Filed under: Conflicts of Interest, Drugs & Medical Devices, Pharma
When we think about health care reform, we need to remember that we have been attempting reforms through many avenues of myriad parts of our health system. The IRS revised Form 990 and schedule H in anticipation of the ACA; critics of conflicts of interest have been working on multiple fronts simultaneously. One of the challenges about all of these changes is how we measure whether they have made any positive difference.
The Accreditation Council for Continuing Medical Education (ACCME), which is the accrediting entity for Continuing Medical Education (CME), just released its annual report, which was much less interesting than I had hoped, as it is mostly a financial statement for the year’s CME activities. Nonetheless, it shows that industry grants to CME have declined from 50 to 30 percent of total CME income, which is attributed to the tremendous scrutiny CME has received over the years. Importantly, industry has not lost interest in medical conferences, as ad revenue from exhibits rose 7.2 percent to $296 million. You can read a summary of the report on Pharmalot or read the whole report.
While interesting, it’s hard to make out exactly what to conclude from this news about CME funding. First, it could be a response to the economy, but that’s belied by the increase in exhibit funding. And besides, pharma has historically been of the “you have to spend money to make money” mind. So, perhaps industry is indeed responding to the criticism about funding CME. Not mentioned is the possibility that CME sponsors have been turning away industry money, but that too is a possibility.
Some were concerned that if this happened, health professionals would be unable or unwilling to pay for their own CEUs. The total income for 2011 CME appears to be in line with prior years (especially given a methodology change adopted in 2011). While the number of physicians participating in CME was down slightly, that decline is consistent with a multi-year downward trend; the number of non-physician participants in CME is slightly up. Finally, as noted by Pharmalot, “other income, which includes registration fees paid by participants, rose 4.4 percent [in 2011] to nearly $1.2 billion.” While more than one year of experience will give a better picture, it seems fair to conclude so far that physicians are indeed willing to underwrite their own CME.
Most important to remember, however, is that the funding issue was merely a surrogate for the question of whether CME is biased either substantively or in subject matter coverage. I don’t think we really knew the answer yesterday, any more than the ACCME report enlightens us about what the answer is today. An annual report about CME in which I and others would really be interested would look at whether the subject matter of conferences has changed — are things being covered that weren’t before. Is comparative cost-effectiveness being addressed in presentations that address alternative treatments? Are real responses to racial health disparities being discussed? Is education being delivered to audiences comprised of interdisciplinary healthcare teams rather than the homogenous audiences found at many academy and similar meetings? Is CME delivery itself being studied to determine what learning methodologies are most effective? In short, if we can conclude that industry is listening to its critics by redirecting its funding, can we also infer that changes are occurring in response to other critiques of CME, such as those posed by the IOM report entitled “Redesigning Continuing Education in the Health Professions” and Seton Hall Law’s Whitepaper entitled “Drug and Device Promotion: Charting a Course for Reform?”
Presumably, it is a good thing to have less industry funding of CME — although we only see the change in the United States, not elsewhere . But it doesn’t get to the heart of the matter, which is the need for significant reform of CME generally. That’s the report I want to read.
Curiously not mentioned in any of the stories about Penn State is the existence of a hotline to which eye witnesses of Sandusky’s child rapes could have been anonymously reported, or the existence of an Ethics/Compliance Professional with direct access to and oversight by the board. Well, it turns out they’re not mentioned because they didn’t exist. It appears that even now, Penn State lacks a compliance program, the creation of which Special Investigative Counsel Freeh’s Report recommends. Previously limited to financial fraud and HR issues, a June 21, 2012 posting by Penn State’s internal auditor announces a poster redesign advertising its hotline number, to which any ethical or legal concerns can now be reported. Important will be training throughout the university regarding the law’s protection of whistleblowers, about which, according to Freeh’s Report, top university leaders were unaware.
While it is stunning that, even now, Penn State has not advanced further in setting up these protective measures, it is fair to say that much of higher ed has been slow to adopt compliance best practices common to the healthcare sector and most business entities. Those universities with academic medical centers are among those who caught the wave early, because hospitals had to put compliance programs in place in the late 1980′s at the insistence of the Health and Human Services Office of Inspector General. Experience in the health sector suggests that the kind of exceptionalism and favoritism extended to Paterno and Sandusky might not have happened if a strong compliance program with an ethics officer of stature had been in place. The board would not have learned about crimes on its campus from the newspaper if it received regular updates from a compliance officer about all reports and investigations.
