HCL OUTLINE FALL 2023
I.
EVOLVING THEMES & VALUES
A. Justice & Equity
1. Demand of HC by individuals vs supply of HC services
a. Differences between selling a good (iPad) vs HC service (heart surgery)
b. Profit motive corrupts ( monopoly & ↓ bargaining pwr) unlike in other industries.
c. HC = a need ∴ no fair X∆.
d. No fixed cost  consume services then charged. Price ∅ always known upfront = hard to budget
for.
e. Can’t force ppl to be HCP but they are necessary. Shortage of providers in MUAs
f. Some ppl have ↑ need for health services over others.
B. 4 Pillars of HCL & Policy
A course/method of action selected from alt’s chosen (by gov’t, HC instit, group or individ), in
light of existing conditions to guide/determine current/future decisions, in order to meet defined
goals/values (4 pillars, + consistency, predictability, transparency, autonomy – provider v pt)
1. COST (↓/control it):
a. $$ To individual/family to obtain HC
b. To society when Dz goes unTx’d or ∅ getting care = ∅ $$ costs  worsened Dz  ∅ able to work 
↓ mental health  FX/↓ societal productivity.
c. To tax payers/employers/insurers to provide HC  the spending of $$
2. QUALITY (↑)
a. How should quality be defined and measured?
3. ACCESS (↑): No one left uncovered
a. Req’s elimination of barriers to accessing care: financial and ∅ financial.
 Cost of insurance  pay up front/OOP/deductible
 If ∅ protected from OOP costs = harm b/c ∅ able to get care.
 Lack of xport to HC setting
 Providers willing/∅willing to provide compassionate care
 Language discrimination.
4. EQUITY (↑)
a. Req’s attn to fair distribution of benefits & burdens relating to HC
b. Elim of health disparities esp when they are eliminated by improving other pillars
C. Health Insurance (HI)
1. Purpose = to spread financial risk from individuals to all members in the group/risk pool.
2. Principles for pooling risk in HI?
a. Solidarity (social insurance/mutual aid)  1 big pool/everyone is in same pool (healthy & sick ppl)
 Everyone pays into the pool together but sicker ppl take out more ∴ healthy ppl are
subsidizing for sicker ppl.
 Some ppl are unlucky in genetic lottery ∴ sicker – luckier ppl help those in need.
b. Actuarial Fairness  lots of smaller pools w/ fewer ppl = more homogenous
 Group ppl w/similar risks ∴ they put in and take out ~ the same  ∅ much subsidization of 1
person from another.
 **beneficial b/c risk aversion if you never get sick
 **problem if ppl of people = very sick.
 Projecting future costs of care  why should 1 have to pay for another??
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

Esp if they choose to engage in risker/dangerous behavior (smoking/skydive)
Why should I have to pay for something I ∅ need.
 ** Business model that works well for private insurers to ↑ profits.
 Avoid ppl with pre-existing conditions (PEC).
D. HC Spending (NHE)
1. US spends more on HC than other industrialized nations, but have POOR ROE ∴ ∅ efficient.
a. ↑ # w/o insurance; population ∅ all that healthy; many ∅ receiving care needed; worse health
outcomes; per capita spending exceeds other nations; disparities in outcomes exist btwn diff groups
– socioec, geographic, ethnicity, etc.
2. US = FRAGMENTED HC
a. ∅ universal system of health delivery.
b. Lack of continuity of care
 PCP v specialist; uncoordinated clinical care; uncoordinated insurance coverage; duplicative
testing; medications or lack thereof; no focus on outcomes.
c. ↑ barriers to access d/t geographics or socioec.
d. ↑ time for care appt w/ PCP – wait; referral to specialist from PCP and approved by insurance –
wait; wait for specialist appt; etc.
3. US separates Social Services and Health
a. Medical Care ------------- Public Health Measures ------------- Social Services
*all impact health, but some countries funnel $$ to 1 > other while other countries include all as
part of health care.
E. What is Illness?
1. Fx’ing baseline is affected: Day to day activities Fx’d  Dz/illness.
2. Dz = biological malfunction – deviation from biological norm/natural Fx.
3. Illness = a subset of Dz.
a. The acute  chronic manifestation of a Dz that impairs daily Fx.
4. KATSKEE v BCBS
a. F: ∏ Dx with syndrome, genetic predisposition to CA, but ∅ have CA yet  Tx = surgery to prevent
b.
c.
d.
e.
f.
g.
CA. BCBS denied surgery b/c sts ∏ ∅ have illness, ∏ = okay now ∴ ∅ have to pay for surgery.
**Surgery is preventative** ∴ ∅ medically necessary for Tx of illness, just predisposition.
I: Did ∏ have an illness that would trigger rights under insurance K?
Dictionary: Policy defines illness as “bodily disorder” or “disease” encompassing any abnormal
condition of the body/its components to degree that in its natural progression would be expected to
be problematic.
K Law Application: Assigning risk in xaction – insurance policy is like any other contract to give FX to
parties’ intentions at time K formed. Application for ambiguity is in favor of insured.
Illness: exists when there is a deviation from normal state or what is a considered normal, healthy
physical state or structure. Can arise from genetic makeup and can result in substantial risk of
development of further disorder (CA in this case). Impairment of Fx of daily life or detection by
physical evidence ∅ necessary if there is a significant deviation from normal physical state.
Medically Necessary: ∆ only covers MedNec services. Expert Dr. testimony helps attest to ID SoC
and what’s “medically necessary”
H: ∏ suffered from a bodily disorder/Dz and ∴ suffered from an illness as defined by BCBS policy 
∆ must pay.
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II.
QUALITY CONTROL REGULATION: LICENSING HCP
C. Promoting Quality of Care (QoC)
1. Legal & Nonlegal Mechanism
a. L: Licensing; NPDB; Med review boards
b. NL: Service reviews of care by pt; reimbursement for meeting quality metrics
c. Medical review boards
2. Licensure Laws: Fx’s (governed by state law via police power)
a. Govern entry into profession
b. Establish Scope of Practice (SoP)
c. Prohibits unlicensed persons from perf’ing Fx that requires license.
d. Monitors conduct & quality care & discipline those who fall below standards.
3. Licensure Laws: Regulatory Power
a. Create Medical Boards  dominated by members of profession (MDs) but also lay persons.
b. Create Agencies  implement regulation requirements via rule making, enforcement, adjudication,
& guidance.
 Admin Agencies (w/i exec branch) = responsible for implementing legislation pursuant to
authority given to it by legislature.
 Agency Action
 Rulemaking – binding with force of law
 Informal Guidance – nonbinding  STRONG suggestions. Can be ∆’d
 Adjudication – hearing officer of admin law judge may have the right to appeal decision
w/i agency then goes to Ct for judicial review of agency action.
c. Unlicensed person acting as if licensed or licensed person exceeding scope of licensure  CRIME
D. Discipline for not fulfilling SoC (gross incompetence/impairment/unprofess conduct)
1. Process (generally) is reactive. Triggered by complaint/report of wrongdoing.
2. Board screens & investigates  has discretion to pursue disciplinary action/probation/removal of license
3. MD has right to hearing at agency level w/ review by Board. Then, MD has right to an appeal to Ct for
judicial review of agency decision.
4. In Re WILLIAMS
a. F: MD under review s/p Rx’ing weight loss stimulants. In process, regulations passed & only Rx for
short term use. He stopped. Board prosecutes for ∅ conforming to minimal standard of med
practice  violating state §. BoM suspends license + probation. ∆ appealed to Ct.
b. I: Whether the Board’s decision was valid and Dr. violated the SoC?
c. Ct’s standard of review: If “evidence is reliable, probative, & substantial, and is in accordance w/
law”  uphold agency order.
d. H: Ct overturns agency action b/c agency ∅ bring expert testimony evidence that Dr. was ∅ w/i
accepted SoC. ∆/Dr. showed that he was w/i minority view of SoC.
 Even though Board is made up of MDs w/ medical expertise, they CANNOT use their own
opinion or judgment/bias to say what is reasonable.
 Board does not have specialized expertise  ∅ all MDs have same medical knowledge.
 ** Judicial review (Ct’s review of agency decision) is meaningless unless there is evidence to
review  BoM lay members need evidence to base their judgment. Licensee needs
opportunity to confront the evidence and cross-examine.
e. Distinguish Arlen: MD Rx’d drugs directly in violation of § at time of Rx. Brightline rule is violated
and ∴ ∅ need evidence.
 Williams: § ∅ in FX at time of Rx ∴ was in line with SoC. Once admin rule was promulgated,
MD ∅ Rx’ing.
5. Challenging Agency Rule:
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a. Regulation must be w/i scope of authority of BoM following procedures of state admin procedure
act & cannot be unconstitutionally vague.
b. Substantively, Ct will uphold regulation that is rational & ∅ arbitrary or capricious.
6. HOOVER v AGENCY CARE ADMIN
a. Ct overturns disciplinary action even though agency has experts – why?
 Agency’s experts ∅ examine pt’s or their medical records OR have expertise in managing
chronic pain
  Inadequate evidence in support of BoM conclusions
 MD followed federal guidelines for CA pt’s w/ chronic pain  were the only guidelines
available at the time for chronic pain.
 Agency expert sts “lethal amt of pills” but guidelines are present for CA pt’s ∴ if ∅ lethal
to CA pt’s, then ∅ likely lethal for intractable pn pt’s.
 Unjustified rejection of hearing officers findings  attempting to supplant their findings of
fact of MD Rx practices with own opinions
7. ***Compliance with minority SoC ≠ not following SoP.
a. Minority view could be using disfavored, old practices or new practices that aren’t mainstream yet.
8. National Practitioners Data Bank (NPDB)
a. Federal data bank to address MD license issues in 1 state while trying to qualify for practice in
another state.
b. Medical Boards and hospitals must report certain disciplinary actions to Bank & check bank before
issuing license or granting staff privileges.
c. State licensures boards must check & report when issuing license or disciplining MDs.
9. Telemed & interstate  must be licensed with Pt is.
a. MD compact allows MD with valid license to apply for multi-state license
E. Unlicensed Providers
1. Unauthorized practice of medicine/nursing.
2. Exceeding SoP
a. Non-MD charged with crossing line from what they are permitted to do into the practice of
medicine  went beyond their scope.
 Charged for SoP violation & unauthorized practice of med.
b. MDs can be charged with aiding and abetting unauth’d practice of med.
3. BoN v RUEBKE
a. F: Ruebke was performing midwifery w/ supervision of MD.
b. I: OBs MDs do same thing & OB = practice of medicine  Ruebke does the same practices – is
Ruebke doing unauth’d practice of medicine (UPM)? What activities or services fall w/i practice of
medicine?
 Ruebke = lay midwife ∴ ∅ licensed ∴ ∅ exceeding SoP, but is it UPM?
c. Who defines practice of med?
 #1: state § & legislature
 #2: Board may issue guidance for their interpretation of §.
d. Argument  OB is included in Practice of Med ∴ if Ruebke is perf’ing OB skills ∴ midwifery = PoM
 Ruebke is doing things that we medical professionals do, ∴ she is engaging in PoM/PoN
e. Ct rejects above:
 Midwives & OBs have co-existed, historically, w/o issue.
 PoM § sts dz/∅ natural condition. Childbirth/pregnancy = natural condition/process/bodily Fx.
 ∴ Ct owes no deference
 BoM = offended by midwifery encroaching on profits  ∅ a disinterested, but selfinterested statement.
 Hx shows co-existence -- § no attempting to keep midwives out.
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f. H: § is ∅ unconstitutionally vague & pregnancy/childbirth ∅ fall within § (dz vs natural process).
Ruebke was ∅ UPM by midwifing. Assisting pregnant women ∅, on its face, UPM  she has limits
though.
 ***PLUS § exception if perf’ing PoM UNDER a supervising MD (which happened here)
 ∴ Ruebke is statutorily protected.
F. Scope of Practice Regulation
1. SERMCHIEF v GONZALEZ (SoP & UPM case)
a. F: Licensed APNs performing assessments, exams, med admin. Boundary dispute  did nurses step
o/s SoP/PoN and into the scope of PoM?
b. I: Where is the line btwn PoM and PoN?
c. H: No brightline barrier btwn the two. Here, APNs ∅ acting o/s SoP/licensure
 APNs working under standing orders & protocols. Guidelines of Tx, assessment, med admin,
secondary to Pt presentation & C/C criteria.
 ∅ blanket standing orders/protocols  targeted administration.
 Nurse Practice Act (NPA) defines practice of nurse:
 §335.155  med practice act (Chpt 334) ∅ apply to nurses practicing in their profession
 Nurse practicing profession as defined by NPA, then ∅ PoM ∴ ∅ UPM
 Ct ∅ grant deference to BoM definition – see above.
G. Questions to ask yourself in this scenario
1. What was the agency’s interpretation of the statute?
2. What was the interpretation of the professionals?
3. If the court settled on an interpretation from the professionals  how do we account for the rule that
agency interpretations of their statutes are entitled to some degree of deference by the Courts?
4. REMEMBER  two agencies cannot interpret the same statute and then one have that null and void
III.
QUALITY CONTROL REGULATION: HC INSTITUTIONS
C. Learning from NH Regulation
1. NH ∅ have a lot of QC mechanism, but lots of external QI/QC/QA
2. Lack of consistency in enforcement, quality of inspections/surveys, responses to complaints, & imposition
of sanctions when standards are violated
3.
NH
Rehab/LTC
ADL assistance Care
RN/PCT Run  not completely stable
Demand exceeds supply – ppl need services & will
get w/e is available.
For Profit  Investment
Hospital
Short/brief stays
Acute need - intervention
MD-Run – professional self-regulation
NFP  charitable
4. Regulation of QoC
a. Degree to which health services increase the likelihood of desired health outcomes & are consistent
with current professional knowledge.
b. NH QoC promotion is different than hospitals.
 NH has shared responsibility btwn fed and state law
 Fed law b/c MCD – single largest payer for NH care.
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
1. MCR = purely federal HC Coverage > 65 or LT disability.
2. MCD = fed public insurance – joint with state funds admin’d by each state for pl
w/ low incomes.
