DELEGATION

TEX. OCC. CODE § 157.005: “A person to whom a physician delegates the performance of a medical act is
not considered to be practicing medicine without a license by performing the medical act unless the
person acts with knowledge that the delegation and the action taken under the delegation is a violation of
this subtitle.”

TEX. OCC. CODE 157.001:

(a) A physician may delegate to a qualified and properly trained person acting under the
physician's supervision any medical act that a reasonable and prudent physician would find
within the scope of sound medical judgment to delegate if, in the opinion of the delegating
physician:
(1) the act:
(A) can be properly and safely performed by the person to whom the medical act
is delegated;
(B) is performed in its customary manner; and
(C) is not in violation of any other statute; and
(2) the person to whom the delegation is made does not represent to the public that the
person is authorized to practice medicine.
(b) The delegating physician remains responsible for the medical acts of the person performing
the delegated medical acts.
(c) The board may determine whether:
(1) an act constitutes the practice of medicine, not inconsistent with this chapter; and
(2) a medical act may be properly or safely delegated by physicians.

Tex. Occ. Code 157.052(c) - At a site serving a medically underserved population, a physician licensed
by the board may delegate to a registered nurse or physician assistant acting under adequate physician
supervision the act of administering, providing, or carrying out or signing a prescription drug order, as
authorized by the physician through a physician's order, a standing medical order, a standing delegation
order, or another order or protocol as defined by the board.
• “Site serving a medically underserved population” means:
(A) a site located in a medically underserved area;
(B) a site located in a health manpower shortage area;
(C) a clinic designated as a rural health clinic under 42 U.S.C. Section
1395x(aa);
(D) a public health clinic or a family planning clinic under contract with the
Texas Department of Human Services or the Texas Department of Health;
(E) a site located in an area in which the Texas Department of Health
determines there is an insufficient number of physicians providing services to
eligible clients of federal, state, or locally funded health care programs; or
(F) a site that the Texas Department of Health determines serves a
disproportionate number of clients eligible to participate in federal, state, or
locally funded health care programs. TEX. OCC. CODE § 157.052(a)(4)

• “Medically underserved area” means:

A. an area in this state with a medically underserved population;
B. an urban or rural area designated by the secretary of health and human
services as an area in this state with a shortage of personal health services or
a population group designated by the secretary as having a shortage of those
 services, as described by 42 U.S.C. Section 300e-1(7); or
C. an area defined as medically underserved by rules adopted by the Texas
Board of Health based on:
i. demographics specific to this state;
ii. geographic factors that affect access to health care; and
iii. environmental health factors.
Tex. Occ. Code § 157.052(a)(2)

• “Health manpower shortage area” means:

A. an urban or rural area of this state that:
i. is not required to conform to the geographic boundaries of a
political subdivision but is a rational area for the delivery of health
service;
ii. the secretary of health and human services determines has a
health manpower shortage; and
iii. is not reasonably accessible to an adequately served area;

B. a population group that the secretary of health and human services

determines has a health manpower shortage; or
C. a public or nonprofit private medical facility or other facility that the
secretary of health and human services determines has a health manpower
shortage, as described by 42 U.S.C. Section 254e(a)(1).
Tex. Occ. Code § 157.052(a)(1)

 “Registered nurse” means a registered nurse recognized by the Texas Board of

Nursing as having the specialized education and training required under Section
301.152. (e.g. an “advanced nurse practitioner). TEX. OCC. CODE § 157.052(a)(3)

Physician supervision is adequate for the purposes of this section if a delegating physician:
1. is responsible for the formulation or approval of the physician's order, standing
medical order, standing delegation order, or other order or protocol, and periodically
reviews the order and the services provided patients under the order;
2. is on-site to provide medical direction and consultation at least once every 10
business days during which the advanced practice nurse or physician assistant is on-site
providing care;
3. receives a daily status report from the advanced practice nurse or physician
assistant on any problem or complication encountered; and
4. is available through direct telecommunication for consultation, patient referral, or
assistance with a medical emergency.

• Tex. Occ. Code 157.0541(b) – At an alternate site, a physician licensed by the board may delegate to
an advanced practice nurse or physician assistant, acting under adequate physician supervision, the
act of administering, providing, or carrying out or signing a prescription drug order as authorized
through a physician's order, a standing medical order, a standing delegation order, or another order or
protocol as defined by the board.
o “alternate site” means a practice site:
(1) where services similar to the services provided at the delegating
physician's primary practice site are provided; and
(2) located within 75 miles of the delegating physician's residence or
primary practice site.
 o Note that there are different standards for “adequate physician supervision” under this statute.
See TEX. OCC. CODE § 157.0541(c).

• B/c the nurse and PA can sign a prescription drug order, it is unnecessary to leave a presigned
prescription pad.

