals.” At the state level, both the Montana Attorney General and the Illinois Department of Revenue have joined the growing number of state officials and regulators expressing interest in the level of charity care provided by tax-exempt hospitals.

Inclusion of Medicare Shortfalls as Charity Care?
Senator Grassley emerged from his September 13 hearing suggesting that the IRS use Form 990 to require standardized reporting of charity care, but speakers disagreed over what should be included in such reporting. Specifically, the American Hospital Association argued that charity care costs not covered by Medicare should be included in the calculation of community benefit, but the Catholic Health Association (CHA), taking a position consistent with its Guide for Planning and Reporting Community Benefit (Guide), suggested that Medicare shortfalls should not be included. Senator Grassley endorsed the CHA position.

Charity Care Legislation in 2007
After the Committee hearing, Senator Grassley announced his plans to develop a white paper proposal on charity care and the community benefit standard, apparently forestalling any immediate legislation in this area. However, recent comments by the Committee’s Republican tax counsel indicate that Senator Grassley may introduce legislation addressing the community benefit standard, along with other reforms in the tax-exempt area, as early as January 2007. Given the recent upheaval in Washington and the resulting shift in control of the Committee, the substance and fate of such legislation are unclear.

IRS Activities
Regardless of any legislative effort, the IRS’ review of the responses to Form 13790 could lead to further administrative action in the charity care and executive compensation arenas, whether through guidance, examinations, education or amendment of the Form 990. The substance of any such action, or what will count as charity care and what will not, is unclear. However, given the endorsement of the CHA Guide by Senator Grassley and PricewaterhouseCoopers, as well as the widespread use of, or commitment to use of the CHA Guide by tax-exempt hospitals, the CHA positions regarding the reporting of charity care may well inform any administrative action.

State Activities
State officials also continue to weigh in on the debate over the charitable status of tax-exempt hospitals, with Montana Attorney General Mike McGrath recently sending a letter to 12 tax-exempt hospitals asking for much of the same information the IRS requested in Form 13790. Mr. McGrath joins the attorney general of Minnesota, Ohio and Illinois as the fourth state attorney general to focus significant attention on charitable care.

The Illinois Department of Revenue (Department) released a decision denying property tax exemption to Provena Covenant Medical Center (Covenant), a 120-bed general acute facility that is part of the Provena Health system. The Department denied the exemption based upon the conclusion that Covenant had failed to provide a level of charity care sufficient to justify the exemption. While the decision is based on Illinois law, the Department’s reasoning touches on many of the themes currently being explored at the federal level regarding the level of charity care provided by tax-exempt hospitals, and thus warrants close attention. Specifically, the Department focused on the percentage of revenue Covenant expended on charitable activities, as well as Covenant’s contractual relationships with for-profit care and support service providers and its charity care policy and collection practices. Further, the Department flatly rejected Covenant’s argument that Medicare and Medicaid shortfalls should be included in the calculation of charity care. Covenant has appealed the decision.

Recommendations
Tax-exempt health care entities should monitor charitable activities to enable accurate accountings of the value of charity care provided. Additionally, given the particular IRS interest in executive compensation, tax-exempt entities should carefully review practices in this area. Further, contracts between tax-exempt entities and for-profit entities should be carefully drafted with the assistance of legal counsel to ensure that charitable activities are appropriately incorporated.
If you have questions or would like additional information regarding community benefit programs, executive compensation issues or drafting contracts with for-profit entities, please contact Jed A. Roher (608-284-2269 or jroher@gklaw.com) or another member of the Godfrey & Kahn Healthcare Team.

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EMTALA Changes Effect Specialty Hospitals and Certification of False Labor

Thomas ShorterBy: Thomas N. Shorter

Two modifications to the Emergency Medical Treatment and Active Labor Act (EMTALA) took effect on October 1, 2006. Generally, EMTALA provides that if an individual comes to the hospital emergency department and treatment or examination are requested, an appropriate medical screening examination is required. Upon determination that an emergency medical condition exists, stabilization or transfer to another medical facility that can stabilize the individual is required. The Centers for Medicare & Medicaid Services (CMS) made the modifications following recommendations by the EMTALA Technical Advisory Group, the American College of Nurse-Midwives, and the American College of Obstetricians and Gynecologists.

