Print PDF
September 1999

OIG Issues Clarification of Gain Sharing Bulletin

The Department of Health and Human Services Office of Inspector General (OIG) has issued a clarification of its July Special Advisory Bulletin on gain sharing arrangements.

In that bulletin, OIG stated that gain sharing arrangements, in which hospitals pay physicians to reduce or limit care to Medicare and Medicaid patients, violate federal law.

In his August 19 clarification letter, Assistant Inspector General for Legal Affairs Lewis Morris said that the gain sharing bulletin should not be read to apply to managed care risk pools.

In fact, Morris said that OIG believes that managed care plans that are subject to the PIP rules on risk pools are not subject to regulation under the civil monetary penalty provision of the Social Security Act, which bars payments by hospitals to physicians to limit utilization.

This is true regardless of whether the risk pool is administered by the HMO or exists as a matter of a direct agreement between the hospital and the participating physicians, according to HLB attorney W. Bradley Tully, who noted that since the OIG’s bulletin was released, a number of physicians and hospitals have lodged concerns about their arrangements.

The clarification is a sigh of relief for the many risk pools established pursuant to direct contracts between hospitals and medical groups, according to Mr. Tully.

New Internet Company Offers Physicians One-Stop Service Center

Physician practice management is the latest health care segment to find a niche on the Internet, in the form of, a Newport Beach-based firm established to provide e-commerce solutions to individual physicians as well as groups.

“Physicians have the highest overhead burden of any segment of the health care arena,” said President and CEO Thomas Toland. “We looked to create ways to help physicians use the Internet as a great equalizer. The Internet levels the playing field.”

According to Mr. Toland, provides physicians a variety of one-stop shopping e-commerce services, including a health care electronic data interchange (EDI), patient billing, financial services, employee leasing options, administrative support, medical and office supplies, continuing medical education, clinical applications and malpractice insurance.

“This will allow physicians and medical groups to drive costs down by bundling services and will leverage their ability to get better pricing,” Toland said.

The company was developed by Toland and two other health care industry veterans, Andrea S. Kofl and Richard A. Yardley, all principals in Belvedere HealthPartners, LLC, a health care consulting firm.

Just prior to launching the firm this month, entered into an agreement with HealthStar Corp. of Scottsdale, AZ, underwhich HealthStar acquired 49 percent of the company in a cash and stock transaction valued at $43 million. A health care management company, HealthStar has a network of 121,000 physician locations that will now have access to, Toland said.

Following the HealthStar transaction, also announced that National Data Corp. will become its EDI partner, a significant enhancement for claims processing. “Our goal is to allow physicians to process all their claims via the Internet and reduce their payment time in half,” Mr. Toland said.

In addition to saving physicians time and money, the company is also designed to offer physicians privacy and security in their transactions, Mr. Toland said. “A key element was to ensure that we have high levels of encryption so that physicians and their office managers can have confidence in the company,” he said.

Hooper, Lundy & Bookman was instrumental in helping to form

Supreme Court Narrows Scope of ADA but Allows Punitive Damage Awards

Employers should take note that the United States Supreme Court recently sharply narrowed the reach of the Federal anti-discrimination law for people with disabilities, ruling that it was not intended to protect workers with treatable impairments such as bad eyesight, hypertension or diabetes. The ruling allows companies to fire workers with such physical impairments or medical conditions, or to not hire them at all.

The Court’s decision also allows companies to block lawsuits under the law by showing that fired employees were capable of doing their jobs and thus could not be deemed disabled.

When Congress passed the Americans With Disabilities Act, it became illegal to discriminate against a qualified individual with a disability. Since then, the question of what conditions constitute a disability has been hotly disputed. However, in three recent rulings-Murphy v. United Parcel Service, Inc.Albertsons, Inc. v. Kirkingburg, and Sutton v. United Airlines, Inc., the Supreme Court made it clear that it is determined to limit the number of workers who can claim disabilities under the law.

At the same time, victims of workplace discrimination recently won the right to obtain punitive damages from their employers, but only if top company officials are found responsible. The mixed result came in the Supreme Court’s first test of the damages provisions in the Civil Rights Act of 1991.

Before that law was passed, workers who suffered race or sex discrimination could sue in Federal court only to get their jobs back and receive back pay. With the passage of the Civil Rights Act of 1991, workers were given a right to jury trial and the chance to win punitive damages of up to $300,000 against a large firm. But it remained unclear whether workers were entitled to ask for punitive damages in every case or only in the worst cases in which malicious discrimination was involved.