MEDICARE/MEDICAID CERTIFICATION

o Can shut down, but are intermediate sanctions – state inspects, state closes, Medicare withdraws
funding, 15 day notice prior to termination, patients can stay until course of treatment done
 Have to give procedural DP, but no constitutional claim b/c no state action [Heckler –
Medicare does surveys]
 Cospito – loss of benefits

o Certification is a voluntary procedure for health care organizations to meet the qualifications for
participation in government funding programs (as opposed to Licensure, which is a mandatory
governmental process, and accreditation, which is a voluntary private process.)
o To receive funding under the Medicaid Act, “a state must submit to the Secretary and have
approved by the Secretary a plan for medical assistance which meets the requirements of” 42
USC sec. 1396a(a)… “The plan must include descriptions of the standards and methods the state
will use to assure that medical or remedial care services provided to the recipients are of high
quality… The appropriate state agency must determine on an ongoing basis whether the
participating institutions meet the requirements for continued participation…” In conducting the
review the state must use federal standards, forms, methods and procedures… See Textbook Page
401 State of Smith v. Heckler).
o When a Hospital enters into a Medicare provider agreement it specifically undertakes to comply
with Federal statutes and regulations governing Medicare certified hospitals; see section 1861(e)
of the Social Security Act, 42 U.S.C. § 1395x(e); 42 C.F.R. Parts 482 and 488. Idem.
o “CMS may terminate a provider's agreement to participate in the Medicare program if CMS
determines that the provider "fails substantially to meet the applicable provisions of section
1861." Section 1866(b)(2)(B) of the Act. CMS may also terminate a provider's agreement to
participate in the Medicare program where the provider is not in substantial compliance with the
provisions of title XVIII of the Act or the applicable regulations or if the hospital no longer
substantially meets the appropriate conditions of participation or requirements. Section 1866(b)
(2)(A) of the Act; 42 C.F.R. sec. 489.53(a)(1), (3).
o A hospital that is dissatisfied with CMS's determination to terminate it from participation in the
Medicare program is entitled to a hearing. Sections 205(b), 866(h)(1) of the Act; 42 C.F.R. sec.
498.5(b), 498.3(b).
o The process of determining compliance and challenging adverse decision provide substantial
procedural protections to providers. See Textbook page 407.
o The most intense disputes arise when findings are such that the facility is shut down immediately,
without a chance for correction or rebuttal. These shutdowns have been challenged as
unconstitutional but usually without success considering the patient protection concerns at stake
and the ample procedural rights following a temporary shutdown. See Textbook page 407.
o Remember that a constitutional challenge requires state action, which usually doesn’t exist for
private accreditation (like that of the Joint Commission for the Accreditation of Hospitals).

TEO + ANTITRUST

1. Page 380- The History of Marcus Welby Hospital and How it Grew
A charity will be tax exempt under section 501(c)(3) of the Internal Revenue Code if it is organized
exclusively for the charitable purposes set out in its articles, no part of its net earnings inure to the benefit
of a private individual or shareholder, and so long as it does not engage in certain lobbying and political
activities. Harding Hospital, Inc v. United States. The provision of free or below cost service to those
unable to pay is no longer essential. Eastern Kentucky Welfare Rights Organization v. Simon. A nonprofit
cannot legally divert assets to any purpose other than its charitable purpose set out in its Articles, or else,
face Ultra Vires liability. Queen of Angels Hospital v .Younger. To keep nonprofit tax exempt status
hospitals must demonstrate their property is being used exclusive for their stated charitable purpose. Utah
County v. Intermountain Health Care, Inc.

2 Avoid Any Antitrust Violations under §1

Learned professions are not exempt from the Sherman Act. Weiss v. York. If there is a (1)
contract, combination, or conspiracy, (2) restraint of trade, and (3) an effect on interstate commerce, there
will be a violation of §1 of the Sherman Act. Id. A medical staff may satisfy the conspiracy requirement
within itself, but it will not be able to conspire with a hospital. Id. However, if the actors of the conspiracy
are operating in the ordinary course of business, and the economic motivations are parallel to the
corporate body as a whole, there is only one entity and thus no conspiracy. Id. An actor will not violate §1
by way of restraint of trade if under all the circumstances there is not unreasonable restraint. Id. But,
boycotts or concerted refusals to deal are per se illegal restraints of trade. Id. Plaintiffs claiming per se
violations must make a threshold argument showing whether the practice is not justified by plausible
arguments that it is intended to enhance overall efficiency and make markets more competitive, and
showing that the defendant possess the market power and exclusive access to an element essential to
effective competition. Hassan v. Independent Practice Associates. So long as it is clear from the record
that the agreement is not plainly anticompetitive there will not be a per se violation. Arizona v. Maricopa
County Medical Society.

3 Avoid Any Antitrust Violations under § 2

§2 of the Sherman Act prohibits monopolization. Sherman Act §2. To be considered a monopoly an actor
must possess monopoly power in the relevant market and have willfull acquisition or maintenance of that
power as distinguished from growth or development as a consequence of superior product, business
acumen, or historic accident. Ocean State Physicians Health Plan, Inc v. Blue Cross & Blue Shield of
Rhode Island. Exclusionary conduct tends to impair the opportunities of rivals, but also either does not
further competition on the merits or does so in an unnecessarily restrictive way. Id. However, a desire to
crush a competitor standing alone is insufficient to make out a violation of the antitrust laws. Id. The
McCarran Ferguson Act exempts from the antitrust laws conduct which are part of the business of
insurance, regulated by the state, and not in the form of boycott, coercion or intimidation. Id. Three
criteria relevant in determining whether a practice is part of the business of insurance are (1)whether a
particular practice has the effect of transferring or spreading a policy holder’s risk, (2) whether the
practice is an integral part o the policy relationship between the insurer and the insured, (3) whether the
practice is limited to entities within the insurance industry. Id. Additionally, an insurer, like any buyer of
goods or services, is lawfully entitled to bargain with its providers for the best price it can get. Id.

