Chapter 7 Test 2 Flashcards
An artificial “being” created under authority of state statute
To create: Articles of incorporation
State requirements
Internal Revenue Service (IRS) requirements
Corporation
Partnerships General partnerships Limited partnerships Joint ventures Sole proprietorships
Healthcare Organization Forms
Two or more physicians agree to practice together
Partnership
Share the profits or losses equally, and they are personally responsible for liabilities or debts
General Partnership
Limit the potential liabilities, greater liability protection, but also limited powers. Generally do not participate in day-to-day management
Limited Partnership
Purpose created and limited lifespan
Sometimes seen when two corporations come together to provide a shared service
EX: Dialysis Center and Radiation Therapy Center
Joint Ventures
Simpler legal form with a single owner who elects not to insulate his or her personal assets through the use of corporation or legal form.
Proprietorship
Legally separate entity
Owners shielded from personal liability
Taxed separately from the owners
Continued existence despite death of an owner
Owners can transfer interests/shares without permission (for-profit)
Advantages of a Corporation
Liability protections offered by a corporation to its owners are not “absolute.”
- Protections can be pierced if corporation is
used by its owners to commit fraud or other
crimes
- Owners may be directly liable for the bad
acts
Elements of “piercing the corporate veil”
- Complete domination of the corporation by
its owners
- Such control was used to commit fraud or
perpetrate a wrong, violate a statutory or
other duty, or commit a dishonest or unjust
act
- Corporate control was the proximate cause
of the injury that is the subject of the suit
Piercing the Corporate Veil
Privately owned
Stock shares not offered for sale to general public
Relatively few shareholders
Privately held
Ownership shares sold to the general public
Thousands of shareholders-owners
Publicly held
Not-for-profit
For-profit
Privately held
Publicly held
Types of Corporations
Income may be distributed to shareholders, directors, officers, or other individuals for their private gain.
For-profit
Profit is permitted, but is not the primary purpose.
Income may not be distributed for individuals’ private gain.
Income must be used for the corporation’s purposes.
Determined by state corporation laws
Have specific social or beneficial purposes
May pay reasonable salaries
Receive preferred tax treatment if they also are formed for a charitable purpose that benefits the public or community (“community benefit standard”)
Charitable corporations are the most common for US hospitals
Not-for-profit
requires that hospitals meet five criteria (relating to purpose) to be tax exempt
Whether it maintains a governing body that includes community leaders (not just organizational insiders)
Whether the hospital has an “open” medical staff that permits all qualified physicians to practice there
Whether the hospital has a full-time emergency department that is open to all, regardless of ability to pay
Whether the hospital provides non-emergency care to all personal able to pay (including through Medicare and Medicaid)
Whether the hospital uses its surplus money to improve quality of care, expand its facilities, and improve medical education and training programs
Whether, in the absence of the above five factors, there are other favorable factors that demonstrate benefit to the community; and
Whether the hospital serves a broad cross-section of its community through charitable care or research
IRS - Community Benefit Standard
Charitable-purpose element of not-for-profit hospitals (which allows for ______) has been challenged based on
Aggressive and inflated billing practices (especially vs. the uninsured)
Amount of charity care provided
Tax exempt status
Ultimate legal authority of a corporation
_______ is governed by bylaws
Governing board
Internal rules that describe the governing board’s powers and duties
Describe the makeup of the governing body (for example, numbers, type of members, terms of service, qualifications, duties, number of meetings, methods for making decisions, compensation)
Bylaws
Developing a strategic plan
Setting broad policy
Appointing medical staff members
Delineating medical staff clinical privileges
Hiring and guiding the CEO
Overseeing overall organizational performance (clinical, administrative, financial)
Fiduciary oversight
Hospital Governing Board Duties
Executive committee Building and grounds Human resources Corporate compliance Finance Professional staff relations Executive committee
Committees of a Hospital Governing Board
All governing board members have a _______ to the corporation, its members and shareholders, and (in not-for-profit corporations) to the community at large.
Fiduciary duty
Fiduciary duty consists of:
Duty of loyalty
Duty of responsibility
Board members must put the corporation’s interests ahead of their personal interests.