Janitors witnessed Sandusky engaged in sexual behavior or showering with children, but were afraid to make reports lest they’d lose their jobs. An anonymous hotline would have provided a mechanism for this information to have led to a real investigation that would have confirmed the fears that Sandusky was a serial rapist. Again, the ultimate decision-makers would have had an understanding of the full extent of the situation with which they were dealing — surely in the face of full-blown written findings detailing the scope of the horrors occurring on their own campus they would have acted.
Finally, the existence of an autonomous compliance ethics and compliance officer with sufficient stature and experience to conduct a full investigation and force a discussion about the appropriate handling of such catastrophic events could have also changed the outcome. As it was, the oral information reported up the chain became so diluted by the time it reached the University President that a rape was reported to him as “horsing around in the shower.” A complete written report would have avoided any such misunderstandings. More important, the victim would have been identified and hopefully protected — no one involved in handling the matter inquired about or made any efforts to identify any of the victims. Instead, Sandusky was given the heads up that he’d been seen in the shower, putting his child victim at greater risk. To give Special Investigative Counsel Freeh “free rein” after-the-fact is too late; imagine the harm that could have been avoided had such an investigation taken place in response to an early hotline report complaining about Sandusky showering with children. While the success of a robust compliance program for institutional reform is varied, experience in health care suggests that it contributes much to the prevention and discovery of problems.
While universities have certainly taken notice of the disaster that has befallen the children whom Sandusky assaulted and Penn State for its multiple failures, it is less certain that they’ve taken sufficient steps to ensure that similarly horrible events won’t get swept under the rug at their own institutions. Universities are essentially small towns populated by an age cohort with adult problems and responsibility but frequently lacking the maturity to handle either effectively. When you add the numerous high risk activities that are inherent to university life, it is no exaggeration to say that it is by the grace of God that more tragedies don’t occur on campuses. I suspect there’s more than we know, and I fear the lesson of Penn State may be lost.
In short, all university boards should read Special Investigative Counsel Freeh’s Report and take seriously its recommendations for your own institutions. Specifically, corporate compliance should be taken seriously.
If you are interested in learning about the whistleblower programs and the laws protecting whistleblowers, enroll in Seton Hall Law’s 8 week online course entitled The Law Protecting Whistleblowers. Watch Seton Hall’s Online Certificate web page for details to be posted in mid-August.
Unsurprisingly, the market has responded to the new risks corporate officials in the life sciences industry face if their companies commit crimes that threaten the public’s health. On February 7, 2012 insurance broker Marsh USA and insurer Allied Assurance Co. unveiled a new product, called RCO Corporate Response, “which provides insurance coverage for pharmaceutical, life sciences, and health care corporate officers who may be held liable for their companies’ actions under the Responsible Corporate Officer (RCO) doctrine.”
For those who are rusty, The Responsible Corporate Officer Doctrine allows for the conviction of a high-level corporate official (ambiguity of terminology suggests that directors could be liable as well) whose company has violated the Food, Drug and Cosmetic Act irrespective of the official’s knowledge or involvement in the offense if the individual occupied a position that had a relationship with the unit that violated the statute, should have known about the activity, and had the authority to intervene. In short, the government need not produce evidence that the corporate official participated in or was aware of the illegal conduct. Potential penalties include fines, imprisonment, and debarment from the FDA. As shall be discussed further, these penalties can lead to exclusion from Federal healthcare programs.
The Doctrine, which was first articulated by the Supreme Court in U.S. v. Dotterweich in 1943, was affirmed in 1975 in U.S. v. Park (and so sometimes referred to as the Park Doctrine). The Dotterweich Court expounded on the rationale for imposing such a hardship on corporate defendants not actually involved in the illegal conduct: the welfare of unwitting consumers who have no ability to protect themselves against dangerous products and services must prevail over the hardship the Doctrine creates for the corporate executive with the position, responsibility and power to protect the public. The Park Court emphasized that guilt was not based solely on the defendant’s corporate position and explicitly recognized an affirmative defense where the defendant is “powerless to prevent or correct the violation.”