Licensure = state law matter
D. Defining & Assessing Quality
1. SMITH v HECKLER (admin law principle)
a. F: ∏ alleges NH with poor conditions weren’t fixed through inspection process b/c process is insuff.
 challenges informal guidance
 Sec’y of HHS acted arbitrarily when they failed to institute a system of NH review &
enforcement that assures NHs qualifying for MCD payment actually provide the care &
services which beneficiaries are §’ly entitled to  HHS Sec’y failed § duty to ensure MCD $$
goes to only NH actually providing quality care.
 HHS Sec’y made § form that was facility quality oriented, not pt quality centered
b. Federalism in NH Regs
State Role
-Conduct review to comply w/ state plan
-Licenses NH to meet req of state licensure
law (all NH in state – subject to this)
-State agency carries out survey/inspects NH
to see whether federal req’s for participation
in MCD are met
ONLY required by NHs wanting to receive
funding from MCD
Fed Role
-Provides standards/forms/methods/procedure
-MCD § Act establishes obligations to be carried
out
-HHS Sec’y given authority by MCD § Act to
establish quality standards & survey, and
enforcement process
-HHS K’s with states to perform surveys &
investigate complaints
c. Shift from facility-oriented to pt-centered approach to quality
 NH must be licensed w/ STATE & state plays role to see if NH complies w/ standards for
licensure
 MCD Act establishes obligations for state agency to carry out, pursuant to state plan to ensure
NH meets req’s for participation in MCD.
 **If you want Fed (MCD) $$ must follow obligations of MCD Act.
d. Formal v Informal Reg’y Tools
 ∏ sts State was focused Fed forms which was too facility oriented  Brick & Mortar approach
– room size, cleaning, lights.
 MCD $$ only going towards facility not quality of care.
 ∏ challenged NH survery established by HHS Sec’y  forms/methods/procedures = informal
guidance, ∅ binding.
e. H: Ct’s reasoning: MCD Act focuses on quality of care actually provided to residents, ∅ simply on
physical facilities.
 HHS Sec’y has duty to establish enforcement system to continually inform selves whether
facilities meet federal quality standards called for by MCD § Act
 R: Facility oriented enforcement represented an abdication of Sec’y’s duty  ∴ arbitrary &
capricious.
f. Quality is hard to regulate b/c Fed says to state  you’re responsible for ground oversite. Report
back to Fed. NH gov’t reg of HC quality.
E. Private Accreditation of HC Facilities
1. Joint Commission (JC) is big accrediting body for hospitals.
a. Delegation to JC to regulate by Fed & state gov’ts  outsourcing regulating/accrediting.
 State: “If institution is licensed by JC then you meet state regulations”
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 Fed: “If credited by JC then we deem you to be accredited & satisfy reg’s to participate in
MCD/MCR.”
 PRO: ↑ gov’t efficiency. Shifts cost of oversite to private body (JC). JC charges hospital for
accred so they get $$.
b. NH = more regulated by Public/Gov’t mechanisms
c. Hospitals more regulated by private mechanisms.
IV.
PROFESSIONAL-PT RELATIONSHIP
C. Forming MD-Pt Relationship
1. Duty: ∅ to abandon/Duty to Tx; to obtain informed consent (IC) prior to Tx; to Tx consistently w/ med
2.
3.
4.
5.
SoC; to keep Tx information confidential
Absence of MD-Pt relationship = no duty to Tx (no CL duty to provide Tx)
a. MD owes no legal duty to provide Tx absent MD-Pt relationship.
UNDER CL RULE: ∅ matter why MD is refusing to Tx (reason = irrelevant)
a. MD can refuse based on race (under CL ∅ matter  under other laws yes race matters)
LECTION v DYLL (formation of MD-Pt Relationship)
a. F: ∏ argues MedMal suit  Tx of pt was not up to SoC. ∆/Dyll’s defense = no MD-Pt relationship ∴
no duty to Tx
b. I: Whether a MD-Pt relationship was formed through Dyll’s conduct
 ∆ argues no K obligation w/ hospital; no affirmative acts to pt; no formation of relationship
opportunity existed b/c pt left hospital.
 ∏ argues: I wouldn’t have left w/o MD saying go home & ED MD sts wouldn’t have said go
home w/o hearing it from Dyll.
c. R: Affirmative action test  even if ∆ ∅ see pt, MD can assume a duty to pt w/ whom MD has no
prior relationship if MD takes “some affirmative action: to Tx pt.
 Can include telephone consult that includes eval of info & making medical decision.
 Here: Dr. Syed called Dyll, Dyll Dx with hemi-migraine & sts ok to go home. F/U w/ Dyll next
week. Syed relied on this.
d. No Contractual relationship  Ct sts lacks merit because agreement with Hospital to provide on call
services may also elim MDs discretion to refuse Tx of hospitals pts.
e. H: Ct sts that phone call was enough  dispute of fact on MD/Pt relationship with on call services
and Dx
Formal on call MD may trigger relationship vs Informal consultation between colleagues  ∅ trigger
MD-Pt relationship.
a. Good policy for colleagues to consult with each other w/o passing liability. ∅ want to ∅
conversations for better pt care.
6. EXAM REVIEW NOTES:
a. No brightline rule/test for MD-Pt relationship formation.
b. Generally: contractual in nature
 Occasionally express statements of agreement but mostly implied agreement to provide Tx
c. MD undertook affirmative action to provide Tx
 Tele consult, eval information, made a decision on Tx or Dx)
d. MD contractual obligation w/ hospital/MCO to provide Tx to pt or defined group of pts.
e. Informal consultations btwn colleagues typically ∅ found to create MD-Pt relationship.
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D. Ending MD-Pt Relationship
1. Relationship terminates w/o liability by:
a. Completed Tx  cessation of need for MD services
 Lengthy time gap  could be natural termination/cessation of need
b. Move out of MDs licensure
c. MD dismissing pt for bad behavior  MD d/c’s pt
 Must provide reasonable notice (time) to find appropriate alternative care given Dx and access
to that care.
d. O/s range of MD competency (SoP)
 Can no longer Tx b/c o/s of SoP  send to neurologist
e. Pt can fire MD – Pt d/c’s pt.
2. Refusal to Tx existing pt can  liability for abandonment.
E. Informed Consent: MD’s Obligation
1. Specialized negligence principles
a. Did MD meet SoC in providing pt w/ material info in advance of Tx?
2. Reasonable MD vs Reasonable Pt standard of assessing what info should be disclosed.
3. Pts must prove breach of SoC caused injury by showing that if material info that was not disclosed was
a. Pt would ∅ have consented to Tx, &
b. Pt would ∅ have suffered the harm complained of.
F. HIPAA: Confidentiality & Disclosure in MD-Pt Relationship (pg 176; 181; 186)
1. Obligation to maintain Pt privacy through HIPAA & State/CL liability for breach of privacy.
2. Privacy Rule – Security Rule – Breach Rule: all separate but work together
a. Privacy Rule: Set nat’l standard for when PHI may be used/disclosed as applied to covered entity
(CE)/business associations (BA): when to use/disclose and when not to.
b. Security Rule: safeguards CEs/BAs must implement to protect the confidentiality, integrity, and
availability of ePHI.
c. Breach Notification Rule: What do entities covered by HIPAA have to do if ePHI is illegally accessed
or controlled?
 Req’s HIPAA CEs/Bas to provide notification following a breach of unsecured PHI.
3. HIPAA FRAMEWORK (not a private cause of action)  Preempts state law when in conflict
a. 1. Is entity covered by HIPAA (CE/BA)?
 CE  any health plan, HCP, HC clearing house
 Ex. insurance company. City Clinic
 BA  any person or org w/ which a CE shares PHI in order for person or org to perform a
service for CE.
1. 3PTY org to submit Dr. office info to insurance co.
 No  HIPAA ∅ apply
b. 2. If yes, is info PHI?
 PHI  individual identifiable Health info maintained in any form (esp eMedia)
 Any IIH info created, transmitted, maintained by CE/BA concerning person Tx/condition
of pt (past-present-future).
 No  HIIPPA ∅ apply
c. 3. If yes, is the req’d use or disclosure permitted w/o individual authorization or prohibited w/o
individual authorization (term of art – detailed written doc allowing CE/BA to disclose PHI for
specific ID’d purpose)?
 Required  HHS when undertaking investigation or review or enforcement action
1. HIV pt Tx, MD req’d to tell wife
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2. §164.512(a) pg 188.
3. §164.502(a)(2) CE & (4) BA pg 182.
 Permitted  Treatment, payment, HC operations, quality assessments, peer review process,
limited data set for research, Public Health Dept
 See if permitted by HIPAA but req’d by state law  can follow state law as long as ∅ in
conflict with HIPAA. Otherwise HIPAA preempts.
d. Minimum Necessary Standard – make reasonable effort to ↓ or limit PHI release to minimum amt
necessary to accomplish the intended use/disclosure/req
 Minimum necessary varies with circumstances but CE/BA should have protocols to address
recurring situation & ∅ share > than min necessary.
4. Any data an individual is tracking on phone ≠ HIPAA protected b/c ∅ being tracked by CE/BA but pt
5.
6.
7.
8.
9.
providing info to another entity.
Law enforcement seeking PHI info must be specific conditions met under §164.512(f)(1-6).
 Pursuant to process  subpoena or Ct order  CE/BA are permitted, ∅ req’d by HIPAA to
release PHI, but see other laws about disclosure.
§164.606  pg 186. Permits CE use/disclose of PHI for Tx, payment, HC operations (QI/QA)
SE Airlines  ∅ CE/BA
 Has right to condition employment
 PHI excludes IIH in employment see pg 177.
Ex. Wellmart = CE/BA. Vaxx status = PHI.
 Release to individual = req’d disclosure
 §164.502(a)(2) pg 182  req’d CE to disclose PHI to individual upon request  subject to
certain limitations. Other req’d disclosure = when gov’t is asking for PHI about HIPAA
compliance.
Legal Options
a. No private right of action for individual Fx’d by HIPAA violation.
b. File complaint with office of civil rights & HHS about HIPAA violation.
 They’ll ID HIPAA violation & OCR can impose civil fines/sanctions & make referral to DOJ if it
warrant criminal action.
 ONLY OCR can file right of action for HIPAA violation.
c. State law violations  negligence in training staff or handling of PHI  breach of duty of
confidentiality
 HIPAA is fed but only a floor of regulations
 BYRNE CT states: HIPAA will preempt state laws that directly conflict with HIPAA but
EXPRESSLY ALLOWS state law to have ↑↑ regulations above what HIPAA requires.
 Some cts will permit tort ∏ to rely on HIPAA to establish applicable SoC for handling
private medical info
1. ∅ negligence per se but will eval case by case
G. Medical Malpractice
1. Species of negligence law.
2. SoC  professional customary SoC. ∅ RPP SoC
a. What do MDs customarily do in this situation?
b. What other MDs customarily do under circumstances?
3. Req’s expert testimony to prove SoC & MD/∆’s breach.
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V.
LIABILITY OF HC INSTITUTIONS (Legal Theory to hold hospitals/HC institutions liable for pt injury)
C. 3-Legged Stool of Hosp Governance
1. Board - Sets strategy & policy for hospital. ∅ employed & ∅ work at hospital
2. Med Staff  Independent, self-governed group of MD. Have admitting privileges at hospital. Perform
peer review & disciplinary functions. ∅ employees, but independent K’ors
3. Hosp Admin  Implement strategy. Run business of hospital and daily operations. Led by C-Suite
employees
**Note – can be both VL & CL if facts support it.
D. VL: Indirect Liability of Hospitals for Negligence of MedStaff
1. Hosp held indirectly liable for negligent acts of another
2. Respondeat Superior (Actual Agent) – liability imposed on employer for injuries caused by negligence of
employee acting w/i scope of employment OR indep K’or (∅ formal employee) deemed as an actual
agent of employer b/c of degree of control by employer over person and their work.
a. FIRST QUESTION when injured pt suing hosp under VL
 Was the negligent MD/actor formally an employee of hosp?
 If yes, then can use VL-RS.
 If ∅, then did employer-principle have significant control over the how/when/where of the
employee-indep K’or-agent’s work?
 If yes, then VL-RS-AA
b. ∅ assume that b/c MD is on MedStaff that MD is an employee of hospital.
c. SCOTT v SSM (Deemed Actual Agent – Negligence by VL through RS – deemed ActAg)
 F: Car accident  concussion to pt. Dr. K was employed formally by R.I.C. (they pay him) ∴ Dr.
K is an indep K’or. R.I.C. & hospital entered into K to provide radiologists/Radiology services to
hosp.
 ∏ argued Dr. K should be Tx’d as hosp employee (deemed actual agent) b/c of level of
control hosp had over Dr. K  looking for actual agency relationship.
 I: Did hospital have right of control over how Dr. K’s work in hosp was performed?
  Dr. K may be deemed actual agent, even though formally an indep K.
 A: ∆ Facts relevant to hospitals control over Dr. K
 ∅ directly employing Dr. K
 ∅ directly paying Dr. K
Hospital sts:
 ∅ set Dr. K’s schedule or hours
NO CONTROL
 Hosp K’d with partnership (RIC)
 Hosp ∅ bill pt’s for Dr. K’s services.
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 A: ∏ facts relevant  +Hosp had control over Dr. K. (pg 234)
 RIC provides the only radiologists to work at hosp x60 yrs
1. Exclusive K to provide for radio services.
 RIC-hosp K is for infinite duration
 Hospital sets price.
 Hosp owns/provides equipment, office space, & RNs
∏ sts:
 Hosp sets medial standard for rad service
YES CONTROL
 Hosp sets qualifications necessary for Dr. K
 Hosp req’s Dr. K to have liability insurance
 Hosp decides what type of film to be used
 Can terminate/fire Dr. K if ∅ happy with perf
 Hosp sts ∅ standing over while reading CT results or telling him what to do  Allowing Dr. K to
exercise independent medical judgment.