In Kolstad v. ADA, the Supreme Court ruled that workers need not show their case was especially “egregious” or unusual. Workers only need show that their employer demonstrated a “reckless indifference” to the rights of their employees in order to recover punitive damages.

However, the Court went on to say that trial judges should consider whether the company itself, rather than an errant supervisor, is responsible for the discrimination. If just a supervisor is to blame, it is not fair to make the company pay punitive damages, the court said.

The Court’s ruling in Kolstad suggests that employers with strong policies against workplace discrimination should be able to shield themselves from punitive damage verdicts. Such policies will not, however, protect them from paying back pay or compensatory damages to employees who suffer discrimination.

Medical Board Developing Corporate Practice of Medicine Regs

A committee established by the Medical Board of California is preparing to draft proposed regulations establishing the parameters for what constitutes the corporate practice of medicine.

The Board is considering proposing regulations that closely follow the board’s previously adopted Perspective to Provide Guidance on the Prohibition Against the Corporate Practice of Medicine.

The purpose of the Perspective and the current regulatory effort is to prevent unlicensed individuals from interfering with or influencing a physician’s professional judgment (This guidance and any future regulations adopted by the Medical Board apply only to situations not governed by the Knox-Keene Act, which regulates health care service plans).

Among the health care decisions defined by the board’s Perspective as constituting the unlicensed practice of medicine are:

  • Determining what diagnostic tests are appropriate for a particular condition.
  • Determining the need for referrals to or consultation with another physician/specialist.
  • Responsibility for the over-all care of a patient, including available treatment options.
  • Determining how many patients a physician must see in a given period and how many hours a physician must work.

In addition, business decisions that the board has identified to date as illegal if handled by anyone other than a physician include:

  • Ownership and control of patient records
  • Selection of health care staff as it relates to clinical competency
  • Setting parameters under which physicians will enter into contractual relationships with third-party payors.
  • Decisions regarding coding and billing.
  • Approving the selection of medical equipment.

These regulations will affect every segment of the industry that employs or contracts with doctors, including hospitals, clinics, foundations, medical groups, management companies, independent practice associations and preferred provider organizations.


Q: Is it legally necessary for health care providers to adopt corporate compliance programs (CCPs)?

A: Although CCPs are not required by law, the increased scrutiny of health care providers by the government has established the need for CCPs. The primary legal reasons for adopting a CCP are twofold: (1) to deter criminal prosecution by showing that the organization has an effective CCP in place, thus negating any intent to commit a crime, and (2) to lessen the criminal penalties in the event the organization is convicted of a crime.

From a business perspective, a well crafted CCP provides the organization with a system by which it can define, implement, control and evaluate many of its key functions in a manner that ensures compliance with company policies and the numerous laws regulating the health care industry.

Whether your organization is large or small, the federal government has determined that any comprehensive CCP must begin with the following basic elements:

  1. standards of conduct;
  2. designation of a compliance officer or similar oversight mechanism;
  3. employee education and training;
  4. procedures to anonymously receive complaints and protect the complainant from retaliation;
  5. enforcement and discipline;
  6. techniques for the audit and evaluation of the CCP; and
  7. systems for investigation, remediation, and prevention of CCP violations.

These elements must be tailored to fit your organization. Additional elements specific to your organization may also be appropriate. Regardless of the precise elements of your CCP, it must be reasonably designed, implemented, and enforced in a manner that is effective in preventing and detecting criminal conduct. A CCP that is adopted then ignored will be as effective as no plan at all.

To assist the health care industry, the Office of Inspector General has released “model plans” or “guidances” in the following areas: hospitals, clinical laboratories; home health agencies; third party medical billing companies; Medicare+Choice organizations offering coordinated care; durable medical equipment, prosthetics, orthotics and supply; and hospices. These “model plans” and “guidances” are not intended as form plans that can be adopted in whole by the covered organizations. Rather, they are intended to provide guidance in the adoption of a CCP designed for your organization. You can view each of these plans by visiting the OIG’s website at:

Q&A is a regular feature of Health Law Perspectives. If you have a question you would like addressed in a future column, please send your query to HLB attorney Robert Valencia by e-mail at, or send your question to Mr. Valencia at : Hooper, Lundy & Bookman, Inc., 1875 Century Park East, Suite 1600, Los Angeles, CA 90067.

For media assistance, please contact Maura Fisher at 202-580-7714.