Conflict-of-interest policies
Duty of loyalty
Board members must act with due care in exercising their duties. Due diligence (a legally acceptable level of care)
Duty of responsibility
_________ are generally protected from personal liability if they fulfill their duties of loyalty and responsibility.
Personal liability may result from breach of fiduciary duty.
Governing Board Members
Governing board or corporate executive decision-making that goes beyond the express or implied powers of the corporation
These acts are usually void
Ultra vires act
________ and _________ can be personally liable for an ultra vires act that causes the corporation to suffer financial loss if the act was
Taken with knowledge that it was beyond their power
Made in bad faith
Governing board members and corporate executives
One corporation absorbs another
Corporations are similar in size and agree to the merger.
Merger
One corporation is subsumed by another
Often involves the takeover of a smaller organization by a larger organization
Acquisition
Creation of a new corporation made up of two or more organization that previously existed but dissolved
Consolidation
Legally enforceable oral or written agreement
can be express (written or spoken) or implied (by one’s action).
Parties to this must be competent (legal and mental capacity).
describes an agreement between two or more persons or entities.
Elements:
A valid offer (promise to do/not do something if the other party agrees to do/not do something)
Acceptance of the offer (reflects meeting of the minds)
Consideration (what each party will receive from the other in return for performing the obligations in the contract)
Contracts
Basis of a lawsuit in which one or more terms of a contract is/are violated
- lawsuits must be filed within the applicable statute of limitations
Breach of contract
Fraud Mistake of fact Duress Illegality Impossibility
Defenses for nonperformance of a contract
Based on misleading information
Fraud
If both parties relied on a mistake
Mistake of fact
If unlawful threats or pressure was used to force a contract to be executed
Duress
If a contract was for illegal purpose or against public policy
Illegality
If the contract required acts that were impossible to perform
Impossibility
Contracts that may be deemed illegal include
Exculpatory contracts
Adhesion contracts
Contain clauses that seek to excuse a party, in advance, for potential liability (parties waive their right to sue in advance of an event)
Exculpatory contracts
Include unequal bargaining power, where the weaker party is forced to agree to unfavorable terms because it depends on the stronger party’s services
Adhesion contracts
Remedies are designed to make the injured party whole and include:
Monetary (compensatory) damages
Specific performance
Arbitration
Injured party must mitigate (reduce) the damages caused by the breach
Monetary (compensatory) damages
Breaching party is required to honors its contractual obligations (injunction)
Specific performance
Neutral party resolves dispute apart from a lawsuit
Arbitration
may provide that either:
Indemnitor (party assuming liability) agrees to hold the other party harmless for the indemnitor’s own actions or inactions.
- If indemnitor’s actions or inactions harm the other party, the indemnitor will make the other party whole (through compensation);
- or -
Parties agree to hold each other harmless for each others’ actions or inactions.
Hold harmless/indemnification clauses
Representations that induce a party to enter into a contract
Relate to the quality of goods or services purchased or leased
May be express (in the contract) or implied by law
May be disclaimed (in the contract)
Warranties
Significant as healthcare organizations adopt EHRs
Boilerplate language
Learned intermediary
Health Information Technology Contracts
Standard terms
Often in vendor-written terms, thus favoring the HIT vendor
Boilerplate language
Defense doctrine that companies have a duty to warn physicians directly about potential adverse effects of their products. Physicians must interpret this information and advise patients appropriately as learned intermediaries
Learned intermediary
This relationship is a form of contract.