 Ct sts: just b/c allowing indep judgment, ∅ preclude Ct from finding employer-employee
or principle-agent relationship
3. Ostensible Agency (Apparent Agency) – liability imposed on employer for injuries caused by negligence
of an actor who the employer held out to be an employee-agent of employer-hosp.
a. **An exception to the rule of non-liability for indep K’or’s negligence)
b. BURLESS v WVU HOSP (Apparent Agency – Negligence by VL through Ostensible Agency)
 F: Woman gave birth but MD negligence  harm.
 I: No actual agency present but was there apparent agency?
 (1) Hospital action/inaction (omission) permitted RPP to believe that MD in question was
an agent of hosp (focus on hosp action/omission; AND
(2) Pt relied on apparent agency relationship (focus on pt’s belief)
 Relevant Facts for Agency:
 Hosp holding itself out as agent unless they give contrary notice (Not acting to separate
MD from hosp)
 MD wears lab coat or name tag with Hosp insignia on it
 Ads with best XYZ MD or “Our MDs provide the best care”
1. Suggestive that they employ these MDs
 Relevant Facts Against Agency:
 Disclaimer/consent form signed that MDs ∅ employees-agents of hosp
1. Ct sts ∅ good enough b/c faculty & residents ∅ employees but no distinction
from employees for pts to ID if their specific MD is faculty-resident- or some
other kind of MD
 Reliance  pt goes to hos for their services vs going to specific MD
 Did the pt believe the hosp was providing care or the MD?  subjective but is the
subjective belief reasonable?
 ***Did pt choose the MD who then chose the hosp or did the pt choose the hosp who
them chose the MD?
 H:
4. Avoid liability by relying on indep K’ors & clarifying K’or relationship.

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E. CoL: Direct Liability of Institutional Providers (Also applies to Health Plans & MCOs)
1. Hosp held directly liable for own negligence
a. Ex: Breaching own duty to pts
2. Uncontroversial that hosp has institutional duty to have:
a. Safe & adequate facilities & equipment
b. Safe level of staffing
c. Adequate safety systems in place
d. DIRECT INJURY: ***Hospital Negligence
Pt injury**
3. Controversial that hosp has duty to:
a. Hire competent staff
b. Ensure pt safety in the hands of that staff
c. Controversial that hosp should be held liable for enabling/∅ preventing injuries from negligent
medical Tx
d. INDIRECT INJURY: ***Hospital
MD Negligence
Pt injury**
4. THOMPSON v NASON
a. F: Pt in car accident – saw 4 MDs  neuro Sx worsening. Sues hosp for failure to adequately
examine, Tx, assess, and monitor pt and failure to adequately consult other MDs/specialties. Hosp
response = No duty to oversee MD care.
b. Ct sites duties of Hosp (can apply to MCO – see Shannon):
 (1) Duty to maintain safe/adequate facilities
 (2) Duty to select & retain competent MD
 (3) Duty to oversee all ppl who practice medicine w/i walls as to pt care
 (4) Duty to formulate/adopt/enforce adequate rules/policies to ensure quality care for pts
c. LIABILITY IS LIMITED to cases where hosp has notice (actual or constructive) of problem AND
hospital’s negligence is a substantial factor in causing pt’s injury
 If injury would have resulted w/o hosp negligence, then not liable.
d. There are practical steps a hosp can take to monitor/provide oversight of medical care MDs provide
(3-legged stool)
 QI/QA  data about general outcomes per procedure/dept.
 Peer review (part of MedStaff Fx)
 Share info across departments  RCAs
 See something, say something about MD irregularities
 MDs = top of med hierarchy so may have resistance/hesitance/intimidation here.
 Protection against retaliation
 Create systems/procedures for monitoring & ID who is responsible for that.
 MedStaff buy in & incentives to report.
5. Apply CoL to facts:
a. ID the nature/demands of institution (hosp/MCO)
b. Duty will vary depending on nature of inst & its relationship w/ providers of care & pts/subscribers.
 See Shannon for what duties MCO has to subscribers in relation to how it selects its MDs
6. Avoid Liability by IDing where you have a duty and taking steps to satisfy that duty.
F. Liability of Health Plans/MCOs
1. VL RS/OS & CoL applies to Health Plans and MCOs. Health plan/MCO held liable for negligent acts of
another or for its own negligent acts (breaching own duty to pts).
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2. MCO is the umbrella term for HMO.PPO.POS
3. All health plans/MCOs share:
a. Use provider networks  financial incentive for in-network providers
b. Negotiated discounted payments to in-network providers (b/c ↑ pt’s financial incentive by ↓ prices
pt’s pay
c. Utilization review/controls
 Administrative mechanisms the plan uses to limit services  need preapproval for certain
procedures or referral req’d from PCP to see specialist, otherwise pay OOP b/c plan ∅ pay.
4. VL of MCO – GENERAL RULE:
a. MCO can be held VL for negligence of employees but CANNOT be held liable for indep K’ors.
 ∴ ask: was MD/actor indep K or employee?
b. To apply RS or OA/AA theories to MCO, you must understand the nature of plans affiliation with MD
 Staff Model HMO  HMO owns hospital & employs MDs who practice within.
Pts/subscribers pay premium to HMO, & HMO delivers full range of care to pt/subscriber.

Here – if one of the MDs employed by HMO negligently injures pt can go after HMO
alleging VL through RS  clear employment relationship.
 ***THIS IS NOT A COMMON MODEL***
 IPA Model HMO  Pt/Subscriber pays HMO but HMO contracts with indep pract. Assoc. (IPA)
who then K’s with individual MDs. HMO promises to arrange delivery of care for pt while
paying IPA group to provide that care by K’ing with MDs to actually provide pt care.

Here – much harder to sue HMO through VL b/c no direct relationship with MDs.
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5. Are there other theories besides VL (which is likely to fail since most use IPA model)
a. SHANNON v MCNULTY
 F: pregnant woman with abd pn, examined by MD. Woman chose MD b/c he was in network
(∴ the MCO chose the MD for pt). Called several times s/p 5 min contractions – sts preterm
labor. Md blows off pt. Pt calls HMO emergency line, but RN sts to call MD  MD gets angry
& no RN follows up. Call HMO directly and gets orthopedic MD. ∏ claims MD malpractice and
HMO negligence.
 Ct sts: HMO is providing medical services (∅ practicing medicine, but dictating & directing
subscribers’ medical care)  HMO is making decisions that limit where Pt can go for care.
 Ct sts: all 4 Thompson CoL duties apply here, especially #3: duty to oversee all persons who
practice medicine w/i walls as to pt care.
 Negligent set up and process of emergency hotline (including RNs)
 H: ∏ established PFC for CL that MCO negligently failed to oversee triage RN’s dispensing of
advice.
b. To remove HMO from proximate cause  give pt choices of medical care (so ∅ dictating or
directing)  Pt’s choice would then be proximate cause of injury.
6. Should CoL for adverse medication outcome be extended to MCO?
a. Yes, if HMOs actions dictate/direct subscriber’s medical care.
b. While MCOs ∅ practice medicine, they involve themselves daily in decisions FX’ing their subscriber’s
medical care.
7. Other types of MCO practices arguably constrained by duty to subscribers to use reasonable care?
a. Selection/retention of MDs to be in network
b. Use of financial incentives in reimbursing MDs
c. Utilization Review policies (who and how)
 **Note: Claims based on some theories may be preempted by ERISA
G. Liability of ACOs
1. ACO ∅ a type of MCO (Fx’s as Health Insurance  pay for care subscribers receive)
2. ACO = creature of the ACA
a. K w/ other payers/insurers (Ex. MCR/MCD/private) to cover large population of pt’s (5000+)
b. Becomes hub to coordinate care w/ many diff providers who participate within ACO (hosp, lab,
pharmacy, clinic, PCP, NH, etc…)
c. ACO = responsible for setting up HER, QI/QA programs, policies etc.
d. Payments from MCR ↑ if it keeps cost below target while maintaining quality.
3. Exam Question: How would ACO be liable for negligent act  injury? VL or CL?
a. Likely will follow similar to MCO
b. Is there any choice by pt for provider or all pt’s locked into specific providers?
VI.
DISCRIMINATION & UNEQUAL Tx IN HC
C. Common Law Approaches
1. MDs have no CL Duty to Tx pt seeking care, absent MD-Pt relationship (even in emergency situations)
a. Refusal reasons ∅ matter  on basis of race, sec, gender, etc.. are irrelevant.
D. EMTALA: Exception for Emergency Care
1. Designed to stop Hosp from d/c or xfer ED indigent pts for non-medical reasons  low income or
uninsured.
a. Prevents ED pt dumping
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2. Tied to the receipt of fed funds MCD/MCR when operating an ED.
a. If you’ve opened up an ED then now you’ve assented to Tx despite CL, overrides it  Pt arrives to
ED now you have a DUTY to Tx individual.
b. EMTALA creates MD-pt relationship. MDs cannot avoid.
3. Hospitals participating in MCD/MCR AND operate ED
a. (1) Duty to provide MSE: Appropriate MSE for any/all pts arriving to ED requesting care to ID if EMC
exists
 MSE is consistent with hospital standard of screening/procedures of comparable pt Sx.
 ∅ wait to see if pt is insured prior to MSE  EMTALA applies to ALL pts
b. (2) If no EMC exists, no further EMTALA obligation to pt.
c. (3) If +EMC (must have actual knowledge of EMC):
 Duty to Stabilize: Must provide Tx necessary to stabilize the pt
 Efforts to stabilize are assess in reference to OBJECTIVE SoC  expert testimony may be
required.
 Duty to Xfer: xfer is permitted to a facility who can Tx this pt when this hosp can’t Tx/stabilize
if:
 (1) +MD Certification/Consent: according to MD – benefits outweigh risks of xfer & that
hosp can accept pt and care for pt;
 OR
 (2) if individual requests xfer in writing after being informed that hosp is req’d to stabilize
and Tx & informed of risks v benefits of xfer  informed consent to xfer
d. ** Now must meet Procedural requirements** ???
4. EMTALA Enforcement
a. Agency enforcement  OIG of CMS
 Civil $$ penalties against hosp/MD that violates EMTALA, up to ~$100K/violation
 Potentially suspension/termination from MCD/MCR for gross & flagrant or repeated violations
b. Private Enforcement
 Individual injured an sue hosp (∅ MD) for personal injury damages
 Other hosp that received pt can sue if suffered financial loss d/t being dumped on.
 Private Claims  individual injured by violation can sue by claiming
 (1) Hosp failed to provide appropriate MSE;
 AND/OR
 (2) Improper d/c once EMC was ID’d (∅ stabilized) OR improper xfer due once EMD
ID’d/failure to stabilize.
5. BARBER v HCA
a. F: ∏ = preg EDP, ∅ taking psych meds, C/O N/V. Labs & lac repair. Seized & hit head  no CT/XRay
 Dr. K concluded Sx d/t psychosis & ETOH W/D  sent to psych facility. Seized  died.
b. Inappropriate MSE:
 ∏ sts ∅ appropriate MSE b/c ∅ satisfying nat’l SoC (essentially malpractice)
 Ct sts wrong test under EMTALA
 Appropriate MSE req’s hosp to follow own screening protocols  MSE is comparable to
other pt’s w/ same Sx
1. “appropriate” = consistent w/ standard screening & procedures compared to
other pts.
 ∅ COMPARED TO NAT’L SoC  ∅ using Negligence SoC for MSE
1. “appropriate” ∅ mean non-negligent just that you were consistent with hosp
standard for similar Sx in other pts.
 Ct ∅ want EMTALA to be fed § malpractice action  ∏ loses  ∏ unable to show MSE ∅
comparable to other pts at hosp.
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c. Inappropriate xfer/stabilization
 ∏ sts hosp violated b/c xfer prior to EMC being stabilized & hosp ∅ do appropriate paperwork
 **If hosp ∅ find EMC then END EMTALA obligation, no stabilization or xfer needed.
 ∏ sts they needed to have actual or constructive (should have known) knowledge of EMC
1. Ct sts must have actual knowledge of EMC
** Efforts to stabilize are assessed in reference to an OBJECTIVE SoC  expert testimony
req’d.
6. Once pt is admitted/in-pt (term of art) & no longer receiving ED care EMTALA is satisfied.
a. Obligations are fulfilled once hosp, in good faith, admits pt
 Good faith means can’t admit then xfer or d/c medically unstable pt
 Can’t use admission to circumvent EMTALA.
b. Ex. Admit, Tx, but after long time too expensive to Tx do d/c  ∅ technically EMTALA
c. Ex. Inapprop/invol d/c from NH to make room for more profitable pts
 NO EMTALA b/c ∅ hosp with ED.
7. EMTALA & State Abortion Laws
a. States prohibit abortion except to protect life of preg female. ETMALA req’s Tx & stabilization to
prevent further deterioration of health (gest HTN, ectopic preg  EMC)  Tx = abortion, but
prohibited under state law
 Idaho: Supremacy Clause  EMTALA Rules
 Texas: Ct enjoined EMTALA & sts only applies w/i confines of state law.

8. **ON EXAM**  Pt injured at hospital
a. EMTALA Claims (could give rise to antidiscrim issues and CoL)
b. CoL claims (negligence) below medical SoC (malpractice)
c. Abandonment  stopping MD-Pt relationship
 Must give adequate notice and provide alternative MD or time to find alt.
 Xfer to new hosp is ∅ likely abandonment/malpractice
 -BUT- d/c could be abandonment/malpractice claim looking at SoC
E. Federal Antidiscrimination Law
1. Antidiscrim law & Duty to Tx  race-color-sex-nat’l origin-disability.
a. Laws apply regardless of MD-Pt relationship existing or not
2. Pre-ACA laws prohibiting discrim (not specific to HC but applicable in some ways), then extended to HC
by post ACA §1557 extension. Sue under both laws.
a. R-C-NatOr  Title VI (6) – CRA, & §1557 by extension
b. Sex  Title VII (7) – CRA for employers (incl HC benefits) ll TIX (edu inst) & §1557 by extension
c. Disability  ADA & §504 of Rehab Act, & §1557 by extension
3. The ACA & §1557 (filler/expander) enacted to specifically address HC Discrimination
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a. §1557 of ACA invokes & extends protections of 4 antidiscrim laws
 Prohibits discrim already prohibited under T-VI, TIX (sex discrim by edu inst), §504 of Rehab
Act, or Age discrim Act.