Specialty Hospital With No Emergency Department Must Accept Certain Transfers
It has long been CMS policy that Medicare-participating hospitals with specialized capabilities must accept transfers, regardless of whether the hospital has a dedicated emergency department. To help clarify this obligation, CMS has revised the EMTALA regulations to make explicit this long-standing position. Specialty hospitals without an emergency department must accept from a referring hospital the transfer of an individual that requires specialized capabilities that exist at the hospital. For example, a specialty hospital that has a burn unit, but lacks a dedicated emergency department, must accept transfer of a patient in need of burn unit services.

Practitioners Who May Certify False Labor Expanded
Under EMTALA, a woman who is found to be in false labor is considered to not have an emergency medical condition, thus relieving the hospital of further EMTALA obligations to the patient. Previously, certification of false labor was only permitted by a physician. Effective October 1, 2006, certification of false labor can be done by a “physician, certified nurse-midwife or other qualified medical person acting within his or her scope of practice as defined in hospital medical staff bylaws and State law.” This change provides hospitals with greater flexibility in staffing emergency departments to deal with child labor visits.

Recommendations
Specialty hospitals that lack a dedicated emergency department should take note of their responsibility under EMTALA to ensure compliance with the requirement to accept certain patient transfers Additionally, hospitals should review internal policies and procedures on EMTALA and make necessary adjustments regarding the ability to certify false labor.

If you would like assistance in revising your hospital policies or procedures, or if you have any questions about the recent EMTALA amendments, contact Thomas N. Shorter (tshorter@gklaw.com or 608-284-2239) or another member of the Godfrey & Kahn Health Care Team.

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Authorization to Release Patient Records Covers All Records

Krista BuchholzBy: Krista K. Buchholz

Health care providers frequently receive requests for patient health care records, often when a patient is involved in litigation. To ensure the provider is not penalized, it is important for medical records administrators to understand the current state and federal rules regarding patient health care records.

Milwaukee County Judge Orders Provider to Pay Attorneys Fees and Damages
In a personal injury action, the defendants’ counsel requested health care records and sent an authorization signed by the patient to the health care provider. This health care provider did not consult with its own legal counsel. Acting on the belief that it would be penalized for releasing health care records generated by referring physicians or specialized physicians not employed by the health care provider, it made only partial disclosure of the patient’s health care records. This decision resulted in the defendants’ counsel filing a motion to compel full disclosure. Not only did the court order the health care provider to produce the records, but it ordered the health care provider to pay the defendants’ attorneys fees, costs, and exemplary (i.e., punitive) damages.

Health Care Record Administrator Obligations
Both the Wisconsin Statutes and HIPAA place restrictions on releasing health care records and hold violators accountable, with civil and criminal penalties imposed for violating patients’ privacy rights. Under these statutes, third-parties, such as plaintiff’s attorneys, defense attorneys and their agents, cannot copy protected health care records without proper authority. On the other hand, health care providers are subject to fairly harsh penalties if they fail or refuse to make complete disclosure when presented with a valid authorization form. For example, section 146.84 of the Wisconsin Statutes calls for exemplary damages of up to $25,000 for intentionally withholding patient health care records.

Responding to Health Care Record Requests
Neither the Wisconsin Statutes nor HIPAA prevents disclosure when there is proper authorization signed by the patient, making it important to read and review exactly what the authorization form says. The authorization is proper if the requesting party sufficiently demonstrates (1) that he or she has the authority to obtain the information, and (2) that the patient has been notified and does not object to the disclosure. In response to a proper authorization, the medical records administrator is obligated to disclose all the information requested.

Recommendations
To ensure that the health care provider discloses the appropriate records, it is best to become familiar with the governing statutes, and to consult with counsel immediately upon receiving the request to avoid penalties that may be associated with disclosing too much or too little. If you have any questions about releasing patient records, or the recent ruling in Milwaukee County, please contact Krista K. Buchholz (414 287-9466 or kbuchholz@gklaw.com) or another member of the Godfrey & Kahn Healthcare Team.