Physician agrees to provide service in exchange for payment
May be express or implied
Obligation to treat does not arise until there is a physician-patient relationship
A promise to a patient about the certainty of an outcome (warranty) may lead to a breach of contract lawsuit
Termination of a ________ can occur by action of either party:
Patient ceases treatment or dies
Parties mutually agree to end relationship
Patient dismisses or “fires” physician
Physician dismisses patient from his or her care
Physician can avoid claims of abandonment by
Avoiding abrupt termination
Notifying patient in writing and giving the patient time to secure another provider
Agreeing to continue seeing the patient until another provider is secured
Cooperating in sharing relevant information with the new provider
Physician-Patient Relationship as a Contract
______ laws seek to protect the public against trusts and monopolies so large that they have the power to control a market
Restrict free trade
Restrict freedom of choice (restrict or eliminate competition)
Control pricing and other practices
Potentially result in diminished quality
Antitrust
Sherman Antitrust Act
Clayton Act
Federal Trade Commission Act
Antitrust statutes
In effect since 1890
Section 1: Prevents restraint of trade (among two or more parties)
Section 2: Prevents monopolies (can apply to a single organization)
Civil and criminal penalties
The Sherman Act
What are the two restraints of trade in the sherman act?
Vertical and Horizontal
Involves two or more entities at different levels in a distribution change acting together to restrain trade
For example, a hospital collaborates with a supplier
Vertical restraint
Competitors (for example, two hospitals) agree to fix prices and divide the market, or exclude others from competing in the market
Horizontal restraint
In effect since 1914
Exempted union activities from antitrust laws
Prohibited discriminatory pricing practices (with many exceptions), tying arrangements, and mergers and acquisitions that reduce competition
Civil remedies
The Clayton Act
In effect since 1914
Gives the _______ broad powers to act against organizations that engage in unfair methods of competition, or unfair or deceptive acts affecting commerce (including advertising)
Enforced only by the FTC
Federal Trade Commission (FTC) Act
Practices that violate this Act
Failing to reveal material facts about a product
Making false claims and misrepresentations
Offering misleading prices
Disparaging a competitor’s product by making misleading or untrue assertions
Advertising to attract a customer, who is then switched to a higher-priced product
Violations of the FTC Act
Not all actions that restrain trade are antitrust violations.
For example, a company may dominate a market because it has a better product.
Rule of Reason and Per Se Violations
Courts use a _______ analysis to decide (on a case-by-case basis) if there is an antitrust violation.
It looks at geographic markets affected, the product/service involved, the nature of the industry, motivation for the alleged illegal activity, and impact on the industry.
Rule of Reason
are actions that are automatically considered to be violations of antitrust laws (for example, group boycotts).
Per se violations
Health planning Shared services Utilization review Medical staff privileging/credentialing Third-party payer contracts or managed care organizations Mergers and consolidations
Healthcare activities that may lead to antitrust concerns
There are ____ “safety zones” of healthcare organization activity that won’t usually be challenged as constituting antitrust actions.
Nine
Mergers involving small hospitals (one has <100 beds and average census of <40 patients)
Joints venture for expensive or high-tech equipment
Joint ventures to offer specialized services
Efforts to provide medical data
Provision of healthcare fee/price information to purchasers of health services
Surveys about prices, wages, and benefits
Joint purchasing arrangements between healthcare organizations
Exclusive and nonexclusive joint ventures with physician networks
Multiprovider networks (evaluated under the rule of reason)
Nine “safety zones”
______ may result from denial of medical staff privileges or restriction of credentials, either for individuals or categories or practitioners.
Example: Bylaws exclude all chiropractors; if found to be a group boycott, is a per se violation of antitrust law.
Example: Bylaws permit orthopedic surgeons to be granted privileges, but the chief of the medical staff (an orthopedic surgeon) blocks all such applications.
Antitrust claims
Granting or denying medical staff privileges based on issues unrelated to clinical performance
Examples: Volumes of cases; ownership stake in competing facilities
Economic credentialing
______ has limited ability of physicians to invest in hospitals
Patient Protection and Affordable Care Act
Grant or denial of _______ privileges must
Be fair
Not violate rights of federally protected classes
Not favor those already on staff
Not restrain competition by keeping otherwise qualified practitioners off the staff
Include a fair hearing for challenges to adverse decisions
Medical Staff bylaws
Employed physicians and other healthcare professionals may allege antitrust violations based on ________.
Individual agrees not to compete directly or work for a competitor for a specified time period after leaving employment
If too broad, agreement may be subject to antitrust litigation as too restrictive/an unreasonable restraint of trade
non-compete agreements