 Only apply to programs receiving Federal Financial Assistance (FFA)  mandates
antidiscrim to receiving federal funds.
 §1557 extends antidiscrim prohibitions to wider range of actors by interpreting FFA broadly &
including HC entities (insurance cos, providers, HC X∆s, etc..)
4. Forms of discrim claims:
a. Refusal to Tx (b/c R-C-NO-Sx-Disab)  Duty to Tx
b. Provisions of unequal Tx  Tx’d diff b/c R-C-NO-Sx-Disab
c. Barriers to receive Tx  refusal to remove barriers to care (language/no ramps for WC entry) 
Access to care
d. Insure Co/Plan refuses to categorically provide care for certain disabilities
e. Plan refuses to cover care in individual cases
5. R-C-NO – Title VI – CRA & §1557 by ext
a. Prohibits discrim based on R-C-NO by programs/activities receiving federal funds (MCR/MCD)
b.
LINTON v COMM
BRYAN v KOC
F:
-TN MCD policy letting hosp/NH flip flop
NYC’s decides to close 1 of its municipal
which beds = private or = MC.
hospitals that will have disparate impact
-Portion of beds for MCD enrollees but if on black population in area
more private pay pts, then shift beds to
private allocation.
Discrim: No overt, on its face, racial classification  no WHITE ONLY signs.
Facially neutral, no mention of race.
- Has discriminatory affect  disparate impact.
 Disparate impact = facially neutral policies/practices that have an
unjustifiable, disproportionate & adverse impact on protected classes.
 Different Tx discrim = intentional, overt discrimination
A:
Policy hurts/burdens MCD recipients.
Blacks have ↑ use of MCD ∴ ↓ ability for
Black to get into NH  all b/c of
demographic of MCD enrollees  ↑
burden & barrier on blacks.
17
Impact:
H:
Policy limits beds available to MCD
enrollees who in TN are
disproportionately black.
∏s win  justification by ∆’s was ∅
sufficient
Hospital chosen for closing served 98%
minority compared to city hospital’s
overall serving 66% minority.
∏s lose  justification criteria was
reasonably related to closing hospital 
sufficient. Hosp losing $$/trying to
conserve resources
c. Proving Actionable Disparate Impact req’s statistical evidence/data that policy/practice  disp
impact on 1 protected group.
d. Even if +disp impact: ∆ has ability to ID legitimate, nondiscrim reason for policy/practice = Defense
e. To overcome defense  ∏ must show alternative, nondiscrim way of accomplishing ∆’s goal.
f. Title VI Discrim Analysis:
 (1) Does this program/activity accept federal financial assistance/funding to sue under T VI
 Almost all do, so generally – yes.
 (2) Is there intentional discrim?
 If yes, then Private right of action  Sue. If no, go to #3.
 (3) What statistical data is available to show DI based on race?
 (4) Does ∆ have a legitimate, justifiable, nondiscriminatory reason for policy/practice
(defense)?
 If no then ∆ will lose, go to #6.
 (5) If yes, can ∏ overcome defense by showing alternative, nondiscrim way to accomplish ∆’s
goal?
 If no, then ∏ will lose. STOP.
 (6) ** Only admin/regulatory agency providing/dispersing fed funding can investigate & file
suit for DI based on T-VI theory. NO PRIVATE RIGHT OF ACTION for DI, only for intentional
discrim.
 Private ∏ can file complaint w. OCR or HHS to launch investigation.
 **Under §1557 no certainty if can sue as private ∏ for DI  must look at underlying §.
1. For CRA T-VI  DI theory ∅ allowed via private action ∴ §1557 wouldn’t allow DI
theory based on race for private action.
6. Sex – Title VII – CRA for Employer-Sponsored Health Insurance & §1557 by ext (also Title IX – edu inst)
a. ERICKSON v BARTELL
 F: ∏ alleges ∆/HI Plan excluded Rx contraception while others were covered, violating T-VII as
amended by Preg Discrim Act (PDA)  no discrim: preg, childbirth, or related condition
 F: ∆ argues this is facially neutral & could apply to male or female ∴ FX both equally  no one
gets coverage for contraception.
 Ct sts:
 Yes, facial equality but evidence shows only females can bear health and socioec
consequences of pregnancy
 Rx contraception excluded across the board. Look at plan & how comprehensive it is in
meeting health needs females and males.
 Equality under T-VII by eval relative comprehensiveness of male to female  special or
↑ needs of female’s unique sex-based characteristics must be met to same extent & on
same terms as other HC needs
 The exclusion of female only benefits from a generally comprehensive Rx plan is sex
discrim under T-VII.
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 Ct sts: ∅ intentionally discriminatory, but sts it’s facially discriminatory.
b. To ensure contraception coverage:
 Laws prohibiting discrim based on sex
 Affirmative mandates requiring HI Plans to cover contraceptives
 State & ACA mandates.
7. §1557 Timeline for prohibiting discrim of sex stereotypes, sexual orientation, gender identity
(transgender)  Unresolved.
a. 2010  ACA Enacted
b. 2016  Obama admin issues reg §1557 to extend to protecting gender identity
c. 2020  Trump admin issues new, limiting regs to only include sex orientation, ∅ gender identity
d. 7/2022  Biden admin proposes new reg, but ∅ promulgated
 We are still officially under Trump regs right now, which ∅ include gender identity protections
8. How will ↑ FX health care?
a. Gender affirming care, hormone Tx, sex ∆ surgery.  Providers can refuse to Tx and HI Plans can
refuse to cover b/c right now gender identity/xgender ∅ protected class.
b. PREP-HIV  employers objected to cover b/c ∅ agree to homosexuality. ∏ argue preventative Tx &
employer covers other preventative Tx. Employer sts ∅ have to cover in ∅ medically necessary.
Who defines medically necessary?
9. Disability Discrim – ADA & §504 & §1557 by extension
a. ADA broadly prohibits discrim against individuals with disabilities.
 Disability = physical or mental impairment that substantially limits 1 or more major life
activities.
 §504 of Rehab Act preventing discrim by recipients of fed funding
 T-III of ADA applies to public accommodations (hosp, Med/dental offices)
b. HOWE v HULL
 F: ∏ = HIV infected who got sick s/p ABx Tx  ED MD Dx w/ adverse drug rxn. Wanted to
admit but needed approval of on call MD (∆/Dr. Hull).  ∆ sts ∅ admit, xfer to HIV program.
 F: ∆ sts pt Dx w/ TENS & cannot Tx at this hosp/ED.
 **Key factual dispute  motivation to xfer to diff hospital
 No evidence that hospital couldn’t handle non-AIDs related drug rxn complaint.
1. Establish liability under ADA discrim
a. At least 1 reason/motive of refusal to Tx must be based on the disability
b. ADA ∅ req Tx o/s competency of MD or Hosp  refusal is appropriate
here.
i. Gives only injunctive relief against public accommodation (T-III)
2. Under §504 FRA
a. Discrim must be solely by reason of disability
i. Gives $$ damages
 Also possible EMTALA failure to stabilize claim.
 Improper motive ∅ matter in failure to stabilize claim.
c. Failure to take steps to ensure accessibility
 ADA & §504 FRA req HC providers provide individuals w/ disabilities:
 Full & = access to HC services & facilities.
 Reasonable modifications to policies, practices, & procedures, & provisions of auxiliary
aids/services when needed to make HC services fully available to PWD (person w/ disab),
unless modification would fundamentally alter the nature of services.
19
 ADA has req’s for new construction of & alteration to buildings & facilities relating to barrier
removal.
 If you build a new facility, must comply & be accessible via guidelines
 Old buildings must make achievable/reasonable ∆’s to make more accessible.
VII.
HEALTH REFORM: POLICY CONTEXT
C. Insurance Basics
1. Permits individuals to xfer risk of uncertain costly event to insurer in return for certain, predictable, set
2.
3.
4.
5.
6.
amount/payment of a premium
Insurance Risk  the risk that the cost of care needed exceeds funds set aside to pay for care.
Depends on pooling of risks (lrg # of ppl insured in on pot)  ∅ everyone will need $$ at same time so it
evens out the financial distribution.
Basic Concepts
a. Rate making  projects cost of claims made + administrative expenses (including profits for SHs)
 Experience Rating – past experience to predict future experience or claims
 Similar to actuarial fairness approach
 Community Rating – look at all community of insured & try to project costs & divide by #ppl in
community group  flat premium is applicable to everyone.
 Spreading of risk broadly across group  similar to social solidarity approach
1. Cross subsidization  less healthy enrollees are subsidized (pay less than care
received) by healthier enrollees (who pay more than care received)
b. Underwriting  ID risk factors of group/individ to decide whether to cover or not, how to limit
what’s covered, and what set amt to charge.
 Focuses on present risk factors to predict future need.
 May exclude some risks from coverage -OR- pay ↑ premium b/c of risk
 Think: “Do you smoke”  ∅ cover smokers, cover but ∅ cover illnesses related to
smoking, or smokers pay ↑ amt
 Purpose = to learn more about purchasers so premium and coverage reflects their risk.
c. Adverse Selection
 If coverage isn’t mandated, then sicker ppl or ppl with below average health expectations
tend to apply for and continue health coverage to a greater extent than ppl who are healthier
or have above average health expectations (especially if healthier ppl believe what they pay
monthly is > than the amt they believed they’d need in sick care)
 Death Spiral
 Insurer sets rate, but ppl in better health ∅ need to pay or ∅ believe HI is a good deal b/c
they are healthy & ∅ use it, so they ∅ get into the risk pool. Ppl in risk pool, that
purchased insurance, are less healthy than average. This ↑ HI amt paid so they increase
premiums to cover costs of sicker pool. Now those who purchased insurance think rate is
too high or is no longer a good deal drop out  smaller risk pool  ↑ % sick  ↑
premiums --> ↑ ppl dropping out, etc, etc, etc…
 Mandate coverage to avoid adverse selection and death spiral.
HI = a mix of true insurance (to cover unexpected and catastrophic costs  car insurance for accidents) &
financial mechanism (to spread payment for large but predictable expenses over time  preventative
care/annual checkups)
HC is diff from other markets
a. Need is sporadic (∅ needed every year) & unpredictable (can’t tell which year it will be needed)
b. Need varies person to person.
20
c.
d.
e.
f.
g.
Purchasers know less about product than sellers & face difficulty comparing
Purchasers often ∅ know price before purchasing
Supply is constrained (need to sched appt & go to HC facility, limited # providers)
Licensure = barrier to entry
MD (seller) directs purchase decisions.
7. Moral Hazard
a. Having insurance prompts insured persons to use it more, creating more demand for covered care
 Consumers will use the services in ways to maximize utility and its cost.
 If you don’t have insurance then you’re less likely to use medical services b/c of cost
 Causes market imperfection b/c consumers ∅ acting rational consumers would act.
8. Market Imperfections for HI
a. Employer, ∅ consumer, decides which HI plan to enroll in
b. Insurers want healthier ppl in pools  paying but not utilizing services
c. HI Plans try to compete by trying to enroll the lowest risk insured (∅ on price/quality of product)
9. Responses to HC/HI Market Imperfections
a. Act to make market more competitive.
 Consumer driven HC  ↑ cost sharing gives consumer more skin in game, if coupled with info
improvements, may  better purchasing decisions and more competition
b. Regulate to protect against some of harms flowing from market imperfections
 Restrict insurer’s ability to cherry ick healthiest insureds & enforce antitrust laws to prevent
market dominance.
 Stop allocating HC/HI through market mechanisms & treat like a public good  Tx HC as right.
 Single payer HI ≠ socialized medicine where gov’t owns & pays providers
 Socialized insurance ∅ medicine.
10. HI will ↓ premiums but that ↑s cost sharing on individuals
a. Employers facing ↑ premiums can shift costs to employee.
Uninsurance
Underinsurance
No HI coverage
Has insurance but OOP (cost sharing obligations)
costs are ↑↑ relative to income
Shifts insurance risk to insureds d/t cost sharing
Fx’s as a barrier to care
ACA ↓ # uninsured
ACA ↑ # underinsured
11. Drivers of high costs of HC in US
a. Overutilization; prices; market forces & structures; population demographics; admin costs; ∆’ing
nature of dz, technology, malpractice.
VIII.
ERISA
C. ERISA Preemption: Framework
1. BACKGROUND
a. Most ppl get their private HI through their employer.
b. ERISA ∅ include substantive standards (that they had to offer HI or if they did, what to cover in HI
plan) but did include procedural standards for plan administration.
 If you’re going to have a health plan then you must explain what the benefits are.
 Provide what you say you’re going to provide.
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c. Regulation of ESBP were an area of exclusive federal control (acting to displace certain state
regulations), however they wanted to preserve some state authority in areas of traditional concern
(§514 preemption)
d. ERISA ∅ require employers to offer ESBPs but it wanted to induce them to do so
 Induced them by limiting employer liability  §502 creates exclusive federal remedy for
violation of statutory or plan obligations
 Only remedy employees have is through §502 (preemptive FX but also remedial FX)
e. 2 levels of ERISA preemption
 Limits/preempts state legislation/regulation affecting HI Plans  operating as a constraint on
states’ ability to pursue health reform
 Regulations that directly apply to HI but also ERISA can preempt broader attempts at
state level HC reform b/c may FX ESBP.
 Limit state CL actions against HI Plans
f. Fully Insured vs Self-Insured ESBP
FULLY INSURED
Employer K’s with HI Co. to provide HI to
employees
Xfers financial risk to HI Co. for providing HC
benefits
Employer pays a fixed premium to HI Co.
SELF-INSURED
Employer assumes the financial risk for providing
HC benefits to employees.