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Charitable Giving to Hospitals and Foundations Impacted by Recent Changes in Tax Law

Jed RoherRea HolmesMelissa Auchard ScholzBy: Melissa Auchard Scholz, Rea Holmes & Jed Roher

Effective August 17, 2006, the federal Pension Protection Act of 2006 (Act) includes significant changes to laws affecting tax-exempt organizations, such as hospitals and hospital foundations. On November 8th, the IRS released its Exempt Organizations Implementing Guidelines for Fiscal Year 2007. Throughout the coming year, the IRS will develop more guidance related to the Act, which will provide much-needed details for some of the general changes made by the Act. The following is a brief highlight of some of the key changes.

IRA Distributions to Charities

Under the Act, taxpayers who are 70-1/2 years and older can distribute up to $100,000 a year directly from both their traditional and Roth Individual Retirement Accounts (IRAs) to certain charitable organizations without recognizing any income. Usually an individual who receives a distribution from his or her IRA recognizes income that is taxable. Under this new provision, qualified taxpayers may make a distribution directly to a qualified charitable organization without recognizing any income, provided the individual receives no benefit in return and there are no substantiation issues. Such charitable distributions count toward the annual mandatory distributions required for traditional IRAs. This opportunity only extends to gifts made in 2006 and 2007 and to gifts made to public charities, excluding supporting organizations and donor advised funds. And, of course, taxpayers cannot take advantage of this provision and take a charitable deduction for their gift. Form 990 Changes

  • Under the Act, all tax-exempt organizations, regardless of their gross receipts, will be required to file either a Form 990 or, if their gross receipts are less than $25,000, an annual information notice. If an organization does not file the required Form 990 or annual notice for three consecutive years, that organization’s tax-exempt status will be revoked.
  • All supporting organizations, regardless of their gross receipts, are now required to file Form 990.
  • Organizations exempt under Section 501(c)(3) will now be required to disclose Schedule 990-T (reporting unrelated business income) to the public, with a few exceptions.


More Restrictions on Other Kinds of Donations
If a taxpayer donates personal property for which he/she claimed a charitable deduction of more than $5,000 and that property is disposed of within three years by the organization that received the donation, then the taxpayer is subject to an adjustment of the tax benefit (i.e., the deductible amount must be revised).

Record of Charitable Donations
The Act requires stricter recordkeeping requirements for charitable donations made after August 17, 2006. In order to receive a charitable deduction, the donor must now retain either a bank record or written communication from the charitable organization for all monetary donations, regardless of the amount. The written record of the donation must include the following information: 1) date of donation; 2) donee’s name; and 3) amount of donation. Charitable organizations, therefore, should consider supplying the donor with a written communication, containing the above mentioned information, for all donations.

Issues Affecting Supporting Organizations
Significant changes were made to the rules governing supporting organizations. The changes were less sweeping than initial proposals, but the new rules merit the attention of those involved with supporting organizations. A full review of the changes is beyond the scope of this update, but a few issues are highlighted below:

  • For all types of supporting organizations, certain payments of compensation to any substantial contributor, or loans to any disqualified person or substantial contributor, of the supporting organization are prohibited. Such payments will be treated as automatic excess benefit transactions under Section 4958 of the Internal Revenue Code (the intermediate sanctions provisions) and subject to the applicable excise taxes. Note that a disqualified person of a supporting organization is also deemed to be a disqualified person in relation to the supported organization.
  • All types of supporting organizations now have to file Form 990 annual information return, regardless of their annual gross receipts. It will be required to certify that the supporting organization is not controlled by a disqualified person (other than its managers or supported organization).


Excise Taxes Increased
A number of excise taxes relating to exempt organizations were increased by the Act. Most importantly, for 501(c)(3) public charities and 501(c)(4) social welfare organizations, the fines for organization managers who participate in excess benefit transactions have increased from $10,000 to $20,000 per transaction. Various excise taxes applicable to private foundations also increased.

Recommendations
In light of the new rules that apply to supporting organizations, healthcare organizations should consider the tax status of all of their entities. If any entity is classified as a supporting organization under 509(a)(3), it should consider whether this status could be changed to avoid this unfavorable status. Also, healthcare organizations should consider how their fundraising and development programs can take advantage of the IRA rollover opportunity, but note that these rollovers cannot go to supporting organizations.