The Doctrine has been rarely used, so fast forward to 2007, when the corporate entity Purdue Frederick pled guilty to a felony of misbranding along with the CEO, Chief Medical Officer and Chief Legal Officer who plead to misdemeanor misbranding pursuant to the Responsible Corporate Officer Doctrine. The convictions arose from Purdue Pharma’s off-label promotion of OxyContin, which the FDA approved in 1995 to manage chronic moderate to severe pain. From 1995 until 2001, contrary to the package insert and evidence on the ground, a number of Purdue employees promoted OxyContin “as less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal,” as subject to fewer peak and trough blood level effects, and producing less euphoria than other pain short-action opioids. These representations apparently occurred in some instances at supervisors’ urging, or as a result of sales training.
OxyContin became the number one prescribed Schedule II narcotic in the United States, with 5.8 million prescriptions in 2000. OxyContin revenues reached approximately $3 billion in June 2001, accounting for 80% of Purdue Pharma’s revenue. Despite its various troubles with OxyContin, Purdue Pharma never saw a dip in its revenues. Effective August 9, 2010, Purdue discontinued manufacturing and distributing the original formulation, replacing it with an FDA-approved reformulation that is apparently more difficult for abusers to penetrate by cutting, breaking, crushing or dissolving.
OxyContin is an effective and efficient analgesic. In addition to its legitimate use, however, OxyContin became very popular as a street drug, either taken orally, injected, or crushed, which circumvented the controlled release mechanism and allowed a more rapid and intense heroin-like high. The legal complications began when Appalachia experienced particular challenges with Oxy diversion, leading to criminal charges by US Attorney for the Western District of Virginia against what appears to have essentially been a shell corporation, Purdue Frederick, as well as three senior corporate officers. Notably, Purdue Parma, L.P., which is the corporate entity that actually sells OxyContin as well as the company’s other pain medications, was not charged, thereby enabling it to continue to submit drug applications to the FDA and have its products paid for by the Federal healthcare programs. Purdue Frederick and its executives agreed to plead guilty and pay fines totaling $634,515,475. Almost immediately, the HHS OIG used its discretionary exclusion power to debar all three executives from participating in Federal healthcare programs for twelve years. The executives have been unsuccessful in every level of administrative and judicial appeal thus far. In retrospect, the Purdue Parma execs may feel relieved after hearing that three Synthes executives received multi-month prison terms in addition to their fines pursuant to the RCO Doctrine for their company’s conduct of unauthorized clinical trials of bone cement in which three patients died.
On the heels of this success, the FDA announced that it was increasing its use of misdemeanor prosecutions against responsible corporate officials. The agency unveiled its internal agency guidance for determining when to forward a case to the Department of Justice for a “Park Doctrine Prosecution.” The guidance provides that a first time conviction for a violation of the FDCA will be a misdemeanor, with the second resulting in a felony. Further, some misdemeanor convictions can result in debarment by the FDA. Most importantly for this discussion, the guidance states that “Knowledge of and actual participation in the violation are not a prerequisite to a misdemeanor prosecution but are factors that may be relevant when deciding whether to recommend charging a misdemeanor violation.” The guidance enumerates the following additional criteria:
- The individual’s position in the company; relationship to the violation; whether the official had the authority to correct or prevent the violation
- Actual or potential harm to the public
- Obviousness of the violation
- Existence of a pattern of illegal behavior and/or failure to heed prior warnings
- Whether the violation is widespread
- Seriousness of the violation
- Quality of the legal and factual support for the proposed prosecution
- Whether prosecution is a prudent use of agency resources
Within the same week, Lewis Morris, Chief Counsel to the Inspector General of Health & Human Services testified before the House Ways and Means Committee that the OIG would review the case of any individual convicted pursuant to the RCO Doctrine for exclusion from participation in Federal healthcare programs. This, Mr. Morris testified, will overcome the barriers presented by corporations’ attitude that they are too important to the healthcare system to criminally prosecute and that fines are simply a cost of doing business. Mr. Morris assured the House Committee that the OIG would use this tool judiciously, employing a presumption in favor of exclusion only “when there is evidence that an executive knew or should have known of the underlying criminal misconduct of the organization.” The HHS OIG criteria for permissive exclusions from Federal healthcare programs includes a consideration of the entity’s misconduct, including whether it is part of a pattern of conduct and whether it caused harm to beneficiaries; the individual’s role in the sanctioned entity with a focus on degree of managerial control or authority and the position’s relation to the underlying misconduct and whether the misconduct occurred in the individual’s chain of command; and finally, detailed information about the nature of the sanctioned entity including its size, revenues, organization and structure.
