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Summer 2006 Health Law Vantage Point

Health Law Vantage Point
July 2006

Godfrey & Kahn Health Law Vantage Point


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

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In This Issue:

Wisconsin Lawsuit Results in Charity Care Policy Reviews

By: Melissa Auchard Scholz, Choua Vang and Barbara J. Zabawa 

Barbara ZabawaChoua VangMelissa Auchard ScholzOn May 1, 2006, Wheaton Franciscan Services, Inc. (WFH), which owns several health care facilities in the Milwaukee area, settled a lawsuit brought by the Wisconsin Department of Justice. The lawsuit alleged that two of its hospitals were overcharging uninsured patients. Under the terms of the settlement agreement, WFH agreed to revise its voluntary policies for uninsured patients and those who demonstrate financial need. First, WFH will offer its uninsured patients a discount equal to the discount offered the three largest managed care payors in Milwaukee, which is currently 45%. Second, under WFH’s long-standing charity care program, patients demonstrating financial need (as determined by income and asset requirements) will be eligible for a sliding scale discount ranging from 100%, i.e., totally free care, to 30%. Finally, patients qualifying for the charity care program will have out-of-pocket expenses capped at 15% of their gross income.

The lawsuit against the two Wisconsin hospitals is one of dozens that have been filed across the country claiming, in part, that charitable hospitals are failing to fulfill their mission as charitable institutions. While many of these cases have been resolved on technical grounds, such as finding that private individuals cannot enforce these provisions of the tax code, the cases raise interesting issues under federal tax-exempt law.

Charity Care Requirements
To satisfy the requirements of federal tax law, hospitals that are tax-exempt under 501(c)(3) must promote health in ways that primarily benefit the community--a standard that has come to be known as the community benefit standard. The provision of free or subsidized care, commonly referred to as “charity care,” is a key indicator of whether a 501(c)(3) hospital is promoting health for the benefit of the community. While it is clear that 501(c)(3) hospitals must provide some level of services to indigent patients, no precise parameters have been set for the required level of charity care and, instead, the IRS will consider many facts and circumstances.

To date, the lawsuits across the country have not resulted in significant changes to the federal tax-exempt law; however, they have effectively changed the regulatory landscape in which charitable hospitals operate. For example, the IRS recently launched its charitable hospital compliance initiative with the release of Form 13790. This form is a questionnaire that has been sent to over 600 hospitals across the country for the purpose of verifying a hospital’s compliance with federal tax-exempt laws.

Until the IRS provides more guidance on these issues, charitable hospitals should review their policies and practices to make sure they do not impose undue hardship on those unable to pay for medical services. In particular, a review of the WFH settlement agreement can provide insight into the approach taken by the Wisconsin Attorney General. Additionally, any hospital that receives IRS Form 13790 should immediately contact legal counsel.

If you would like assistance in reviewing and revising your charity care policy, contact Melissa Auchard Scholz ( or 608-284-2610), Choua L. Vang (cvang@gklaw.comor 920-831-6351 or Barbara Zabawa ( or 608- 284-2639), or another Godfrey & Kahn Health Care Team member.


Recent Legislation Eases Burden of Caregiver Background Checks…If You Update Your Policy

By: Thomas N. Shorter

Thomas ShorterThe Wisconsin Caregiver Background Check Law is approaching its eighth anniversary. Most Wisconsin health care entities covered by the law have adopted a policy and procedure for complying with the requirements of this law. At its core, the law requires covered entities in Wisconsin to conduct background checks on all caregivers upon initial employment, and every four years thereafter. This background check process involves completion of the Background Information Disclosure (BID) form developed by the Wisconsin Department of Health and Family Services (DHFS) and a request for specific background check records. The process is repeated for each caregiver every four years.

Recent Amendments
Originally implemented on October 1, 1998, the law was modified several times in the first few years of implementation, but has remained largely unchanged over the last several years. However, during the 2005 legislative session, the Caregiver Background Check Law has been amended, with the most recent amendment adding significant flexibility in completion of the 4-year rechecks of caregivers. Each of the recent amendments is described below:

Use of FBI Records. The Wisconsin Budget Bill amended the Caregiver Background Check Law to specifically provide civil liability immunity for a covered entity that relies upon Federal Bureau of Investigation (FBI) arrest and conviction records in making a decision under the Caregiver Background Check Law. FBI records are only accessible through submission of fingerprint cards to the Wisconsin Department of Justice Crime Information Bureau. This provision does not apply to FBI records requested after September 30, 2007.

“Serious Crime” Now Includes Leaving a Child Unattended In a Child Care Vehicle. For covered entities that serve children under the age of 18, the definition of a serious crime that prohibits employment includes a conviction of Wisconsin Statute 948.53 (child unattended in child care vehicle). 2005 Wis. Act 184.

“Serious Crime” Now Includes Sexual Assault of a Child Placed In Substitute Care. For covered entities that serve children under the age of 18, the definition of a serious crime that prohibits employment includes a conviction of Wisconsin Statute 948.085 (sexual assault of a child placed in substitute care).