Employer pays for claims as they are incurred
Typically, employer will set up a trust fund for
paying HI claims
Employer will K with HI Co. to administer the plan
(∅ assume risk/provide insurance)  decide of med
necessary, process claims, who is in network.
May purchase stop loss coverage to protect from
claims above a certain level to limit exposure
A. ERISA Plan Regulation & Preemption
1. §514 Express (regulatory) Preemption (pg 458)
a. ERISA supersedes (preempts) any law that relates to an ESBP; except:
 Savings clause: ERISA ∅ preempt state laws that regulates insurance, banking, securities etc…;
except:
 Deemer clause: an EBP, itself, shall not be deemed to be an insurance co or to be
engaged in business of insurance [for purpose of any state law that reports to regulate
insurance or business of insurance].
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b. ***THRESHOLD QUESTION: Is the ∏ suing health plan/MCO that is provided as part of EBP
subject to ERISA???
 Market place purchased insurance ∅ subject to ERISA.
 Privately purchase HI o/s employer ∅ subject to ERISA.
c. Analysis – 3 Step: (Does scenario involve state leg, reg, CL action that req’s/prohibits actions by EBPs or has subst FX on them?)
 (1) Is this a state law the relates to an ESBP?
 If no, ∅ worry about ERISA preemption under §514  state law applies
 (2) If yes relating to ESBP, does it regulate insurance (savings clause)?
1. Be specifically directed towards insurance entities, &
2. Must substantially affect the risk pooling arrangement btwn the insurer &
insured
a. Does the state law “alter scope of permissible bargains btwn insurer &
insureds?
 If no, then state law preempted, ∅ apply.
 If yes  falls in savings clause & state law ∅ preempted (state law applies).
 (3) Is the plan self-insured?  Deemer clause exception
 Laws that fall w/i savings clause can be applied to fully insured insurance plans but
cannot be applied to self-insured plans b/c deemer clause says EBP can’t be deemed to
be insurance.
 Preclude state reg of self-insured plans  creating incentive for employers to self-insure
B. ERISA Remedies & Preemption
C.
1. §502(a) [conflict or civil enforcement] preemption (pg 459)
a. ERISA’s ONLY remedial scheme for employees/beneficiaries who think they are not getting what
they are supposed to from ESBP  go to §502 to sue in fed ct to get what’s owed to them from
ESBP.
 Can seek specific remedies:
 Benefits due under plan terms
 Enforce rights under plan term (declaratory judgment about entitlement to benefits)
 Clarify rights to future benefits
 Enjoin/injunction against actions that violate ERISA or plan terms (denial of benefits).
b. Exclusive enforcement mechanism to induce employers to sponsor ESBPs  limit exposure, this is
the only way to get sued by employees. Won’t face lawsuits in state court as well.
c. Any state law or CL action that duplicates, supplants or supplements this remedy is preempted by
§502  b/c § remedy is so strong that it preempts entire field of judicial oversight of ESBPs by state
ct.
RUSH PRUDENTIAL HMO v MORAN (preemption of state legislative action)
1. F: ∏ needed an unconventional shoulder procedure that her PCP deemed med-nec, but insurance sts ∅
med-nec & states do regular, conventional surg instead. Pt ended up getting surgery and now seeks
reimbursement for costs, insurance denied. Pt sues stating you have to pay me b/c benefit is due 
Insurance sts ∅ have to b/c pt’s claim and Ill law of ext review are preempted by ERISA
a. §514 and §502 Preempt to Ill. law that requires external review by jointly selected MD by pt and
HMO about med necessity when PCP and HI Plan disagree on med-nec.
 If ext MD says yes, med-nec then plan will pay, if ∅ then ∅ pay.
2. §514 Analysis: (Does scenario involve state leg, reg, CL action that req’s/prohibits actions by EBPs or has subst FX on them?)
a. (1) Is there a state law that relates to an ESBP?  Yes, state law that relates to ESBP.
 What does relate to mean?
 Look for clear manifest congressional purpose to preempt area w/i state historic powers.
 Direct regulation of HI plan ∅ req’d.
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1. Here: ∅ directly regulate ESBPs - ∅ say this is what you have to do with ESBP,
but does FX them  if going to K with HMO for coverage to employees, HMOs =
subject to this law and FX what employer can offer.
2. It’s enough if law bears indirectly but substantially on all insured BPs.
a. If purchasing med coverage by HMO covered by law, ESBP will be
limited to HMOs subject to external reviews Can’t purchase
cheaper plan that’s cheaper b/c ∅ include ex review provision, b/c
provision means HMO will have to cover more care.
b. (2) Does the law regulate insurance, so that it falls w/i the savings clause and thus avoids
preemption?
 To fall w/i insurance savings clause, state law must:
 (1) Be specifically directed towards insurance entities, &
 (2) Must substantially affect the risk pooling arrangement btwn the insurer & insured
1. Does the state law “alter scope of permissible bargains btwn insurer & insureds?
 (1) Here:  Yes directed specifically towards insurance entities (HMO is in the name of the
act)
 (2) Here  It means insurers can no longer bargain for coverage at lower price if law is
preempted by giving HMOs unfettered discretion ∅ subject to external review on question of
medical necessity.  ∅ a bargain that’s available anymore.
 Yes , Ill. HMO Act falls w/i scope of savings clause and ∅ preempted under §514. ∏
wins.
1. B/C you don’t want it preempted  limits insurers options, so savings clause
saves it from preemption.
c. (3) What if ESBP was self-insured?
 Change facts of Moran to self-insured ESBP?
 Deemer clause says that EBP themselves shall not be deemed, for purposes of savings clause,
to be an insurance company or to be engaged in the business of insurance
 Savings clause ∅ save state laws from preemption to the extent that those state laws are
applied to self-insured EBPs.
 Here  if Moran’s EBP was self-insured then she ∅ able enforce the Ill. External review
law against self-insured EBP.
1. If it were fully insured ESBP, then could enforce Ill state law b/c saved from
preemption by savings clause.
3. §502 Preemption (Does scenario involve person who is beneficiary of EBP bringing claim that arguably supplants, supplements, or
duplicates remedies provided by §502?)
a. Civil enforcement provision that gives remedies to plan beneficiaries who claim that EBP hasn’t
complied with terms of the plan, hasn’t done what it promised to do.
 ∅ provide for consequential or punitive damages
b. Exclusive enforcement  no other remedies available.
c. Moran wins and HMO loses under §514 but HMOs argument = that Ill. Law creates an alternative
remedy to the ones provided by §502  ∴ inconsistent with exclusivity and thus is preempted by
§502.
 Ct sts Ill. Law ∅ create a new cause of action & ∅ grant or authorize new form of ultimate
relief. Pg 464 2nd to last paragraph.
 Dissent sts external review law is a form of arbitration which is a different remedy than §502
& inconsistent with §502.
 Majority sts ∅ like arbitration which would be a different remedy, this is more like a second
opinion  only looking at single term: medical necessity or not.
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 Once 2nd opinion is done and they vote med nec procedure  eBP needs to pay  ∏ can
enforce by filing lawsuit under §502 for plan to pay benefit owed to her.
 No punitive damages, lost wages, pain/suffering, just cost of care.
 ∴ no new state law cause of action or new for of ultimate relief
1. Got interpretation of 1 provision of K regarding med nec, to be done by MD and
now can enforce by §502.
 Majority, w/ respect to §502 preemption  ∅ think that right Moran has under Ill. HMO Act
creating external review is inconsistent with §502 remedial scheme. ∅ supplement or
supplant. Still pursuing it now that she knows what plan owes her.
D. AETNA v DAVILA
1. F: TX passed HC law that imposed on MCO’s a duty of reasonable care in making Tx decisions & made
them liable for damages proximately resulting from breach. ∏ suing MCO for breaching this duty (tort
claim)
2. I: Does ∏’s §-based claim of negligence against MCO fall w/i scope of §502 b/c they “duplicate,
supplement, or supplant” the ERISA civil enforcement”
3. Preemption Analysis: 2-part test
a. (1) If individual, at some point in time, could have brough the claim under §502(a)(1)(B);
b. AND (both must be shown for complete preemption)
c. (2) where there’s no other independent legal duty (independent of ERISA) implicated by ∆’s action
d.  then the cause of action is completely preempted by ERISA §502.
4. DAVILA ANALYSIS: 2-part test
a. (1) When coverage for proposed Tx was denied, ∏ could have sued for inunction under ERISA §502
or paid for Tx & sued under ERISA §502 for reimbursement
 ∏ could have pursued these remedies and did not so  ∏ loses §502 analysis.
b. ∏ can argue that TX § created an independent legal duty to use reasonable care to make medical Tx
decisions relevant to coverage  that’s independent of ERISA ∴ PRONG 2 isn’t met
 Ct Rejects this argument: TX § ∅ create any new liability for failing to provide a Tx that’s ∅
covered by plan
c. (2) To know whether ∆s breached any duty of reasonable care, the court has to interpret the terms
of ∏’s EBP
 Any ∏ rights from potential liability under TX § derives from rights & obligations established
by EBP subject to ERISA (plan’s promise to cover certain Tx’s) TX § creates no independent
legal duty.
 Bring suit t rectify a wrongful denial of benefits promised under ERISA regulated plans and ∅
attempt to remedy any violation of a legal duty independent of ERISA.  Negligence cause of
action authorized by TX law really supplements remedy available under §502. ∴ is preempted.
5. H: ∏’s state law claims fall w/i scope of §502 & ∴ are completely preempted
E. RECAP
1. §514  preempts state laws
a. broader preemption of LAWS: legislation, regulation, CL-action (claims) that regulate EBPs or have
substantial effects on them
2. §502  preemption of certain claims that ∏ can bring
a. Exclusive Fed Jx for certain types of claims and preempts attempts to bring those types of claims in
state ct or in different forms; if claim supplants, supplements, or duplicates §502’s exclusive remedy,
its preempted.
b. TX law dressed up as tort claim for breach of duty of reasonable care but was really just claim
brought to force benefits due under §502  cant bring TX law claim without relying on existence of
ERISA EBP.
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3. Some law saved from preemption by savings clause could be preempted by §502.
a. Ex. State law authorized claims against EBP may be saved under savings clause but still preempted
in §502 (Rush Prudential and Davila)
b. §502 takes a bite out of laws saved by §514 savings clause  now preempts them under §502.
4. Entire Davila § ∅ preempted by Fed Law, but that ∏’s claims are preempted, ∴ there may be claims by
other ∏ that wouldn’t be preempted.
5. ERISA ONLY APPLIES WHEN TALKING ABOUT EBP  ERISA ∅ apply to market place insurance
F. RUTLEDGE v PHARMA
1. F: Law at issue: Ark Act requiring PBMs to pay pharmacies price at least as high as what pharmacies pay
to buy drug from wholesaler so pharmacies aren’t losing $
a. No §502 involvement b/c ∅ involve claim or civil action w/ employee trying to get remedy.
b. +§514 issue  Ct stops after first questions (Does relate to EBP?)
 Ct sts: This law ∅ relate to EBP
 ∏ argues regulation of PBM to pay pharmacies at least as much for drugs that they get from
wholesaler = PBM ↑ what they charge EBP & ∴ impacts EBP
 ∅ directly regulate EBP (∅ telling them what to do or offer) but indirectly FX on EBPs
 Ct sts: law ∅ relate to EBPs for purpose of ERISA §514 despite indirect FX  law ∅ specifically
target EBP, applies to all plans. ALSO, ∅ directly reg EBPs but regulating PBM companies that
EBPs K or operate with and that’s ok
 Just b/c increase costs for EBPs or create incentives for ERISA plans without forcing plans to
adopt any particular scheme of substantive cover then ∅ saying it relates to ERISA plans.
 Cost regulation that ∅ bear an impermissible cxn w/ or reference to ERISA plans
IX.
REGULATION OF INSURANCE – ACA (pg 518)
A. Overview
1. 3 legged stool:
a. (1) Individual Mandate
b. (2) Insurance Reform
c. (3) Subsidies (tax credits) for Low-Income Purchasers
 Purchases of HI on X∆ for ppl w/ income of 100-400% FPL
2. X∆ - offers private insurance coverage that meets standards req’d by ACA.
B. Insurance Reforms: Underwriting Rules (Limits HI underwriting and ratemaking practices)
1. Community Rating of Premiums (§300gg)
a. Addresses insurer’s ratemaking
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b. Prohibits discrim premium rates  Modified community rating w/ limited adjustments permitted
for:





Family composition (single/couple/family)
Geography (Cost of living expenses: city v rural)
Age: 13:1 variation permitted
Tobacco use ($1.5:1 variation permitted)
** Older and smokers = ↑ health expenses
2. Prohibition of PEC exclusion or other discrim on health status
a. Prohibits enrollment eligibility rules based on health status or related factors
b. Prohibits premium variations for individuals based on health status or related factors.
c. REASONING:
 HI is to protect against unpredictable health issues  ∅ want ppl to wait until they’re sick to
get insurance  death spiral b/c already a loss for HI Co.
 Ppl will get coverage but ∅ for dz they need Tx for  Barrier to care
 Job Lock  once have coverage and develop PEC ∅ want to leave job because new insurance
will exclude you from coverage  forced to stay at job forever. No mobility.
3. Guaranteed Issue
a. Requires insurance companies to issue a health plan to any applicant regardless of the applicant’s
health status or other factors.
b. §300gg-1  Guarantees availability of coverage.
c. §300gg-2  Guarantees renewability of coverage.
 Exception: Nonpayment of premiums & Fraud (see below)
d. §300gg-12  Prohibits recissions of coverage.
 Exception: Fraud  practice or act that is fraudulent or intentional misrepresentation of
material fact
 Limist “post issuance of claim underwriting”  nit-picking Dx condition post issuance to
prevent coverage for expensive insured.
4. Other Provisions to Benefit Individuals
a. §300gg-11  No annual/lifetime limits.