TEO – FOR PROFIT JOINT VENTURE

o Can sell nursing home if organized to operate H, but use of funds is issue re:
inurement or not used to forward charitable purpose

o “The rules governing the use of the assets of a nonprofit charitable organization are well
 established: All the assets to a corporation organized solely for charitable purposes must
be deemed to be impressed with a charitable tryst by virtue of the express declaration of
the corporation’s purposes. . .It follows that a nonprofit corporation cannot legally divert
its assets to purposes other than charitable purposes.” Queen of Angels Hospital v.
Younger, citing Pacific Home v. County of Los Angeles (p. 423 text).

o Here, while the JV bt a non-profit corp and a profit corp is not per se invalid, and it’s ok
that MWH wants to sell its nursing home (which is separate from the hospital), so long as
it continues to run its hospital in LA with the religious, educational, and charitable
purposes set out in the Articles, MWH’s contemplated arrangement is invalid due to the
proposed use of the capital funds from selling the home:

o The arrangement bt MWH and the for profit HMO doesn’t appear to be at arms- length
with any definite benefit that will further the charitable mission of MWH.

o a) The 1% ownership interest for each of the Trustees is not appropriate: this
creates an inurement problem. Absolute dedication of assets to charity is a precondition
to exemption under section 501(c)(3).

o b) The discretionary 30% profit distribution “from time to time” as the HMO
Board chooses does not guarantee or even reasonably ensure a return on MWH’s
investment, that could be used to benefit MWH’s charitable purposes; instead, arguably it
could inure private benefit to the HMO.

o c) If the arrangement were more concrete, there would not necessarily be any
issue with a profit distribution so as long as the profits were used by MWH for some
purpose laid out in the Articles. A pledge by the HMO to use 35% or more of its
revenues (the amount equal or greater to value of MWH’s investment in the HMO) to pay
for charity services or send patients to MWH would likely be appropriate.

TEO + INUREMENT + CORP PRAC MED

o Page 495- Choosing a Corporate Form

o A What are the relevant considerations with respect to tax

exemption?

 A nonprofit has tax benefits via 501(c)(3) tax exemption. A nonprofit

cannot legally divert assets to any purpose other than charitable
purposes, otherwise stand in the face of Ultra Vires liability. Queen
of Angels Hospital v. Younger. 501(c)(3) tax exemption requires the
corporation must be organized and operated exclusively for
charitable purposes, no part of its net earnings may inure to the
benefit of a private individual or shareholder, and it cannot engage
in certain lobbying and political activities. Harding Hospital, Inc v.
United States. To keep nonprofit tax exempt status hospitals must
demonstrate their property is being used exclusive for their stated
 charitable purpose. Utah Count v. Intermountain Health Care, Inc. If
MW chooses to be a nonprofit, MW is advised to have and follow its
charitable purpose in the operation of its business.

o B What are the relevant considerations with respect to the ability

to raise capital (JV’s)?

 Tax-exempt bond financing + charitable deduction

 Inurement – A hospital may lose its tax exempt status if part of its
net earnings inure to the benefit of a private individual or
shareholder. Hospital-Physician Joint Venture – General Counsel
Memo. A hospital cannot legally divert assets to any purpose other
than charitable purposes – ultra vires concern. Queen of Angels
Hospital v. Younger. Hospitals must demonstrate their property is
being used exclusively for their stated charitable purpose. Utah
County v. Intermountain Health Care, Inc. If MW chooses to be a
nonprofit, MW is advised to be precautious in any joint venture
agreement it forms to be sure that the new entity is following its
charitable purpose stated in its Articles.

o C What are the relevant considerations with respect to the role of

physicians?

 A corporation may not legally practice medicine, however, entities

like an HMO are generally exempted so long as they qualify. Berlin
v. Sarah Bush Lincoln Health Center. Additionally, a hospital may
lose its tax exempt status if it forms a joint venture with members
of its medical staff and such JV could be characterized as an
inurment problem. Hospital-Physician Joint Venture – General
Counsel Memo. MW is advised that the formation of an HMO does
not violate the corporate practice of medicine and it should be
careful on how it pays out to its medical staff – avoid dividend like
distributions – as they will have a major stake in the HMO.

o D What are the relevant considerations with respect to operational

constraints?

 Hospital bylaws and medical staff bylaws are binding contracts

between the two which must be honored and followed. St John’s
Hospital Medical Staff v. St. John Regional Medical Center. Hospital
bylaws regarding business judgments will be followed even if they
incidentally effect medical personnel issues. Mahan v. Avera St.
Luke. MW is advised to follow the bylaws of the medical staff, as
well as its own, in all situations or face breach of contract liability.
Additionally, as stated above, MW is limited to operating solely for
 its charitable purpose.