If you have questions or would like additional information, please contact Melissa Auchard Scholz (608-284-2610 or mscholz@gklaw.com), Jed Roher (608-284-2269 or jroher@gklaw.com), or another member of the Godfrey & Kahn Nonprofit Law Team.

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Whistleblower Physician Receives $1.5 Million for Exposing Hospital's Recruitment Practices

Barbara ZabawaBy: Barbara J. Zabawa

What happens when a disgruntled physician decides that a recruitment deal with a local hospital system is unfair? He may turn into a whistle-blower and sue the hospital system for fraud and abuse. That is what happened with the University Hospitals of Cleveland, an affiliate of Case Western Reserve University.

Physician Recruitment and Repayment Obligations
In 2003, heart surgeon Thomas James Kirby, M.D. sued the University Hospitals Health Systems, Inc. (UHHS) and University Hospitals of Cleveland, Inc., alleging that they engaged in illegal financial arrangements with physicians who practiced at University Hospitals in order to induce referrals from the physicians to University Hospitals. The deals were structured as follows: 1) the hospitals allegedly spent millions of dollars subsidizing the expenses of private-practice physicians, including employees and equipment, by guaranteeing the income of physicians who owned their own separate medical practices; 2) although the physicians were supposed to repay the hospitals for the income guarantee, the hospital did not actually expect repayment; and 3) the hospitals’ goal in structuring these agreements was to obtain the physicians’ referrals. Dr. Kirby participated in the alleged kickback arrangements, but the program did not work out the way he had hoped. On August 16, 2006 the U.S. Department of Justice announced that it had reached a settlement with UHHS for $14 million. UHHS admitted no wrongdoing as part of the settlement. For his part, Dr. Kirby walked away with $1.5 million under the False Claims Act.

Recommendations
The federal Stark and Antikickback laws regulate and in some cases prohibit certain financial relationships between physicians and hospitals that are likely to impact referrals of Medicare and Medicaid patients for treatment and services. Health care providers need to be aware that employees close to questionable dealings can trigger enforcement actions and may be provided significant monetary rewards for doing so. The best defense is to ensure that financial arrangements, such as physician recruitment, are appropriately structured and documented to avoid Stark and Antikickback violations.

If you would like assistance with physician recruitment, Stark, or Antikickback compliance issues, please contact Barbara J. Zabawa (bzabawa@gklaw.com or 608-831-6351) or another member of the Godfrey & Kahn Health Care Team.

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Recent Health Care Team Member Activities


Speaking Engagements

  • Current Antitrust Risks and Opportunities.Wisconsin Hospital Association 2006 Annual Convention: September 28, 2006, Lake Geneva, Wisconsin. Against the backdrop of the Innovation in Healthcare theme of the convention, Michael Skindrud, Kevin O’Connor and Barbara Zabawa provided the audience with an overview of some of the antitrust pitfalls facing hospitals as they collaborate with their physicians and other hospitals to market their services. They discussed an innovative model of collaboration that minimizes the risk of antitrust violations. To view a printed version of the presentation, click on the following link: http://www.gklaw.com/docs/publications/543.pdf
  • Does Consumer Preference Permit Discrimination in a Healthcare Setting? American Society of Healthcare Human Resources Administration (ASHHRA) National Conference, October 16, 2006, Nashville, Tennessee. Thomas N. Shorter provided a review of Bona Fide Occupation Qualifications (BFOQ) and discrimination law requirements, how they can be utilized to honor patient requests in a healthcare setting, and provided take-away tools to assist health care providers document patient provider requests.


Upcoming National Publications

  • Employee Wellness Programs and Challenges to Health Information Privacy. The fall issue of the American Health Lawyers Association (AHLA) Health Information and Technology Newsletter will feature an article by Barbara Zabawa on employee wellness programs and numerous privacy issues employers and providers must consider before implementing such programs.
  • Complying with the Deficit Reduction Act: Questions and Answers About Employee Education Requirements. An article by Thomas Shorter will be included in the fall issue of the American Society of Healthcare Human Resources Administration (ASHHRA) HR Pulse magazine. The article summarizes the key requirements of the employee education requirements in the Deficit Reduction Act.
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Other Recent Health Care Updates

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