 No limits (caps) on $ value of benefits covered
b. §300gg-13  Coverage of preventative health services
 W/O any cost sharing obligation
 Being healthy & preventing illness is cheaper than Tx illness.
c. 10 categories for Essential Health Benefits (EHBs)
d. Quality Health Plans
 No junk insurance  some ppls premiums went up and their HI choices went down.
e. Tax credits w/i FPL & cost sharing reductions  financial assistance.
f. Extension of dependent coverage until 26 y/o
 Helps ↓ adverse selection.
C. Individual Mandate
1. Individ Mandate is necessary to avoid adverse selection
a. **If ∅ everyone is in the pool  sicker pool  ↑ premiums  death spiral
b. IM = important role to insurance reform provisions of ACA
c. ↑ pool population  ↑ risk spreading  ppl ∅ waiting until sick & need HC to get HI.
2. Minimum Req’d Coverage
a. (1) Get covered
b. (2) Claim exemption
c. (3) Pay a penalty (tax)
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3. NFIB v SEBELIUS (ACA CASE)
a. F: Challenge to Congress’ Const’l authority to enact IM
b. Commerce Power:
 US Gov’t: IM falls w/i Congress’ commerce pwr by regulating economic activity that, when
aggregated together, impacts interstate commerce.
 Everyone will use HC in lifetime
 Failure to purchase HI has substantial negative FX on ISC by creating a cost shifting
problem upon consumption
1. Uninsured ppl ∅ pay, but hosp still provides service/care  uncompensated
care costs are incurred by hospital  hosp ↑ costs to HI Co.  HI Co. ↑
premiums paid by subscribers to cover costs to those who are ∅ insured but
using HC.
 SCt: Commerce pwr is broad but ∅ extend to compel individ commercial activity
 Distinction btwn regulating commercial activity vs inactivity (not buying HI) 
Congressional authority ∅ extend to regulating inactivity.
c. Taxing (& Spending) Clause
 SCt: Penalty associated to IM resembles & Fx’s as a tax despite labeled name (labels ∅ matter,
Fx does).
 “Penalty” collected by IRS & amt is based partly on income (like a tax)
 If ∅ have to pay income tax, then ∅ pay penalty
 Produces revenue like a tax.
 Ppl having meaningful choice to participate or not.
 ∅ get HC, then are taxed  gov’t uses tax to incentivize behavior  that’s OK.
4. CA vs TX 2021
a. F: 2017 tax reform package that set penalty to zero (removing non-coverage penalty)
 ∏ theory: w/o penalty to enforce IM, it no longer operates as a tax ∴ const’l basis for IM is
gone.
b. I: Is the IM now unconst’l?
 If so, is it severable from ACA, or is it integral to ACA § scheme, making the entire ACA
unconst’l?
c. Sct: Sorry but ∅ deciding issue of const’lality or severability b/c lack Art III standing.
d. Status of IM 2022: Still in existence but ∅ enforceable b/c penalty = $0.
 ∅ unconst’l & ∅ repealed by congress.
 Is IM essential to avoid adverse selection/death spiral since now = ∅ effective?
 It hasn’t led to adverse selection since 2019 implementation of $0 penalty.
 Ppl are still getting insurance & still get subsidies
D. Employer “Mandate” (really an incentive than mandate)
1. Historically employers offered HI pre-ACA b/c:
a. Benefited employer  healthy work force
b. Promoted employee longevity & loyalty, recruitment & productivity.
c. WWII wage control (∅ able to ↑ pay so offer other benefits)
 Wages = taxed compensation
 Employer spons’d HI (ESHI) = non-taxed benefit/compensation  tax efficient from employer
perspective.
2. Post-ACA  “employer shared responsibility payment”
a. ERISA ∅ req ESHI/EBP/ESBP
 States ∅ req employers to provide HI d/t ERISA preemption
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3. ACA  Employer “Mandate” (Incentive)
a. Concerned with employer feeling as if ∅ have to provide coverage to employees d/t ACA IM,
subsidies, and MCD/MCR expansion  employees can get coverage through ACA.
 Avoid crowd-out of ESHI by other sources of coverage  aka “Free Riding” Problem
 Employer getting benefit without having to pay for it.
1. Cost $$ to provide HI to employees. I can cut HI and still keep my employees
b/c they’ll be covered by ACA options.
4. “Play or Pay” Model to prevent Free-Riding (↑)
a. (1) Does employer have AT LEAST 50 FTEs?
 If yes, then subject to mandate:
b. (2) When will employer have to pay a penalty? Yes if:
 Trigger 1: Employer fails to offer minimum essential coverage to substantially all its employees
OR
 Trigger 2: Employer offers coverage but:
 2(a): Fails to provide “minimum value”  Actuarial value (% of subscriber costs actually
covered by plan) = <60%
OR
 2(b) It is unaffordable  employee’s req’d contribution to cover self > 9.5% of household
income
 AND at least one employee uses a tax credit to buy coverage on X∆
c. ***MUST HAVE TRIGGER 1 or 2(a) or 2(b), AND 1 employee gets tax credit from X∆ for employer
to pay penalty.
E. Subsidies: Insurance Affordability (tax credits for lower income purchasers)
1. Available to persons w/ income 100-400% of FPL
a. Calculated on sliding scale:
 100% of FPL = ↓ income  ↑ subsidy
 400% of FPL = ↑ income  ↓ subsidy
2. American Rescue Plan Act  increased subsidy amt and extended to incomes > 400% FPL (expires 2025)
3. KING v BURWELL (ACA’s regulation of private HI)
a. *Contested Language in ACA §: “exchanged established by a state”
b. I: Whether ACA’s tax credit applies or are available to residents of states who elected ∅ to make
own X∆, but has federally operated X∆ instead?
 States were supposed to create own X∆ but if they elected ∅ to make own X∆, HHS would
make federal X∆ for residents of that state.
c. F: IRS regulations made premium subsidies available to HI purchasers through state or fed run X∆.
 ∏ lives in federally run X∆, so under IRS regs, gets tax credit. BUT w/ tax credit, can’t claim
exemption from IM obligation: if buying HI would cost >8% of annual income, then exempt
from IM obligation. Look at anything additional s/p subsidy for what you have to pay to see if
triggers >8% income. With subsidy, ∏ = <8% of income so ∅ want subsidy  suing to say tax
credits ∅ available to ppl getting HI through federally operated X∆.
d. What’s at stake? Kicks out Subsidies and IM rules in these states.
 Ppl in states with fed run X∆ ∅ able to get tax credits b/c federally op’d & ∅ state op’d X∆.
 If ∅ receiving tax credits  destabilize the market b/c HIGH % of ppl buying HI with tax credits
& if tax credits ∅ available then they can’t afford policies on X∆.
 Ppl rely on tax credits to get HI, ∴ ↑ ppl who can’t get coverage w/o tax credits.
 ↓ amt of ppl getting coverage cuts into IM leg of stool b/c all these ppl would claim
exemption b/c w/o tax credits, cost of HI is >8% of income ∴ ∅ able to afford HI and exempt
from having to do so.
29
 Leads to death spiral/adverse selection b/c ppl are now exempt from IM/pool
 Undermines Employer shared responsibility b/c fewer employees could use tax credit to buy
insurance
 See employer mandate (↑)
 ** at least one employee uses tax credit to buy coverage  If no one is getting a tax
credit then this gets rid of employer shared responsibility payment
e. Ct sts: Look at congressional intent & protection of point of §
 § was ambiguous  subject to 1+ meaning so look at range of evidence to ID meaning.
 “Congress passed ACA to improve HI markets, ∅ destroy them. If possible, we must interpret
ACA in way that is consistent with former & avoids the latter.”
f. Ct is often deferential to Admin Agency to distribute the §
 ** BUT ** IRS interpretation is ∅ deferential here, b/c IRS ∅ experts in HI. Congress ∅ intend
for them to answer these questions.
 Ct takes away deference to admin agency b/c new POTUS could direct IRS to issue new
regs ∆’ing availability of tax credit  instability.
 Ct takes availability of subsidies away from IRS for good, limiting Executive branch.
1. Congress is now only branch who can come in to clarify what they meant, ∅
exec branch.
F. Insurance Marketplace
1. Metal Tiers  different types of plans available & diff cost sharing
a. Actuarial Value  measure of % of HC expenses a plan would cover ON AVERAGE for standard pop.
 On average: HI covers 70% and individual covers 30%
 *** If plan covers < 60%  junk coverage. Enrollee pays 40%+ (large amt)
 TRIGGERS Employer Mandate Penalty (∅ min value)
b. Bronze
60% (AV)
Lowest premium & AV  ↓ coverage and ↑ OOP costs
c. Silver
70% (AV)
d. Gold
80% (AV)
e. Platinum 90% (AV)
Highest premium & AV  ↑ coverage and ↓ OOP costs
 Each tier on avg will have the same coverage, despite ∅ having identical cost sharing.
2. Essential Health Benefits (EHBs) (§18022: pg 531): required coverage benefits by ACA
a. Competing ACA Goals
Standardized Plans
Diversity of Choices
Promotes predictability: know what you get
Pick the plan that best suits consumers needs
for what price & allows for comparisons
Ensures every policy on X∆ = certain minimum Promotes competition among insurers
coverage
(preserving free market)
Information symmetry: consumer has as
Permits insurers to continue offering existing
much info as seller
policies as long as meeting minim coverage
req.
Standard plan prevents consumer getting
“hoodwinked” or duped.
b. Required for ALL insurances (on X∆ or not!)
c. See pg 531 for list. (Emergency services, preventative health, maternal care, etc)
d. ∅ apply to large group insurance or self-insured, b/c they typically already provide these basic
benefits in their coverage.
e. Variations in OOP costs or # visits allowed.
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f. HHS req’s each state to choose a “benchmark plan” to ID EHB for that state.
 ALL HI/health plans in state MUST offer benefits substantially equivalent to those of
benchmark plab
 ***EHBs mat ∆ drastically from state to state but are consistent w/i state.
ACA CONTINUED
Builds on existing system of private HI
Encourages employers to continue providing
coverage
ACA ∆’d
Addresses underwriting practices harmful to
consumer
Pursued social solidarity vision of HI
Tax subsidies + marketplaces ease consumers’
ability to buy HI
Req’s plans to provide certain level of coverage
G. Other Federal Laws Regulating Insurance
1. COBRA  Right to continuation coverage
a. Can continue coverage for certain time & reasons
 Who: Qualified beneficiaries (worker and family)
 When: Qualified events
 Job loss; ↓ hours, death of employed spouse, divorce from employed spouse
 Employers with 20+ employees offering HI must permit continuation of coverage but
beneficiary may have to pay entire premium
 Temporary coverage lasting 18-36 months (depending on event) to bridge to new coverage.
b. HIPAA  Portability protection to take HI from 1 job to another
 Addresses job lock.
 Permits employee to move to new employer w/o being subject to PEC or other exclusions.
 HIPAA put limitations on PEC exclusions in employer group HI
 Exclusions cannot last > 12 months
 If employee had previous coverage, must count that coverage time against PEC exclusion
period (“creditable coverage”)
 Group HI plans prohibited from discriminating against individs based on health status in
establishing eligibility and premiums for individ in group
 Can’t charge individual in group more b/c they have health condition.
 ∅ limit how much HI Co can charge employer (premium) for providing coverage to group or
require coverage of particular benefits
 Employer may charge entire group a higher premium to cover 1 individual’s illness if
insurance co charged employer higher premium for coverage.
X.
MCR/MCD
A. MCR
1. Who receives benefits – automatic eligibility  no $$ means test)
a. 65 y/o and older
b. “Permanently disabled” for SS purposes (s/p 2 yr wait period)
c. Ppl w/ specific conditions: ESRD, ALS
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2. What benefits are covered?
a. Part A – Hospital insurance (in-pt)
 In-pt hospital care plus other institution-based services (home-health, hospice care, extended
care, SNF);
 If paid into SSI payroll tax for long enough, then automatic coverage at 65 for this benefit.
 If ∅ paying in long enough, can still get coverage with additional premium paid s/p 65 y/o
***A & B = Subject to limits on amt & duration (limit # in-pt days) & signif cost sharing (deductibles +co-pay)
***A & B ∅ cover vision, dental, hearing.
 As a result of MCR cost share/lack care  purchase supplementary private insurance 
Medigap insurance for MCR coverage gaps/MCD/retiree health benefits
b. Part B – Supplementary medical insurance
 MD office, out-pt services, other services, lab services, ambulatory care centers.
 Voluntary  decide if want to participate at 65 or not, but if yes  must pay premium.
c. Part C – MCR Advantage (combo A, B, & D)??
 ∅ new covered benefit, but new way of paying for & delivering covered benefits
 An alternative that beneficiaries can choose instead of Parts A & B.
 Beneficiaries enroll in private health plans that provide all benefits covered under Parts A, B, &
(often) D, & occasionally additional benefits
 Fed gov’t pays for coverage to private HI who agrees to cover all benefits of Parts A, B, D to
beneficiaries + premium.
d. Part D – Rx drug benefit
 Provides beneficiaries with Rx drug coverage by enrolling in private drug-only risk bearing
plans
 MCR law establishes a standard benefit that private plans have to cover.
 Voluntary benefit (like Part B) with premium, eligibility is automatic, but ∅ automatic
enrollment at 65. Must elect to enroll.
 **Low income subsidy helps with premiums for beneficiaries < 150% FPL
3. How will program pay providers for benefits?
a. Part A & B  FFS model paid to individual providers directly by MCR.
 Free choice of providers, no in-out netowrks.
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b. Part C & D  Fed gov’t pays premium to private health plans who agrees to cover all benefits of
MCR Parts A, B, D health services to beneficiaries
4. Who runs/administers the program & who has enforceable rights?
5. How is the program financed (i.e. where does the funding come from)?
6. BELLEVUE v LEAVITT
a. F: Hospitals that are challenging something the agency did that has to do with how they are getting
paid. Hosp ∅ like what agency did to adjust formula for payment for providing services to MCR
beneficiaries
b. I: Were CMS’s adjustments to the formula for paying hospitals who provide services to MCR
beneficiaries valid?
c. MCR system for paying for in-pt hosp care
 Hosp (room/board/ancillary things) & MDs bill separately & are reimbursed separately.