DELEGATION

TEX. OCC. CODE § 157.005: “A person to whom a physician delegates the performance of a medical act is
not considered to be practicing medicine without a license by performing the medical act unless the
person acts with knowledge that the delegation and the action taken under the delegation is a violation of
this subtitle.”

TEX. OCC. CODE 157.001:

(d) A physician may delegate to a qualified and properly trained person acting under the
physician's supervision any medical act that a reasonable and prudent physician would find
within the scope of sound medical judgment to delegate if, in the opinion of the delegating
physician:
(1) the act:
(A) can be properly and safely performed by the person to whom the medical act
is delegated;
(B) is performed in its customary manner; and
(C) is not in violation of any other statute; and
(2) the person to whom the delegation is made does not represent to the public that the
person is authorized to practice medicine.
(e) The delegating physician remains responsible for the medical acts of the person performing
the delegated medical acts.
(f) The board may determine whether:
(1) an act constitutes the practice of medicine, not inconsistent with this chapter; and
(2) a medical act may be properly or safely delegated by physicians.

Tex. Occ. Code 157.052(c): At a site serving a medically underserved population, a physician licensed
by the board may delegate to a registered nurse or physician assistant acting under adequate physician
supervision the act of administering, providing, or carrying out or signing a prescription drug order, as
authorized by the physician through a physician's order, a standing medical order, a standing delegation
order, or another order or protocol as defined by the board.
• “Site serving a medically underserved population” means:
(G) a site located in a medically underserved area;
(H) a site located in a health manpower shortage area;
(I) a clinic designated as a rural health clinic under 42 U.S.C. Section
1395x(aa);
(J) a public health clinic or a family planning clinic under contract with the
Texas Department of Human Services or the Texas Department of Health;
(K) a site located in an area in which the Texas Department of Health
determines there is an insufficient number of physicians providing services to
eligible clients of federal, state, or locally funded health care programs; or
(L) a site that the Texas Department of Health determines serves a
disproportionate number of clients eligible to participate in federal, state, or
locally funded health care programs. TEX. OCC. CODE § 157.052(a)(4)

• “Medically underserved area” means:

D. an area in this state with a medically underserved population;
E. an urban or rural area designated by the secretary of health and human
 services as an area in this state with a shortage of personal health services or
a population group designated by the secretary as having a shortage of those
services, as described by 42 U.S.C. Section 300e-1(7); or
F. an area defined as medically underserved by rules adopted by the Texas
Board of Health based on:
iv. demographics specific to this state;
v. geographic factors that affect access to health care; and
vi. environmental health factors.
Tex. Occ. Code § 157.052(a)(2)

• “Health manpower shortage area” means:

D. an urban or rural area of this state that:
iv. is not required to conform to the geographic boundaries of a
political subdivision but is a rational area for the delivery of health
service;
v. the secretary of health and human services determines has a
health manpower shortage; and
vi. is not reasonably accessible to an adequately served area;

E. a population group that the secretary of health and human services

determines has a health manpower shortage; or
F. a public or nonprofit private medical facility or other facility that the
secretary of health and human services determines has a health manpower
shortage, as described by 42 U.S.C. Section 254e(a)(1).
Tex. Occ. Code § 157.052(a)(1)

 “Registered nurse” means a registered nurse recognized by the Texas Board of

Nursing as having the specialized education and training required under Section
301.152. (e.g. an “advanced nurse practitioner). TEX. OCC. CODE § 157.052(a)(3)

Physician supervision is adequate for the purposes of this section if a delegating physician:
5. is responsible for the formulation or approval of the physician's order, standing
medical order, standing delegation order, or other order or protocol, and periodically
reviews the order and the services provided patients under the order;
6. is on-site to provide medical direction and consultation at least once every 10
business days during which the advanced practice nurse or physician assistant is on-site
providing care;
7. receives a daily status report from the advanced practice nurse or physician
assistant on any problem or complication encountered; and
8. is available through direct telecommunication for consultation, patient referral, or
assistance with a medical emergency.

• Tex. Occ. Code 157.0541(b) At an alternate site, a physician licensed by the board may delegate to
an advanced practice nurse or physician assistant, acting under adequate physician supervision, the
act of administering, providing, or carrying out or signing a prescription drug order as authorized
through a physician's order, a standing medical order, a standing delegation order, or another order or
protocol as defined by the board.
o “alternate site” means a practice site:
(1) where services similar to the services provided at the delegating
 physician's primary practice site are provided; and
(2) located within 75 miles of the delegating physician's residence or
primary practice site.
o Note that there are different standards for “adequate physician supervision” under this statute.
See TEX. OCC. CODE § 157.0541(c).

• B/c the nurse and PA can sign a prescription drug order, it is unnecessary to leave a presigned
prescription pad.