With this background, one wonders how the new RCO insurance policy would work in these cases?
The benefits of the policy include coverage for:
- Defense costs incurred in the investigation or defense of any misdemeanor criminal proceeding, administrative proceedings brought pursuant to the RCO doctrine, as well as debarment proceedings.
- Defense cost coverage for potential RCO claims.
- Lost future compensation resulting from exclusion/debarment.
- “Recoupment loss” and/or clawback awards, which is the value of any compensation that must be returned or repaid by an insured person as a result of a judgment, decision, or settlement of an RCO claim.
An obvious omission from this list of benefits is the actual fines that are levied as part of the conviction, which are generally in the hundreds of millions. This is undoubtedly because insuring such risk would be against public policy. Not mentioned on the web site, but revealed in an interview with the Philadelphia Inquirer is that policy exclusions “might” kick in if evidence exists that the insured engaged in affirmative conduct that resulted in conviction. PharmaLot uncovered the same caveat in its interview with Jack Flug, a managing director at Marsh: “If the government decided the target knew what was going on and intentionally did something wrong, the coverage would cease. The intent factor is critical.” Again, maybe dictated by public policy concerns.
But how will this work in practice? Recall that the FDA’s Park Doctrine guidelines – “Knowledge of and actual participation in the violation are not a prerequisite to a misdemeanor prosecution but are factors that may be relevant when deciding whether to recommend charging a misdemeanor violation.” DOJ will employ a presumption in favor of exclusion only “when there is evidence that an executive knew or should have known of the underlying criminal misconduct of the organization.” These criteria raise questions of just how the insurance company is going to ferret out evidence of intent, or whether it will use the language of these two government agencies to create its own presumption that intent exists once a conviction occurs, unless the insured can prove otherwise. Ultimately, there’s a real question of just how many payouts will actually be made under these new RCO policies.
Another question, obviously, is whether prosecutors engaged in settlement negotiations will allow these insurance policies to be invoked. U.S. v. Stein, the 2008 opinion in which the Second Circuit held that prosecutors’ threat to indict KPMG if it paid its employees’ legal fees violated the employees’ Sixth Amendment rights to assistance of counsel, sheds one possible perspective on the outcome of this question.
Finally, the Marsh’s policy description does not mention covering directors, though one would have to imagine it would be willing to sell such a policy if so requested. While it has yet to happen, given their aggressive stance, the FDA and OIG would not miss the opportunity, with the right facts, to pursue the Responsible Officer Doctrine against a board member, perhaps on the Audit Committee.
A final twist: according to the Inquirer, upon learning of the new policy, Secretary of Health & Human Services Kathleen Sebelius replied, “I don’t practice law on a regular basis, but usually you can’t insure yourself as a bank robber for robbing banks. That is intriguing. I’d like a list of their customers because that would give us a pretty good target of people to go after.”
Filed under: Catholic Healthcare, Health Policy Community, Health Reform
President Obama has begun the process for healthcare reform by improving access through insurance reform, but achievement of his aspirations will require reform of our healthcare delivery system as well. Changing where and how healthcare is delivered and paid for is of particular importance given the emerging and generally non-acute needs of the aging baby-boomers, and the lack of sufficient primary care to serve the many who will become insured as health insurance reforms are implemented. Healthcare providers realize this, and the market is indeed adjusting as we speak.