 Prospective Payment System (PPS)  CMS (admin agency/buyer/payer/insurer) sets the price
in advance that it will pay sellers for services
 For hosps: MCR reimbursement for each in-pt admission depends on Dx PPS-DRG
 In-pt PPS (IPPS)  base payment is adjusted for hosp’s labor & capital costs.
7. What might be some unintended consequences of reliance on DGRs in the IPPS?
 DRG creep/upcoding
 Incentive to d/c pts quicker but sicker b/c no ↑ benefit in pay to keep Tx pt at hosp.
B. MCD
1. Fed-State Cooperative program  so essentially 50 diff MCD programs
a. Administered by the states but subject to fed §/reg standards that go along with fed $$xc
2. Who receives benefits  MCD expansion
a. Categorically needy (elderly, disabled, children, caretaker parents, preg women & kids) & meet
needs test/ low income
b. Medically needy  fell into category but too much income to meet means test for welfare/MCD,
but ∅ enough $$ to pay medical bills
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c.
3. What benefits are covered?
a. Health services and LTC services
4. How will program pay providers for benefits?
5. Who runs/administers the program & who has enforceable rights?
6. How is the program financed (i.e. where does the funding come from)?
7. NFIB v SEBELIUS (ACA CASE)
a. Constitutionality of MCD expansion
b. Ct relied on: Congress’s spending clause
 Congress has power to spend for gen welfare
  ability to offer grants to states if they behave in a certain way/play by fed rules
c. Ct found: MCD expansion exceeded Congress’s spending power
 b/c if state ∅ comply it lost ALL of its MCD funding  so much $$ is at stake w/ this loss
 Old MCD funds tied to new MCD funds – shift in kind ∅ degree.
 Threat of losing existing MCD funding if ∅ agree to new program = economic dragooning
 Congress crossed line from persuasion to coercion.
d. Ct ∅ strike expansion entirely
 MCD expansion is unconstitutionally coercive but remedy is to sever or limit HHS Sec’y’s ability
to w/hold existing MCD funding (pre-aca coverage) from states that ∅ expand
 FX’ively makes expansion optional for state
XI.
PROFESSIONAL RELATIONSHIP IN HC ENTERPRISES
A. Staff Privileges & Hosp-MD Contracts
1. Clarifying Terms:
a. Hosp Privileges (admitting/clinical/staff privileges)
 MD is approved by hosp to admit or Tx pt’s once in hosp
 Gives MD ability to practice
b. Medical Staff Membership
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 Access to hospital  affiliated w/ hosp
 Ability to weigh in on issues of hosp  having a say
 Being in the club  membership and governance rights/responsibilities.
 With respect to how medical care is provided in the hospital.
c. MD as a hosp employee
 Member of MedStaff ∅ mean hosp employee
 Having staff priv ∅ mean hosp employee
d. Personal services K w/ MD
 X∆ of money
 MD practices on own and bills own pt’s (like indep K’or), but may have more admin role in
dept (like scheduling, director of dept)  getting paid by hosp for admin services ∅ clinical
services.
e. Hospital-Based MD
 Only providing services w/i the hospital
 ∅ have practice o/s hosp but has exclusive K to provide all care w/i dept that hosp needs.
 Ex. Radiology. Hospitalist. ED MD. Anesthesiologist. Pathology.
2. Who is ultimately responsible for credentialing decisions (who can be on hosp staff or med staff?
a.  Hosp governing board or Board of Directors/Trustees
 Bears responsibility for who to let on staff, who to grant privileges or credentialing to, & who
to limit or terminate
b. Med staff is responsible for setting rules and procedures to apply for who to credential, what
process to follow to terminate, investigates and gathers info to give recommendation to governing
board so they can make final decision on who to credential, renew credentialing, admit to medstaff
or terminate.
 All goes into MedStaff bylaws.
 Board has its own bylaws to follow.
3. Staff Privileges Decisions = HIGH STAKES
a. If revoked could FX livelihood b/c ∅ able to Tx pts at hosp
b. Could negatively FX reputation to get job at other hospitals
 **Adverse actions must be reported to NPDB & hosp are req’d to check prior to credentialing
4. SOKOL v AKRON GMC
a. F: Hosp restricted ∏/MD’s clinical/staff priv based on statistical outcomes measure showing HIGH
risk adjusted (risks pt brings to operating table) mortality rate compared to other MDs using indep
cardiologist who used Soc. For Thorac Surg professional standards statistical analysis  ∅ individual
cases of MD
 Conclusion  ∏/MD had higher than expected, risk adjusted mortality rate
b. Judicial Standard of Review
 Process Review Point: Did hosp provide procedural due process, aka fundamental fairness?
 Sufficient Notice: did pt receive meaningful notice of problems?
1. ∏ sts hosp ∅ point to specific pt or case where problems arose
 Fundamental Fairness
1. Ct will look at CL/case law so see if anything in Jx about notice requirement.
2. Ct will also look at MedStaff bylaws, contractual in nature, to see if it requires
any more procedural protection than CL does.
a. Source of guidance to Ct for peer review cases
b. Here: for insuff notice, bylaws ∅ K’lly provide for quality of notice
exceeding that required by state CL
 I: Did ∏ have sufficient notice, was fund fairness satisfied in regards to peer review
process?
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
H: Ct sts: Yes, hospital decision was valid b/c fundamental fairness was met  sufficient
notice was given: ∏/MD knew about statistical study that hosp was comparing MD’s
stats to, could ID/knew which patients died/adverse outcomes, could access autopsy
reports.
1. Knew what the hospital was arguing based on and could have done research to
mount a defense.
 Substantive Review Point: Was hospital decision invalid because it was “arbitrary, capricious,
or unreasonable” or not supported by “any evidence” (poorly supported)?
 Deferential standard of any evidence
1. H: Ct states that there was SOME evidence.
 Most Jx ∅ have any judicial review on merits of hospital decision on staff priv review.
This Jx has minimal of ANY EVIDENCE
5. Sources of Guidance for StaffPriv Actions
a. CL/case law regarding fundamental fairness
b. Hosp’s own MedStaff bylaws
c. State § to establish req’s (if state has them)
d. JC Accreditation standards (creates both procedural and substantive standards)
e. Fed HC QI Act standards
 Gives hosp immunity from damages associated w/ credentialing decisions b/c it wants hosps
to engage in peer review w/o fear of being sued.
 Creates presumption of immunity for hosp unless:
 ∏/MD can overcome presumption by proving hosp acted unreasonably
1. ∏/MD must prove 1 of 4 things on pg 705
 ∅ provide immunity for civil rights claims
 HCQIA created the NPDB
6. MATEO-WOODBURN v FRESNO COMM’Y HOSP
a. F: Hosp restricted MD’s priv b/c hosp has issue with anesthesia dept  system of scheduling caused
pt safety concerns, delays, etc… (∅ a quality-of-care issue – see Sokol – but an administrative issue
 whole dept involved)
 Initially hospital had open dept (any MD on own can apply and if qualified can be granted
priv), but now closed dept (a group of MDs who exclusively K to provide services to this hosp
alone & nowhere else. No other providers can apply.)
 Xsition from open to closed  problems (scheduling, delays, pt safety concerns)  new reg’s
 ∅ all anesthesiologists from open that xsition’d agree w/ new rules  Mad & sue.
b. Hosp: Looking out for quality of care for pts & wants efficient system.
 Admin decision for how to best run hospital, & ∅ stating that any one MD provided poor
quality of care.
c. Ct reasoning rejecting MDs lawsuit:
 Fund Fair = making sure process if fair when something big is at stake.
 But decision ∅ harm MDs reputation or FX their livelihood
 Distinguish hosp decision regarding administrative policy to ensure quality of care to pts
holistically vs decision regarding individual MDs quality of care
 Wanted efficient & controlled system to achieve QoC goal
 Ct give hosp deference to make these decisions.
 Finds no ∆ in manner/procedure for credentialing MDs & admitting them to MedStaff
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XII.
STRUCTURE OF HC ENTERPRISE
A. HCO Structures & Governance
1. NFP state law as NFP Corp
a. Operated to advance some kind of public charitable mission
b. Can seek tax exemption under fed and state law
c. No SH  no ownership interest that can be harmed if org ∅ run well.
2. FP  state law as Corp, LLC, LLP
a. Operated to advance financial interest of owners
b. Subject to taxes
c. SH = owners with police power over & interest in BoD/Sr. Mgmt making money for org.
3. Hosps are usually (NFP/FP) Corporations & governed by Board (Trustees/Directors respectively)
4. BoD  governs institution & makes decisions on high level
a. Determines MVV; Org’l planning; ensures adeq resources to carryout MVV; Monitors programs &
services; ensures integrity of Org
b. In NFP BoD = volunteers, ∅ FT job. ∅ intimately involved with running of board.
5. Sr. Mgmt/C-Suite  employees with direct knowledge of going on in org.
a. Led by CEO  runs institution’s day to day activities.
 Direct operational knowledge; industry expertise; administrative duties of board typically
delegated to CEO.
B. Fiduciary Duties
1. **Both BoD & Hosp Admin owe fiduciary duties to org.
a. Requires putting welfare of org before own interests.
2. Duties are owed to corp & can be enforced by the org or someone acting on org’s behalf (memberdirector-atty general)
3. Duty of Care: Req’s Director to:
a. Act in good faith  what would RPP do in like position & in similar circumstances;
b. Act in an informed (about org’s operations) and careful manner; AND
c. Affirmatively protect the interests of the organization.
4. Duty of Loyalty: Req’s Directors to:
a. Act w/o self-interest/self-dealing;
b. Act in good faith; AND
c. Act in the best interests of corp at all times
 ∅ put individual interests before corp’s.
5. **BOTH DUTIES** require an affirmative duty to protect the interests of the corp & affirmative
obligation to refrain from conduct that would injure the corp.
6. NFP (b/c of charitable MVV)  Duty of Obedience: Req’s Directors to:
a. Ensure charitable mission of org/corp is carried out
 Stay inline with MVV of corp & corp charter of org.
b. *Can be seen as part of duty of loyalty, but for NFP only.
7. STERN v WEBB
a. F: Board members accused of trying to enrich themselves & breached fiduciary duties
 Conspiring to enrich themselves & affiliated financial institution
 ∏ claim  ∆ took $$ belonging to hospital & put it in financial institutions
(bank/savings/loan)
1. This is okay, BUT members of board had ownership interest or were part of
board of institutions
2. Large amts of $$ were put in institutions that directors had interest in & were
benefitting those financial institutions but ∅ benefitting hosp
a.  NO RETURN for hosp, just financial institutions
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3. Breach of Duty of Loyalty
a. Placement of funds where directors had an interest  self-dealing b/c
interlocking directors (at hosp & fin inst) & using position at hosp to
benefit fin inst
 Breaching fiduciary duties in Mgmt of Sibley hospital funds
 Concerned about Board members ∅ very involved in oversight of what’s going on.
 Ct sts: no evidence of conspiracy but did find that they breached fid duty (loyalty & care)
 Breach of Duty of Care:
1. Board was assigned to committees, but they never actually met.
2. Instead, they permitted two MDs to run everything without attempting to
inform themselves or be involved
a. ∅ look at reports or audits provided.
3. Ct sts: They have a duty to supervise what’s going on with Sibley’s investments
& they ∅ do it.
b. Ct Remedy (harm to corp was minor):
 Do better  here are some guidelines of how to act & Directors pay attention.
 ** Interlocking directorates is ∅ impermissible (Ex: CEO w/ budget or salary on BoD deciding
budget or salary) — however —
 Steps/Processes to put in place to avoid breach of fid duties when self-dealing xaction is
considered?
1. Recuse self from consideration of xaction (∅ participate in vote)
2. Disclose specific interests
3. 3PTY to give board analysis of CEOs avg hosp finances and pt outcomes to
decide CEO salary
a. Duty of care  to be informed (acq info relevant to decision you’re
making) in order to make decision
4. Disclose full conflict of interest and knowledge of why xaction may ∅ be in best
interest of system
5. Checks/balances  document/memorialize
a. This is what we are doing and why  be xparent
6. Be aware of & meet min req’s of formal hosp laws
7. Acquisition of info regarding xaction from indep source.
8. IN RE CAREMARK
a. F: SH claim that board members inattention (what they failed to do) permitted corp’s alleged
violation of AKS, which led to plea agreement & payments of approx. $250M by Caremark, a FP hosp
 $250M loss to SHs profit.
b. I: What is the boards responsibility with respect to the org & monitoring of the enterprise to assure
that the corp Fx’s w/i the law to achieve its purposes?
 Board’s purpose is to seek to advance the corp’s purposes  but must do it in a way that’s
legal
 Did you have an effective compliance program?
c. Compliance Progams
 What do they do 
 Educate ppl working in the company on how to do their job w/o violating the law
1. Ex: HIPAA, Fraud/Abuse
 Oversight  look at how hosp’s Fx’s and practices & see if they are complying w/ the law
& detect violations of the law when they occur.
 Detect violations of law, Report violations to pub officials/gov’t/CCO when ID’d, take
prompt voluntary remedial efforts
 Prevent violation of law by training staff on how to perf jobs w/o violating the law
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d. Here: What is the board’s responsibility in respect to compliance programs
 Exercise oversight & monitor
 Ensure systems in place to accomplish goals of compliance programs
e. Ct approach: more on relaxed side  ∏ almost always loses these kinds of cases.
 BoD must try in good faith to assure adeq compliance program
 ∅ a high bar to set  assure corp info & reporting system that board decides is adeq.
 Failure to meet low bar or no compliance program may make BoD liable for breach of
fid duty of loyalty for losses caused by corp noncompliance.
 Ct Finds: Board did enough to fulfil fid duties. ∅ need compliance program that successful at
preventing or detecting violations BUT must make good faith attempt to do so
9. Compliance Takeaways:
a. Caremark: Board members are ∅ guarantors of corp compliance of laws/regs, but they do have duty
to develop, implement, & assess a compliance program
b. HC Compliance = growing field
c. In large, sophisticated compliance programs, CCOs often have direct access to board, may be attys
d. ACA req’s providers who participate in MCR/MCD to have compliance programs
XIII.