MEDICARE/MEDICAID CERTIFICATION

o Can shut down, but are intermediate sanctions – state inspects, state closes, Medicare withdraws
funding, 15 day notice prior to termination, patients can stay until course of treatment done
 Have to give procedural DP, but no constitutional claim b/c no state action [Heckler –
Medicare does surveys]
 Cospito – loss of benefits

o Certification is a voluntary procedure for health care organizations to meet the qualifications for
participation in government funding programs (as opposed to Licensure, which is a mandatory
governmental process, and accreditation, which is a voluntary private process.)
o To receive funding under the Medicaid Act, “a state must submit to the Secretary and have
approved by the Secretary a plan for medical assistance which meets the requirements of” 42
USC sec. 1396a(a)… “The plan must include descriptions of the standards and methods the state
will use to assure that medical or remedial care services provided to the recipients are of high
quality… The appropriate state agency must determine on an ongoing basis whether the
participating institutions meet the requirements for continued participation…” In conducting the
review the state must use federal standards, forms, methods and procedures… See Textbook Page
401 State of Smith v. Heckler).
o When a Hospital enters into a Medicare provider agreement it specifically undertakes to comply
with Federal statutes and regulations governing Medicare certified hospitals; see section 1861(e)
of the Social Security Act, 42 U.S.C. § 1395x(e); 42 C.F.R. Parts 482 and 488. Idem.
o “CMS may terminate a provider's agreement to participate in the Medicare program if CMS
determines that the provider "fails substantially to meet the applicable provisions of section
1861." Section 1866(b)(2)(B) of the Act. CMS may also terminate a provider's agreement to
participate in the Medicare program where the provider is not in substantial compliance with the
provisions of title XVIII of the Act or the applicable regulations or if the hospital no longer
substantially meets the appropriate conditions of participation or requirements. Section 1866(b)
(2)(A) of the Act; 42 C.F.R. sec. 489.53(a)(1), (3).
o A hospital that is dissatisfied with CMS's determination to terminate it from participation in the
Medicare program is entitled to a hearing. Sections 205(b), 866(h)(1) of the Act; 42 C.F.R. sec.
498.5(b), 498.3(b).
o The process of determining compliance and challenging adverse decision provide substantial
procedural protections to providers. See Textbook page 407.
o The most intense disputes arise when findings are such that the facility is shut down immediately,
without a chance for correction or rebuttal. These shutdowns have been challenged as
unconstitutional but usually without success considering the patient protection concerns at stake
and the ample procedural rights following a temporary shutdown. See Textbook page 407.
o Remember that a constitutional challenge requires state action, which usually doesn’t exist for
private accreditation (like that of the Joint Commission for the Accreditation of Hospitals).
CORPORATE PRACTICE OF MEDICINE

o The corporate practice of medicine doctrine prohibits corporations from

providing professional medical services.
o The rationale behind the doctrine is that a corporation cannot be
licensed to practice medicine because only a human being can sustain
the education, training, and character-screening which are
prerequisites to receiving a professional license.
o The rationale of the doctrine concludes that the employment of
physicians by corporations is illegal because the acts of the physicians
are attributable to the corporate employer, which cannot obtain a
medical license.
o The prohibition on the corporate employment of physicians is
invariably supported by several public policy arguments which :
 espouse the dangers of lay control over professional judgment,
 the division of the physician's loyalty between his patient and his
profitmaking employer,
 the commercialization of the profession.
o Numerous jurisdictions have recognized either judicial or statutory
exceptions to the corporate practice of medicine doctrine which allow
hospitals to employ physicians and other health care professionals.
 First, some states determined that a hospital corporation which
employs a physician is not practicing medicine, but rather is
merely making medical treatment available.
 Second, the courts of some jurisdictions determined that the
corporate practice doctrine is inapplicable to nonprofit hospitals
and health associations. These courts reasoned that the public
policy arguments supporting the corporate practice doctrine do
not apply to physicians employed by charitable institutions.
 Third, the courts of several states have determined that the
corporate practice doctrine is not applicable to hospitals which
employ physicians because hospitals are authorized by other
laws to provide medical treatment to patients.
o The hospital licensing statutes clearly authorize, and at times
mandate, licensed hospital corporations to provide medical services.
o The concern for lay control over professional judgment is alleviated in
a licensed hospital, where generally a separate professional medical
staff is responsible for the quality of medical services rendered in the
facility.
o In addition, such concerns are relieved when a licensed hospital is the
physician's employer. Hospitals have an independent duty to provide
for the patient's health and welfare.
o It would be incongruous to conclude that the legislature intended a
hospital to accomplish what it is licensed to do without utilizing
physicians as independent contractors or employees.
 o A duly-licensed hospital possesses legislative authority to practice
medicine by means of its staff of licensed physicians and is excepted
from the operation of the corporate practice of medicine doctrine.

BYLAWS - ECONOMIC CREDENTIALING [Page 484]

A Removal for any reason regardless of Medical staff recommendations,

so long as first consulted.
 Probably not a good idea. Hospital bylaws and medical staff bylaws
are binding contracts between the two which must be honored and
followed. St. Johns Hospital Medical Staff v. St. John Regional
Medical Center. MW will not be able to go in and unilaterally amend
its bylaws in a way which conflicts with the bylaws bargained for by
the medical staff.