Three examples of these changes to the delivery system include, first, moving much of the delivery of services out of hospitals and into the community. Healthcare systems are rapidly affiliating with or employing physicians to facilitate this change, in the hopes of enabling the various parts of the health care system to work more collaboratively, efficiently and cost-effectively. In many parts of the country, hospitals have been too cash-strapped to invest in necessary updating to their hospital facilities. Now that we are thinking differently about how to use the physical plant that hospitals occupy, and investing in new technology, these investments need to happen. As a third example, President Obama is infusing money into hospitals and physician offices to enable the United States to catch up to other developed nations in the digitizing of its medical records. The benefits of this change are numerous, but it is a very expensive transformation.
In order to provide quality service and compete in the fast-changing healthcare market, hospitals and the systems of which they are a part, need money to pay for these changes. A February 21, 2012 New York Times article on the expansion of Catholic hospitals provides a glimpse of this phenomenon of market reform. Cash-poor hospitals unable to access capital to invest in the new initiatives necessary to keep them competitive are looking for financially stronger partners with this investment ability. There are currently 56 Catholic healthcare systems in the country, ranging from the financially successful to the distressed. Thus it is unsurprising that a potential partner for some hospitals might be found among Catholic systems.
But there are some Catholic providers who are struggling and require an affiliation to survive; other Catholic providers are simply considering alternative business models which might provide more market flexibility as well as increased options for access to capital. The former Catholic Healthcare West is an example of the latter situation. CHW was sponsored by six religious orders and operated 25 Catholic and 15 non-Catholic hospitals; just weeks ago, it announced changes to its name — it is now Dignity Health — and its corporate and governance structures. The parent holding company for Dignity Health is no longer Catholic, and is no longer sponsored by the religious orders — those orders now sponsor directly the Catholic hospitals that are part of Dignity Health. These Catholic hospitals adhere to the Ethical and Religious Directives for Catholic Health Services, of which each hospital’s local bishop is the ultimate arbiter. The non-Catholic hospitals adhere to a Statement of Common Values, which preclude assisted suicide and euthanasia, as well as pregnancy terminations and assisted reproductive procedures that deviate from Catholic teaching; the Statement of Common Values does allow the performance of direct sterilizations, which is something precluded at Catholic hospitals. I would venture to say that many, whether Catholic or not, likely embrace the content of this Statement of Common Values. I would also suggest that many secular hospitals operate according to similar policies, but it just doesn’t get talked about.
The religious orders hope to perpetuate their evangelical influence on the culture of Dignity Health and its constituent non-Catholic hospitals — if successful, I would suggest that this will be an important and significant contribution to those providers who are the beneficiaries of the Catholic ethos of healthcare delivery, because it can be transformational. The change from CHW to Dignity also sought to clarify the confusion among patients about which hospitals are Catholic, and provide market flexibility with respect to future affiliations with service providers. A statement by San Francisco Archbishop Niederauer provides a helpful description of the reasons for Catholic Health West’s transformation to Dignity Health, and the process by which deliberations occurred.
Other Catholic hospitals are engaging in even more “radical” transformations in order to put themselves in a position to survive and/or thrive in the emerging healthcare market. After years of unsuccessful attempts to prop up the six Boston-area hospitals that comprised Caritas Christi Health Care, Cardinal Sean O’Malley surprised many when he agreed to sell the system to Cerberus Capital Management, which is a private equity firm. The system was burdened with debt, its pension was underfunded, and its physical plant was in desperate need of significant upgrades. The sale to Cerberus transformed this Catholic health care system, now named Steward Health Care System, to a for-profit Catholic health care system. Cerberus agreed to ensure that the Steward hospitals adhere to the Ethical and Religious Directives, subject to the authority of the Cardinal who has the power to strip a hospital of its Catholic status, as happened to a Phoenix Catholic Healthcare West hospital, St. Joseph’s, in 2010, over a disagreement regarding an interpretation of the Ethical and Religious Directives regarding abortion.
Cardinal O’Malley was not the first person to find salvation for financially distressed hospitals in the private equity world. St. Vincent’s Hospital in Worcester, Massachusetts is owned by for-profit Vanguard Health Systems of Nashville, which owns both Catholic and Baptist hospitals, primarily in the south and west. And Ascension Health, the nation’s third largest health system with a 2010 net income of $1.2 billion has teamed up with Oak Hill Capital Partners to build a new for-profit enterprise with an eye towards “offer[ing] a lifeline to capital-starved Catholic hospitals.”