Caregivers Need Not Complete BID Form On 4-Year Recheck if Notice Provided. In the most recent amendment to the Caregiver Background Check Law, the requirement that a caregiver must complete the DHFS prepared BID form at the time of the 4-year recheck has been eliminated under certain circumstances. A covered entity must still perform a background check on each caregiver every four years, however the caregiver need not fill out the BID form if certain requirements are met by the covered entity. First, the covered entity must require caregivers to disclose during their employment, in writing, any information that is requested on the BID form. Second, the covered entity must annually notify caregivers of this disclosure requirement. Many covered entities have already incorporated a provision requiring disclosure as part of the current DHFS administrative rule: “An entity shall include in its personnel or operating policies a provision that requires caregivers to notify the entity as soon as possible, but no later than the person’s next working day [of information required on the BID form].” (Note that this prior rule did not require disclosure “in writing” as the new law requires.) However, absent an annual notification to caregivers of this requirement, the elimination of the BID form completion under the recent amendments may not be utilized.

As the 8-year anniversary of the Caregiver Background Check Law approaches, it is time for covered entities to engage in a review of their current personnel or operating policy and procedures on background checks. To ease the burden of the Caregiver Background Check Law, covered entities should ensure that they have a policy in place that satisfies the requirements of the recent amendments, thus avoiding the need to have caregivers complete the BID form on rechecks. Likewise, any policies that define serious crime should be updated to reflect the recent changes to the definition of this term under the law.

If you would like assistance in revising your Caregiver Background Check policy or procedures, or if you have any questions about the recent amendments to the Caregiver Background Check Law, contact Thomas N. Shorter ( or 608-284-2239) or another Godfrey & Kahn Health Care Team member.


OIG Issues Open Letter on Fraud Self-Disclosure Protocol

By: Choua Vang 

Choua VangOn April 24, 2006, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued an open letter to health care providers, the first to be authored by Daniel R. Levinson, Inspector General for the OIG. The open letter relates General Levinson’s views on the resolution of health care fraud cases, corporate integrity agreements, and the OIG’s provider self-disclosure protocol. The open letter also announces a new self-disclosure initiative that is intended to supplement an open letter previously issued in November 2001.

The open letter provides further insight into the agency’s position on key self-disclosure issues. For example, the OIG has now specified the kinds of violations that may be subject to self-disclosure, such as office space leases between hospitals and physicians that are below fair market value. In addition, the open letter reiterates the OIG’s willingness to offer incentives to providers who use the self-disclosure protocol. Those incentives include the OIG’s willingness to forego its power to exclude a provider from the federal health care programs and to permit the use of the self-disclosure protocol as a positive mitigating factor in determining whether corporate integrity agreements will be imposed. While the OIG encourages self-disclosure, it sill is not bound to actually provide leniency.

In summary, the open letter serves as an important reminder to health care providers that the OIG is committing greater resources and higher levels of priority to the enforcement of the federal health care laws such as the civil monetary penalty, physician self-referral and anti-kickback laws. Upon discovery of a potential violation, health care providers should immediately contact legal counsel to discuss options, including whether self-disclosure is appropriate under the circumstances. Health care provider policies and procedures regarding self-disclosure should be reviewed by legal counsel to ensure compliance with the OIG’s provider self-disclosure protocol .

If you would like assistance in reviewing your self-disclosure policies or procedures, or in assessing whether self-disclosure is appropriate, contact Choua L. Vang ( or 920-831-6351) or another Godfrey & Kahn Health Care Team member.

Wisconsin Legislation Seeking to Limit Physician Non-Compete Clauses Fails to Pass

By: Charles Cousland

Charlie CouslandThe introduction of Senate Bill 686 by State Senator Cathy Stepp on April 11, 2006 surprised many observers within the healthcare community. If this bill had been passed into law, the legislation would have affected countless Wisconsin hospitals and clinics by declaring that a covenant by a physician not to compete with his or her employer for more than one year after the termination of employment would be an unreasonable restraint of trade, and would render the entire covenant illegal, void, and unenforceable. It would not have affected a covenant not to compete that was in effect before the effective date, until such a covenant was extended, modified or renewed.

Although Senate Bill 686 failed to garner sufficient support to pass out of committee before expiration, it is important to recognize that it did have legislative support, as it was introduced by Senator Cathy Stepp, and co-sponsored by Representatives Judy Krawczyk, John Lehman, Gabe Loeffelholz and Mark Pettis. It therefore appears that there may be a sufficient interest in the legislation and that a new iteration of Senate Bill 686 may be introduced in the next legislative session. We will monitor developments in this area and immediately advise our clients of any new developments.

It continues to be important to carefully review noncompete clauses in physician agreements. Wisconsin law regarding noncompete clauses has been subject to numerous court interpretations, and failure to carefully draft such a clause can lead to a holding that it is not enforceable. Legal review of a noncompete clause is recommended on a periodic basis to determine if the clause continues to be enforceable under current case law in Wisconsin.