B Amend the Medical Staff Bylaws to declare that additional criterion for
medical staff membership is to practice an efficient style of medicine that
avoids wasting medical resources or providing unnecessary care.
 MW may amend. Generally, hospital bylaws regarding business
judgments will be followed even if they incidentally effect medical
personnel issues. Business judgment issues are better addressed by
the corporation, not the medical profession. Mahan v. Avera St.
Luke. Thus, MW is advised that so long as such amendment would
withstand scrutiny, to the extent it does not substantively conflict
with the bylaws bargained for by the medical staff or undermine
their physicians’ medical treatment decisions. This should be a
purely economic concern so as to avoid any corporate practice of
medicine issues.

C. Amend the medical staff bylaws to declare that any physician who
consistently loses money for the hospital will be removed for the medical
staff.
o Probably not. Hospital bylaws and medical staff bylaws are a binding
contract between the two which must be honored and followed. St.
John’s Hospital Medical Staff v. St John regional Medical Center.
Cannot amend med staff w/o procedure.
o However, Hospital bylaws regarding business judgments will be
followed even if they incidentally effect medical personnel issues – K in
nature. Mahan v. Avera St. Luke. First, since the medical staff legally
bargained for its bylaws with MW, MW does not have the power to
unilaterally amend the medical staff bylaws. And second, although
Mahan stands for the general principle that a Hospital knows business
better than a medical staff, and decisions relating to economic
business concerns should be left to the hospital, a hospital can not
breach its agreement with the medical staff via its bylaws without
facing breach of contract liability. Thus, although the purpose behind
 this purposed amendment is one of economic concern, MW is still
advised against such amendment.

D. Forget about amending any bylaws. Instead, go after physicians who

are economic losers based on their general medical competence and their
unwillingness to be cooperative.
o MW probably able to go after physicians who are economic losers. A
hospital may deny staff privileges so long as it is supported by
sufficient reliable evidence. Nanavati v. Burdette Tomilin Memorial
Hospital. So long as there are more than just general complaints,
but also things such as violations of policy, breaches of professional
standards, or acts that adversely affect health care delivery, a hospital
may terminate medical staff privileges. Id. Thus, so long as MW bases
the termination of staff privileges on quality evaluations of
substandard professional competence, and unwillingness to be
cooperative to such an extent that it is adversely affecting health care,
and not just on the mere fact that a doctor is irascible, MW may
proceed.
o
o E. Keep but supplant the entire medical staff structure by limiting
who can practice in each department through one year renewable
contracts with the 200 best doctors out of the present 300.
o Depends. Arbitrarily striking qualified doctors who want to
practice in a underserved areas will generally be rejected under a more
rule making standard. Greisman v. Newcomb Hospital. However, if
termination is supported by sufficient reliable evidence of breaches of
professional standards, then they generally will be upheld. Nanavati v.
Burdette Tomlin Memorial Hospital. Even so, if the medical staff bylaws
requires certain procedures for termination, they must be followed. St.
Johns Hospital Medical Staff v. St. John Regional Medical Center.
Nonetheless, a Hospitals business judgments will be followed even if
they incidentally effect medical personnel issues. Mahan v. Avera St.
Luke. Additionally, an obligation for proper due process and notice of
termination of privileges may arise if the insurer posses power so
substantial that the removal significantly impairs the ability of an
ordinary, competent physician to practice medicine. Potvin v.
Metropolitan Insurance Co. Thus, if MW is a “special” underserved area
an arbitrary removal or denial of qualified doctors may be rejected.
However, if MW keeps the top 200 doctors based on sufficient reliable
evidence of breaches of professional standards for the bottom 100, the
termination will be upheld. If the physician at MW are in fact
terminated, MW may be obligated to give notice and hearing to such
doctors. And finally, if MW is keeping the 200 out of the 300 because of
legitimate economic and business concerns, then either way, its
actions will probably be able to withstand scrutiny, to the extent it
does not substantively conflict with the Medical Staff Bylaws.
MEDICAL STAFF EXCLUSIONS – WHOLE CLASSES

a. Limitation of bylaws to psychiatrist only

o Common-law fairness theory (a) rationale for general membership
contained in bylaws, and (b) evidence supporting the application of
bylaws to individual physician.
o Advise that it would be a better argument to keep psychologist off staff
b/c of quality of care concern. Could argue economic reasons but key
is whether motivation is in improving quality of care or by limiting
competition
o Can argue that bylaws are a contract, and can’t just change the
bylaws.
o Also, could amend the bylaws like in Greissman to admit psychologist,
and then argue that Dr. Zock, individually, is uncooperative and deny
privileges for that reason. Must have concrete evidence of problems
that effects patient care.

b. Antitrust / Illegal boycott

o Several other hospitals w/ psychiatric units, so CP doesn’t have
requisite market share to cause harm.
o Conspiracy: some jurisdictions have held that medical staff and
hospital can join together, but other jurisdictions reject this. Hospital
and medical taff can’t conspire.
o Per se restraint of trade? Seems like a boycott / concerted refusal to
deal, but can argue the learned profession exception if CP can offer a
public service or ethical norm reason to discriminate against
psychologist.

c. HCQIA 42 USC § 1111(a) Immunity for professional review action, but

can’t relate to billing or anything related to economic…only competence.
Problem b/c no one on the Panel can have a direct economic interest for
qualified immunity under HCQIA.