TAX-EXEMPT HCO
A. Federal Tax-Exemption under §501(c)(3)
1. How to qualify?
a. Lists different purposes that NFP org may pursue
 Religious, charity, scientific, education, amateur sports, NO cruelty to animals (NOTE: health ∅
listed)
b. Org has to be organized for that purpose and operated for that purpose
 Organizational Test (corp charter):
 How is it organized or set up as a matter of state law
1. (Is it set up as a NFP org for stated purpose)
 Operational Test:
 Look to see what it does – does it operate in a way that furthers purpose
 Can’t operate for private benefit of XYZ rather than for exclusive benefit for the
community/public
2. How to avoid disqualification?
a. (1) No part of net earnings inures to the benefit of any private SH or individual
b. (2) No substantial part of activity to influence legislation  limits on amt of
propaganda/lobbying/politic’ing can be involved in
c. (3) ∅ participate or intervene in political campaign of candidate for specific public office (can’t get
involved at all)
3. Sub-reg guidelines  ∅ binding law  Revenue Rule = sub-reg
a. Administrative pronouncements by IRS/Public position of IRS/opinion to certain issues
b. Provide useful guidance on how IRS interprets code
((Comment regulations = binding law))
4. Revenue Rule 69-545 (nonbinding) interprets §501(c)(3)
a. How can a hospital be found to organized and operated exclusively for a charitable purpose?
 Promotion of health = charitable purpose for §501(c)(3)
 For general benefit and health promotion of the community as a whole/at large, even
though ∅ everyone in community will receive the benefits.
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

Class of beneficiaries cannot be so small that ∅ reach entire community
Community Benefit Standard
1. How to meet this standard – factors:
a. Having open ER, independent community board, participating in
MCD/MCR
b. No precise way of measuring or acct’ing for benefit received by
community
5. §501(r)  ACA additional conditions for tax-exempt  comment reg ∴ binding
  Still must meet §501(c)(3): Organizational and Operational tests, + Community benefit
standard
b. Pt Focused Protections that tax exempt hospitals must do:
 Establish & publicize written financial assistance policy (FAP) & Emergency medical care policy
( basically saying will comply with EMTALA.
 Limit hosp charge amt to ppl eligible for assistance under FAP receiving emergency care or
other necessary care  can’t charge more than amt generally billed to insurers.
 Reasonable efforts must be made first to determine if pt eligible for assistance under FAP
before aggressively or extraord’ly using collection actions.
 ***Reg ∅ establish substantive req’s for FAP for how generous or stingy it has to be  no
minimum set  tax exempt hosp will determine that, however they’d like. Just needs an FAP.
 State law may have requirements
 Publishing FAP (#1) will FX if #2 & #3 are meaningful
c. Community Focused Protections that tax exempt hospitals must do:
 Must conduct a community health needs assessment (CHNA) & once health need ID’s, must
adopt & implement strategy once every 3 years.
B. Hosp Tax Exemption & Physical Recruitment
1. Revenue Rule 97-21
a. Hops usually ∅ trying to hire MD as employee, but trying to get MD to come to hosp’s area, get staff
priv at this hosp, & Tx pts who receive care at hosp.
 BUT could pose a threat to tax exempt status
 Could lead to violation of private inurement/benefit
1. Net profits are going to MD’s benefit & ∅ using charitable assets to further
charitable purpose of org  private benefit & ∅ community benefit.
b. Private Inurement (insiders) Prohibition
 A tax-exempt org cannot let insiders (person in control or with influence: ex Board members,
family of, CEO, MedStaff, etc) to siphon off charity’s income or assets for personal use.
c. Private Benefit (broader) Prohibition
 A tax-exempt org cannot be organized or operated for the benefit of private interests (∅
limited to insiders)
d. IRS won’t see private benefit that is incidental to hosp business in effort to pursue charitable
purpose as violating prohibition on private benefit.
2. Factors to consider to ID if MDs recruitment package violate the prohibition on private
inurement/benefit?
a. Objective evidence of need in community or hosp that MD will specifically address (CHNA, MUA,
current MDs ∅ accept MCD but this one does)
b. Recruitment furthers hospital’s charitable (exempt) purpose
c. MD will become part of hosp’s MedStaff
d. Recruitment package in written agreement, approved by hosp board.
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XIV.
FRAUD & ABUSE  (Can violate 1 § w/ 1 offense or violate multiple §s w/ 1 offense)
A. FCA (∅ HC specific law – others yes)
1. Elements: ∆ is subject to liability when:
a. ∆ presents or causes to be presented a claim for payment or approval
b. Claim is false or fraudulent
c. ∆’s acts are taken knowingly (false)
2. Penalties = $10-21K per claim + treble (3x) damages sustained by Fed gov’t in paying out false claim
3. FCA Application in HC Settings:
a. Claim where no goods/services rendered but Provider tries to bill gov’t
 Ex. Pt is dead but Dr. bills for services as if pt were alive
 Ex. Bill for ambulance xport but pt never xported anywhere.
b. Claim for “upcoding” goods/services for higher reimbursement
c. Claim for goods/services not medically necessary
d. **Reverse false claims, subject to 60 day rule
 Gov’t pays out too much $$ to provider, but provider keeps it (esp. when provider knows they
were over paid and keeps $$ [31 U.S.C. §3729(a)(1)(G)])
 Once ID overpayment  60 days to return it.
 **Did you know or should you have known of overpayment  that’s compliance
programs are necessary to ID these issues.
e. “Implied false certification” as a false claim
 When submitting a claim to the gov’t for payment, you are implying that you are complying w/
K, §, regs obligations (material) in relation to submission
 Claim that fails to disclose claimant’s noncompliance with MATERIAL requirement
(§/reg/K’ual) of MCD/MCR payment
 If claimant ∅ in compliance, then failure to disclose noncompliance can = misrepresentation.
4. What level of knowledge (scienter) is necessary?
a. FCA § imposes liability on a person who
 Knowingly presents a false claim
 Actual knowledge
 Deliberate ignorance of truth
 Falsity/reckless disregard of truth or falsity
1. Can’t put head in sand & pretend ∅ to know what’s going on.
 **ACA added provision that no specific intent is req’d.
5. US v KRIZEK
a. F: Solo psychiatrist practitioner providing services to MCR/MCD pts. Charged with (1) filing claims
for Tx that was not medically necessary despite him stating they were necessary; (2) improper billing
 upcoding.
b. Medically Necessary Claim
 Ct sts gov’ts experts never saw pts, only reviewed their files
 Dr. K on stand, reviewed and justified necessity of services
 Ct exonerates Dr. K on MedNec claim, b/c gov’t ∅ put proof necessary to make its case
c. Improper Billing Claim
 Dr. K sts exams last 45-50 min while gov’t states should only be billing for 25-30 mins 
upcoding for higher reimbursement.
 Ct sts proper code was 45-60 min  provider ∅ have to be face to face w/ pt for time but time
needs to be spent on pt care (speaking to RNs, phone calls to consult other MDs)
 Bundle service = local and nat’l norm.
d. FALSE CLAIM HERE:
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 Sloppy billing & failure to supervise
 Wife defaulted to imputing 45-50 min code for every pt w/o asking Dr. K if he actually
spent that much time w/ each pt.
 Billing irregularities  improper billing submission.
 Dr. K ∅ make sure they were billing for correct time allotment.
 Dr. K acted with reckless disregard of the truth/falsity of claims submitted.
6. UNIVERSAL HEALTH SERVICES v US ex rel ESCOBAR  (how implied cert theory is used)
a. F: MD claimed to be licensed psychologist but school attended was ∅ accredited. Pt received
services from someone ∅ certified to give her medications  family sued.
 ∆ failed to disclose violations of MA MCD regulations regarding staff qualifications, licensure,
supervision
 Misleading, half-truths can  misrepresentation
1. Pt received services = true
2. Failure to state services = inconsistent & ∅ by qualified personnel.
b. H: SCt accepts false cert theory when:
 (1) Claim makes specific representations about goods/services
 AND
 (2) Failure to disclose noncompliance w/ material §/reg/K’ual req’s produces misleading halftruths.
B.
7. Materiality Req’s/Inquiry
a. If the gov’t had known the truth, would the undisclosed, misleading half-truth have made a
difference in whether or how much the gov’t paid out?
8. Qui Tam actions under FCA  ex rel ESCOBAR
a. Private party (relator) w/ direct & independent knowledge of false claim can file action on behalf of
Fed gov’t
b. Initial filing under seal (so ∆ ∅ know being investigated, esp if whistleblower still works there), DOJ
has 60 days to review, investigate, & decide whether to intervene & pursue action itself.
c. If DOJ ∅ proceed w/ action the qui tam relator can proceed on their own
 Relators = 15-30% share if gov’t wins
 Depends on if gov’t proceeds with action itself; extent of relator’s contribution to
prosecution; relator’s own involvement in violation of § (whistle blower w/i ∆s camp)
 § usually includes whistle blower protection to incentivize whistleblowing ($$)
 Qui Tam relator is doing work for & protecting interests of fed gov’t
1. QTR ∅ injured party here, fed gov’t is.
MCD/MCR Anti-Kickback § (∅ apply to PURELY private insurance)
1. Criminalizes conduct relating to payment of MCD/MCR benefits and civil monetary penalty & MCD/MCR
exclusion  can be devastating to providers b/c rely heavily on fed programs.
2. BROAD wording, so addresses a wide range of financial arrangements in HC marketplace.
3. Prohibits quid pro quo (QPQ) - X∆ arrangements meant to induce business involving fed HC programs.
4. AKS §: Criminalizes anyone
a. Whoever knowingly/willfully solicits or receives or offers to pay any remuneration (including
kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or kind –
1. Types of remunerations  cash, discounts, travel, rebates, meals,
entertainment, equipment, gifts, sponsorships, grants, etc.
 (A) in return for referring an individual for items/services/goods to be paid for by MCD/MCR
 (B) in return for purchasing, leasing, ordering or arranging such any good/facility/service/item
for which payment may be made in whole or in part under a fed health program (MCD/MCR).
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b. Shall be found guilty of a FELONY  fined up to $100K &/or imprisoned up to 10 years.
c. **BOTH PARTIES TO XACTION** can be found in violation. Initiator or receiver, but MUST be
knowing and willful in conduct to be convicted.
5. Policy Reasons
a. ∅ want MD making decisions based on what benefits them the most instead of what’s most
beneficial to pt  conflict of interest
b. Info Asymmetry – pt ∅ have access to info they need to make sound decisions – rely on MD
c. Drives up costs to Fed HC Programs d/t overutilization. Tax payer $$ being wasted
 ↑ costs to pt, fed gov’t, & tax payers
6. US v GERBER
a. F: ∆/Gerber owner of Co. CardioMed, provides holter monitors to pt’s s/p MD order, & MCR sends
payment to ∆. ∆ gives portion of MCR $$ to MDs to refer more pts OR to interpret the monitor
findings.
 ID Motivation
 ID payment by MCR
 Must be QPQ
1. “I’ll do X for you if you do Y for me” & “I’ll do Y for you if you do X for me”
 ∆ sts payment was to interpret holter monitor results
 Govt’t sts payment to induce future referrals of MD pt’s to holter monitor services.
 ∆ interprets some results on own and still pays MDs interpretation fee which was greater
than what MCR allowed for.
b. I: Are referrals that are only PART of the reason/purpose for payment enough for AKS violation?
 ∆ sts MD wouldn’t use him w/o the interpretation fee but also paid the fee b/c the MD was
actually providing a service (by interpreting fees). Referrals were only part of why they were
paid
c. H: Must show 2 aspects of intent for AKS violation
 (1) Motive/Inducement (Purpose to induce referrals)
 Renumeration must be paid in return for or to induce referral or purchase  focus is on
whether referrals were the motivation
1. Here: Ct sts that if 1 purpose of payment (∅ necessarily the only purpose) is to
induce referrals then violations of AKS
 AND (must show both)
 (2) Mens Rea
 § req’s knowingly & willfully
 ACA sts gov’t need ∅ show/prove specific intent to violate AKS, but must show intent to
perform the allegedly illegal act & some knowledge of general unlawfulness
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7. Regulatory Safe Harbors of AKS (pg 901)
a. IDs practice or types of financial arrangements to be safe & excluded from AKS’s wide range
 Limits overreach of §.
 If you meet the req’s of Safe Harbor Regs then you are safe from being prosecuted under AKS
b. Ex. Practitioner Recruitment (pg 908)
 Could potentially violate tax exemption and could potentially be AKS violation
 How is practitioner recruitment a QPQ (always ID QPQ)
 Any renumeration paid from hosp to dr. to induce dr. to move to area/set up practice in
area/ be on med staff/refer pt to hosp if pt needs hosp care if pt’s will be paid for by fed
HC program.
 Safe harbor § sts sometimes Physician Recruitment is okay  sts under what circumstances
it’s okay & if you meet all circumstances/conditions then we won’t come after you for AKS
violation for recruitment packages
 Conditions:
 Hospital must be located in a HCP shortage area
1. ∅ just paying MD for referral to enrich hospital but doing so for a public benefit
b/c shortage are of HC providers in that are
c. Common elements of Safe Harbor exemption to show more than just referrals
 Fair Market value for what they are providing and achieved through an arms-length xaction
 Sufficient duration (lasting longer than 1 year)
 Appropriately documented.
 Compensation ∅ based on volume or value of referrals
d. SH regs are narrow and ∅ provide wide protection
 Full compliance with SH may be difficult, BUT
 Just b/c ∅ covered under SH ∅ mean automatically violating AKS (just no SH protection)
 Gov’t bears burden of proving criminal intent.
8. AKS prohibits QPC arrangement to induce referrals for services/items paid for by MCD/MCR
a. Gov’t must prove 2 aspects of state of mind
 Purpose to induce referrals &
 Knowing and willing conduct
b. SH for common arrangements provide shelter from prosecution if ALL conditions = satisfied;
 If ∅, then gov’t considers all facts and circumstances.
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