Myriad questions arise from this new mechanism for infusing capital into Catholic healthcare. No precedent exists for a Catholic for-profit healthcare ministry. In terms of the issue about access to services raised by the February 21 New York Times article, “Catholic Hospitals Expand, Religious Strings Attached,” it is likely that the public will become even more confused about what rules govern hospitals as for-profit systems include both Catholic and non-Catholic entities. While the interpretation and application of Catholic teaching will vary by diocese and the deal reached by the parties, it is certainly possible that, as was the case with Catholic Healthcare West (now Dignity Health), some or all of the Ethical and Religious Directives will be extended to the secular hospitals which are part of any system that includes Catholic facilities. This makes sense, as Catholic teaching encourages Catholics to distance themselves from acts which are deemed immoral. Sometimes, the act in question, such as abortion or euthanasia, is held to be so fundamentally immoral that Catholics can have no association with the situation, which would be the case if a Catholic hospital belonged to a healthcare system in which affiliates offered these services. As such, even though a hospital may itself be non-Catholic, if it participates in a system which includes Catholic hospitals, its services may necessarily be circumscribed. Again, most of these proscriptions are ones with which many Americans likely agree. Transparency should prevail nonetheless. As I discussed in my February 22, 2012 blog post, there are significant benefits from affiliating with a Catholic entity, including commitment to the care of all segments of society and an ethos of care that attends not only to the physical, but to the mental and spiritual as well. Catholic healthcare is also an important voice in public debates about reforming our healthcare system and the dignity of every person. These attributes of Catholic healthcare should be given significant weight in assessing collaborative arrangements.
While I believe that there is much that is wonderful about the culture, ethics and ethos of Catholic health care, there may be some other consequences of affiliation that some would fine unappealing. The United States Conference of Catholic Bishops opposes the health care reform mandate that would require employers to offer health insurance to employees that includes contraception as a covered benefit. In addition, some bishops have refused to comply with laws requiring equal treatment of spouses and gay partners with regard to eligibility for employer-sponsored health insurance. While it is unclear to what extent Catholic hospitals have followed these policy positions (the Catholic Health Association has announced that it is pleased with President Obama’s contraception compromise), the obvious question is whether they will be extended to secular affiliates as well.
Most of the questions that arise from the transition to for-profit status must obviously be resolved by the religious congregations and others that sponsor Catholic healthcare. What makes a service or entity essentially Catholic, and whether that can be preserved in a for-profit context is likely unanswerable without experimentation. For-profit providers ultimately exist to make money for investors. Non-profit providers must operate in fidelity to their mission. If a hospital is truly unable to survive, which was apparently the case with the six Boston hospitals that comprised Caritas, then for-profit conversion was the only means to continue its mission. Even less dire situations may call for serious consideration of this alternative: a provider unable to access the resources to provide quality care irrespective of patients’ ability to pay is not in a position to actualize its mission.
The biggest question for stakeholders, presumably, is how long the private equity firms that are acquiring Catholic hospitals will hold on to them, especially if they are losing money. The co-head of Cerberus was quoted in the Boston Globe as saying that Cerberus would own the Steward hospitals for at least three years; the article also suggested that it would not close any hospital for the first three years of its ownership, and would extend that time for an additional two years unless a hospital operated at a loss for two consecutive years. So, one risk of these arrangements might be that they are simply stop-gap measures. What happens if the private equity firms and their shareholders aren’t making enough money?
Another question is whether the for-profit model will result in the discontinuation of unprofitable yet essential services, which some empirical evidence suggests occurs more frequently with for-profit as opposed to not-for-profit providers, although it is important not to generalize.
This conversation will continue for some years, as we assess the on-going experiment that is for-profit Catholic healthcare. This month, Seton Hall Law School is looking at some of the issues raised from the Catholic sponsors’ perspective, at a Symposium entitled Is a For-Profit Structure a Viable Alternative for Catholic Health Care Ministry? Return to Health Reform Watch for future discussion of this fascinating issue.