STARK

• Stark law- 42 USCA 1395nn ( p.75)

o Rule: except as provided in SUBSECTION (B) of this section, if a PHYSICIAN ( or
an immediate family member of such physician) has a FINANCIAL
RELATIONSHIP with AN ENTITY specified in paragraph (2), then-
 The PHYSICIAN may not make a REFERRAL to the ENTITY for the
furnishing of DESIGNATED HEALTH SERVICES for which payment
otherwise may be made under this SUBCHAPTER, and
 the entity may not present or cause to be presented a claim under this
subchapter or bill to any individual, third party payor, or other entity for
DESIGNATED HEALTH SERVICE furnished pursuant to a REFERRAL
 prohibited under SUBPARAGRAPH (A)
• Finding Defs

o Physician defined in 1395 x(r)

o Immediate family member defined in 1320a(7)- question is if bro is immediate family

member

o Financial relationship

• Designated Health Services

o 1395 (h)(6)

o Includes durable medical equipment (DME) but is wheelchair DME? See 1395 x(n)-
wheelchair is DME

• Was there a referral?

o 1395nn(h)(5)

o Except as provided in subparagraph (c), in the case of an item or service for which
payment may be made under part B, the request by a physician for the item or
service, including the request by a physician for a consultation with another physician
(and any test or procedure ordered by, or to be performed by (or under the
supervision of) that other physician) constitutes a “referral” by a “referring
physician”

o Borderline if there is a request and case for being a referral is weak here

• Was there a financial relationship? 1395nn(a)(2)

o For purposes of this section, a financial relationship of a physician (or an immediate

family member of such physician) with an entity specified in this paragraph is--

o (A) except as provided in subsections (c) and (d) of this section, an ownership or
investment interest in the entity, or

o (B) except as provided in subsection (e) of this section, a compensation arrangement

(as defined in subsection (h)(1) of this section) between the physician (or an
immediate family member of such physician) and the entity.

• Is there an ownership interest?

o Look at exceptions (c) and (d)

o Entitron is traded on small Puerto Rican stock exchange and had stockholders equity
 of 74 million last year but average of 80 million for 3 years before that

o (c)

 Entitron available on small Puerto Rican exchange so satisfies (c)(1)(A)(i)- as

long quotations are published on daily basis [we don’t know if published]

 Also average assets of 80 million exceeds the 75 million requirement

 If have stock in big company then not count as entity and have defined big to
be really big so looks like entitron falls under exceptions unless quotations
are not published on daily basis. Thus ownership of entitron is NOT
considered to be ownership or investment interest

o (d)

 (1) designated health services provided by a hospital located in Puerto Rico

are not ownership or investment interests

 But in this example services are provided near hospital but not at the hospital
so exception is not applicable

• Is there compensation arrangement via the cocounut?

o Compensation arrangement defined in (h)(1)(a)

 Means any arrangement involving any remuneration between a physician (or

an immediate family member of such physician) and an entity other than an
arrangement involving only remuneration described in subparagraph (C)

o Includes remuneration- defined at (h)(1)(b)

 Includes any remuneration , directly or indirectly , overtly or covertly, in cash

or in kind

o Need to check (e) exceptions

o Looks like coconuts might constitute remuneration under the statute

o What helps is this is not arrangement- only happened twice

STARK GROUP EXCEPTION

• Question whether statute applies b/c pediatric patient and not medicare. Assume for moment
that does apply

• Appears to be Stark violation so need to fall under exception

 • Same group exception to ownership and compensation arrangements: 1395nn(b)(1)

o Physicians’ services provided personally by (or under the personal supervision of)
another physician in the same practice group (as defined in subsection (h)(4) of this
section as the referring physician

o Group practice under (h)(4) - 6 requirements that all must be met.

 4(A)(i) requires that all services of the physicians who are members provide
substantially the full range of services which the physician routinely provides,
including medical care… through the joint use of shared office space.

 Group practice exception fairly narrow and dealing with indirect referrals and
not satisfy (4)(a)(iv)

 Here might also fail (v)- 75% requirement

• Any exception for indirect referral to DH? See 1395nn(d)(3)

o In the case of designated health services provided by a hospital (other than a hospital
described in paragraph (1) if- the referring physician is authorized to perform services
at the hospital, and the ownership or investment interest is in the hospital itself (and
not merely in the subdivision of the hospital)

 Fact have interest in hospital may not be fatal

 You can refer to hospital in which you have interest if you are authorized to
perform services

 Doesn’t appear to have ownership interest in hospital here though

• Rural provider exception- (d)(2)

o If genuinely just serving rural area (and not other locales) then give exception and not
considered ownership or investment interest

o Is Stephenville rural?

