Health Law Ticker : California Lawyers & Attorneys for Regulatory, Transactional & Litigation Representation for Healthcare Professionals in the US

For some time, the law regarding what a provider was required to do in the event of a Medicare or Medicaid overpayment was unclear. The government took the position a provider was required to disclose the overpayment to the Program and refund it. But there was no statute saying precisely that.

Now, as part of the new Patient Protection and Affordable Care Act (PPACA), i.e., the recent national healthcare reform legislation, Congress has indeed created the statute to say precisely that and to require providers to refund the overpayment within 60 days of the overpayment being identified.

There are many theoretical "angels dancing on top of pins" questions that could be asked about exactly when an overpayment is "identified" and many factual situations may become complicated, but the new law makes it crystal clear that a provider may not keep a known overpayment with the intent of "settling up later," nor may a provider "turn a blind eye" and decline to investigate the facts of a potential overpayment situation.

One dilemma providers face is whether to investigate a potential overpayment through its own staff or by bringing in outside experts such as attorneys and billing and coding experts. The advantage of using a provider's own staff typically is lower investigative costs and a faster completion of the investigation. Bringing in outside experts, although more expensive, generally offers a strong statement of objectivity that may convince the government to accept the refund without further investigation. Also, an outside investigation conducted at the direction of an attorney will be protected against disclosure by the attorney-client privilege and work product doctrine. There is no easy solution. As always, "it all depends on the specific facts."

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Nearly two decades ago, the plucky Palo Alto Medical Clinic won legislation in California that enabled it to align more closely its interests and those of its practicing doctors.   It midwived the creation of  “medical foundations”, through the passage of what became Health & Safety Code Section 1206(l).    It is a terse, tightly packed one-sentence provision that exempts from state licensure as a “clinic”:

A clinic operated by a nonprofit corporation exempt from federal income taxation under paragraph (3) of subsection (c) of Section 501 of the Internal Revenue Code of 1954 ……that conducts medical research and health education and provides health care to its patients through a group of 40 or more physicians and surgeons, who are independent contractors representing not less than 10 board-certified specialties, and not less than two-thirds of whom practice on a full-time basis at the clinic.

Pretty pithy stuff, but it has been the font of that distinctly California phenomenon, the medical foundation.  Foundations have gradually emerged over the ensuing years as a robust alternative for some hospitals, health systems and medical groups seeking a closer and more interdependent modus vivendi in the environment of California’s prohibition on the “corporate practice of medicine” (Business & Professions Code Sections 2052, 2400).  Simplistically put, in a typical structure a hospital or medical center is the sole corporate “member” of the foundation, which in turn contracts with one or more medical groups to provide services at the hospital, sometimes even acquiring the assets of the medical group(s).   Operationalizing this construct is of course enormously challenging, but it can be an effective mechanism for the delivery of quality, cost-contained care.

Such prestigious non-profit entities as the Sutter Health System, Cedars Sinai Medical Center, Catholic Healthcare West, Children’s Hospital Oakland, Scripps Health and others have established or collaborated with foundations as their approach to the integrated “delivery” of healthcare.  The foundation movement has generally been institution-specific or geographically limited.   

The California Medical Association (CMA), focused on individual doctors, has long groused from the sidelines that foundations are merely a gimmick to evade the California prohibition on the corporate practice of medicine, a charge it has leveled for years also against HMO’s.   The California Association of Practice Groups (CAPG), representing doctors in groups, has been more benign towards foundations.

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Doctors, lawyers, and other professional licensees beware, a recent court of appeal decision creates a low burden of proof for revoking the license of a professional on probation.

A licensed health care provider has a fundamental vested right to her license (Bixby v. Pierno (1971) 4 Cal. 3d 130). Therefore, efforts to deprive her of her license require the licensing authority to prove its case by clear and convincing evidence. (Ettinger v. Board of Medical Quality Assurance (1982) 135 Cal. App. 3d 853, 856.) The Ettinger court clearly explained why it was adopting this heightened standard of proof: “It seems only logical to require a higher standard of proof when dealing with revocation or discipline of a professional licensee as opposed to mere termination of state employment.”

But most disciplinary cases settle, and the standards for settlement are well understood and have even been published: so many years of probation depending on the offense; good behavior; law compliance; regular reports; payment of prosecution costs, etc. But the format of a probationary settlement is also cast in stone: the stipulation will recite that the license is revoked but that the revocation is stayed during the term of probation; and if the licensee successfully completes the probation, the charges will then be dismissed. In other words, the provider’s license – physician, dentist, nurse, whoever – is theoretically revoked, but the revocation is not in force.

It will not be surprising that some licensees will continue to have compliance problems while on probation: all persons may have such problems at one time or another; and most often, people will settle their cases by accepting probation because something in their conduct wasn’t quite right. And people who were in trouble once may have a proclivity for more trouble. So, if there is another charge against a licensee already on probation, more discipline can be expected.

But what will be the standard for proving that new violation? Will it be the same requirement of “clear and convincing evidence,” which the courts have held to be necessary because “a fundamental vested right” is in danger of being lost?

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