If you would like assistance in reviewing your noncompete clause or physician contracts, contact Charles Cousland (ccousland@gklaw.comor262-951-7147) or another Godfrey & Kahn Health Care Team member.

Provider Disclosure of Healthcare Information: Risks, Rewards and a Push for Consumer Choice

By: Barbara J. Zabawa

Barbara ZabawaA convergence of trends is paving the way for health savings account (HSA) success. Initiatives such as pay for performance, gainsharing, boutique and retail-based clinics along with increased involvement by banking institutions are contributing to the HSA effort. One of the key drivers behind HSA success will be the ability to share health information through electronic medical records (EMRs) and Regional Health Information Organizations (RHIOs). However, physicians may be wary of joining these efforts because of legal barriers imposed by privacy and fraud and abuse laws. Providers should seek counsel to avoid legal pitfalls as these initiatives move forward.

The Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003 authorized HSAs as tax-advantaged accounts that are paired with high deductible plans. Unlike health reimbursement accounts (HRAs), in which a person’s employer owns the account, HSAs are owned by the employee who can transfer the funds to a new account upon changing jobs. Both employers and employees can deposit money into the account, tax-free. Employees can use this money to cover their deductible and coinsurance expenses. Employees can rollover any money that is not spent in the account to the following year, increasing the value of the account. The hope is also that these plans will create more transparency in health care pricing and quality measures so that consumers can comparison shop.

To facilitate the use of HSAs, insurers and financial institutions are beginning to offer special accounts for money deposited into an HSA. For example, the Blue Cross and Blue Shield Association hopes to start its own bank to help its members manage their HSAs.

The Onset of EMRs and RHIOs
In addition to creating incentives for adopting HSAs, the MMA of 2003 also mandated the adoption of standards for electronic prescribing as part of the new Part D Medicare benefit. President Bush has called for the adoption of electronic medical records for most Americans within the next 10 years and created the Office of the National Coordinator for Health Information Technology (ONCHIT)within the Department of Health and Human Services (DHHS). ONCHIT hopes to create a national health information network by 2015. The national network will likely consist of smaller RHIOs, which are regional and local entities, and groups of health care stakeholders such as physicians, hospitals, insurers, patients, and community members that oversee and support the exchange of electronic information at the local level to support care, including quality initiatives.

Legal Hurdles to Successful Disclosure of Health Information
To make HSAs a success, consumers will need quality and cost information about the health care they purchase. Private and public stakeholders may encourage providers to disclose this information through electronic health information networks, such as RHIOs, by offering financial incentives. According to the American Medical Association , it can cost $20,000 to $50,000 per physician to buy into an electronic medical record system (Tyler Chin, Is IT Ready to Pay for Itself, American Medical News, March 13, 2006). Yet, providers face some legal challenges to the widespread adoption of electronic health information networks, particularly under the HIPAA, Stark and anti-kickback laws.

Because the success of HSAs hinges on the electronic sharing of patient information, a key concern for consumers and providers alike will be protecting the privacy of that information. Depending on how EMR information is shared between providers and other organizations, a variety of privacy issues may arise. For example, a RHIO could share information among participants through contractual arrangements, in which case providers should have HIPAA-compliant patient authorizations and business associate agreements for those purposes. Alternatively, the RHIO could be considered a covered entity or part of an organized health care arrangement, in which case the purpose and extent of the disclosure of personal health information will differ.

2. Stark and Anti-Kickback
Physicians may be reluctant to accept financial incentives to adopt EMR capability because the incentives may be viewed as illegal remuneration. On October 11, 2005, the Centers for Medicare and Medicaid Services (CMS) and the Office of the Inspector General (OIG) for DHHS published proposed rules to facilitate certain e-prescribing and electronic health records efforts under the federal Stark law, and the federal anti-kickback law. These rules create exceptions to the Stark and anti-kickback laws for efforts aimed at increasing use of e-prescribing and electronic health records.

Unfortunately, the proposed exceptions and safe harbors contain several gaps that may undermine information exchange efforts. For example, the exceptions and safe harbors do not extend to hospitals providing resources to physician networks, IPAs and group practices and donations related to electronic health record initiatives apply to software and training services only. Because of the limitations presented by the proposed rules, hospitals and physicians interested in collaborating on health information exchange initiatives may have to look to other Stark and anti-kickback exceptions and safe harbors, such as the Stark fair market value exception and the anti-kickback personal services and management contracts safe harbor.

The American health coverage landscape is changing. Economic, social and political forces are pushing consumers to assume a greater role in their health care. This expectation, however, will be impossible without more information regarding health care costs and quality. As a result, health care providers will be compelled to participate in health information exchange initiatives to stay competitive. Hospitals and physicians that are considering the various options for sharing cost and quality data should consult legal counsel to navigate the legal hurdles that could stifle their efforts, including HIPAA and fraud and abuse laws.

If you have questions about appropriate disclosure of health information or would like assistance in reviewing health information policies, contact Barbara J. Zabawa ( or 608-284-2639), or another Godfrey & Kahn Health Care Team member.

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