ANTIKICKBACK

o (1) Whoever knowingly and willfully solicits or receives any remuneration (including
any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in
kind—

o (A) in return for referring an individual to a person for the furnishing or arranging
 for the furnishing of any item or service for which payment may be made in whole or
in part under a Federal health care program, or

o (B) in return for purchasing, leasing, ordering, or arranging for or recommending

purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part under a Federal health care program,

o shall be guilty of a felony and upon conviction thereof, shall be fined not more than
$25,000 or imprisoned for not more than five years or both

o (2) whoever knowingly and willfully offers or pays any remuneration… (same as in
(1)

• Think Dr Y is ok here- have to show mens rea, receipt/solicitation, “in return”, federal health
program. Can show federal health program but as to others think Dr Y is ok

o Hanlester case (p 582) defines knowingly and willfully in the antikickback statute as
requiring appellants to (1) know that 1128b prohibits offering or paying remuneration
to induce referrals, and (2) engage in prohibited conduct with the specific intent to
disobey the law

• DWT still violating statute

o Greber case “if one purpose of the payment was to induce future referrals, the
Medicare statute has been violated”

• Addt’l Chandler hypo: If Dr Y did not know but when receives charity card asks why.
Pharmacist says b/c have promotion for providers who refer the most prescriptions and you
had number 23 and picked yours out.

o Point is law creates vast realm of prosecutorial discretion. Under this addt’l info on
hypo then probably have issues

• Pharmacy rep employee safe harbor

o Under (b)(1) looks like violating statute

o But there is safe harbor on p 46 – (i) employees

 (i) remuneration does not include any amount paid by an employer to an

employee who has bona fide employment relationship with the employer,
for employment in the furnishing of any item or service for which
payment may be made in whole or in part under Medicare of a State health
care program.
  This exception only deals with medicare or state health care program so
exception not that broad. Also she is not furnishing but rather
recommending so might have issues.

o Instinct that not violating statute but concerned a little with bonus tied to getting
100 promises signed.

• Pharmacy pays for educational seminar

o Payments intended to induce a physician to use a service or
purchase a product violates the anti kickback statute, even if
they payments were also intended to compensate them for their
professional services. United States v. Greber. Inducement
means the intent to exercise influences over the reason or
judgment of another in an effort to cause the referral. Hanlester
Network v. Shalala. For an anti kick back violation the
government must prove the conduct was “knowing and willful.”
Id.
o 1320a-7b (b) (2) (B) provides that whoever knowingly and
willfully offers or pays any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash
or in kind in return for purchasing, leasing, ordering, or arranging
for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in
whole or in part under a Federal health care program shall be
guilty of a felony.
o SpectraSpecs may face anti kickback liability. They obviously
offered and paid remuneration to the doctors in attendance at
the conference. An all expense trip to Colorado, plus an
additional coupon for 20% off on lift tickets is directly and overtly
remuneration in kind. Additionally, the remuneration was for the
purchasing of their lovegood medical imager to radiologists, for
which payment may be made in whole or in part under a Federal
health care program. However, the government will have to
prove SpectraSpecs had the requisite mens rea of “knowledge
and will.” Although its possible, without proving SpectraSpecs
knowingly and willfully reimbursed the physicians and provided
the 20% off coupon for the purpose of receiving a kick back,
SpectraSpecs will avoid liability. Additionally, there may be
issues with whether SpectraSpecs reimbursement was in “cash
or in kind.”
o The radiologists may be facing liability as well. Their involvement
in the all expense trip could be characterized as them knowingly
and willfully receiving remuneration indirectly and overtly in
“kind” in return for purchasing the equipment. As such, they may
 be facing liability as well.

• Payments intended to induce a physician to use a service or purchase

a product violates the anti kickback statute, even if they payments
were also intended to compensate them for their professional services.
United States v. Greber. Inducement means the intent to exercise
influences over the reason or judgment of another in an effort to cause
the referral. Hanlester Network v. Shalala. For an anti kick back
violation the government must prove the conduct was “knowing and
willful.” Id.
• 1320a-7b (b) (1) (B) provides that whoever knowingly and willfully
solicits or receives any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind in
return for purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing, or ordering any good, facility,
service, or item for which payment may be made in whole or in part
under a Federal health care program shall be guilty of a felony.
• Dr. H knowingly and willfully receives remuneration directly and
covertly in cash in return for ordering the x ray service. First, he
knowingly and willfully chooses to use the HMO because he will get a
better reimbursement rate. Secondly, even though his medical
instincts tell him other facilities are better, he covertly chooses to only
use health care services to within Corsicana. Thus from the facts, I
believe the government will be able to satisfy the “knowingly and
willful” requirement. There does not seem to be a safe harbor which
would apply. Moreover, he already gets paid a salary, thus the
remuneration in the form of reimbursement is in addition to whatever
Dr. H is already getting paid, and as such, not part of the substantive
bonafide employee/employer relationship exemption.
• As for the HMO, it might be subject to anti kick back violations as well.
It appears the HMO may be knowingly and willfully offering and paying
physicians directly and covertly a better reimbursement rate in return
for using its x-ray services. As such, if it can be proven, they may be
facing liability as well.