Filed under: Catholic Healthcare, Health Policy Community, Health Reform
A February 21, 2012 New York Times article entitled “Catholic Hospitals Expand, Religious Strings Attached” addresses the challenges that arise when Catholic healthcare systems acquire healthcare providers and extend religious proscriptions to the newly acquired facilities and practitioners. Specifically, the article raises concerns about women’s access to reproductive health services, particularly in communities where Catholic ownership of hospitals and other providers dominates. Much of this same kind of market activity occurred in the early 90′s in anticipation of market reforms associated with Clinton healthcare reform. So, while these are not new issues, they are no less difficult to resolve, perhaps in part because we have all become more politicized in our approach to problem solving, which almost seems impossible to imagine, but there it is. In a 1995 Houston Law Review article entitled DECIDING THE FATE OF RELIGIOUS HOSPITALS IN THE EMERGING HEALTH CARE MARKET I attempted to propose a middle ground of accommodation that would facilitate access to care while providing Catholic healthcare providers with the space required to continue to be true to their religious beliefs. I believe that the prescription remains as valid today as it was when written over a decade ago.
Catholic healthcare comprises a ministry, whereby the sisters or diocese that provide the health services are committed to ensure that they act in way that is true to the teachings of the Catholic Church. Catholic healthcare providers are living the gospel, which is replete with instances of Jesus ministering to the sick — he attended to healing the mind, body and spirit. This holistic healing mission began when various religious orders first established their hospitals, and continues today, albeit with fewer religious and more laypersons continuing the legacy of the Catholic healthcare mission. Catholic healthcare has served an essential role in the United States since the nation’s inception, frequently being the only provider of care to the poor in numerous communities. That dedication to the vulnerable segments of society continues today. Catholic healthcare providers were the first in many communities to treat compassionately, without judgment and without discriminating, those with HIV/AIDS. Mission statements for Catholic providers focus on ensuring care to the homeless, to immigrants, whether documented or not, and to the underserved and uninsured. According to statistics available on the Catholic Health Association web page, Catholic healthcare is a national leader in its provision of birthing rooms and breast cancer treatment, geriatric services, nutrition programs, social work services and pain management programs. The disappearance of Catholic hospitals would decimate access to care in rural communities. Catholic hospitals have long been on the forefront of the call for healthcare reform that provides access to all, and support President Obama’s health reform efforts.
Catholic hospitals’ delivery of healthcare is informed by Catholic Social Teaching broadly and specifically by what are called The Ethical and Religious Directives for Catholic Health Care Services, which are promulgated by the United States Conference of Catholic Bishops. Catholic Social Teaching rests on centuries of philosophical and theological learning to guide not only the Church but society in general on such questions as the relationship between labor and capital, the respectful treatment of employees and the importance of unions to workers, distribution of goods and services, and human rights to social goods such as health care. The Ethical and Religious Directives, which are informed by Catholic teaching, are moral guidelines specific to healthcare, to aid in resolving such ethical issues as pregnancy termination, contraception, and euthanasia. Obviously, the clinical situations in which these guidelines are implicated can be extremely complex, and sometimes require nuanced analysis by those with a deep understanding of Catholic moral theology and medicine. Like any intellectual discipline, theologians, bishops, and healthcare providers sometimes disagree among themselves as to the appropriate application of these guidelines to a specific situation. So, yes, it is true that Catholic healthcare providers are committed by their religious beliefs to operate in ways that may be different than secular providers, but these differences extend far beyond the moral limitations on the kinds of reproductive and end-of-life care they provide. This moral framework serves to unleash the kind of compassionate care that has been a hallmark of Catholic healthcare since its inception. Even in the face of severe budget cuts, Catholic hospitals continue to provide pastoral care to their patients, caregivers, and families; engage in constant assessment of fidelity to mission; and have been leaders of all hospitals with regard to measuring tax-exempt facilities’ provision of community benefits.
My ultimate point is two-fold. First, Catholic healthcare is too important to the country’s healthcare system to be reduced in our assessment of its value to religious proscriptions that may interfere with access to a limited universe of services, albeit what are sometimes characterized as essential healthcare services. While some may dissent from application of Catholic teaching in particular instances, the continued and pervasive presence of health providers committed to the dignity of every person whom they treat is an ultimate societal good. Where disagreement persists, it is important that the Church engage in sincere dialogue with all segments of society, with a willingness to be informed from medical, ethical, and sociological perspectives.
As Catholic providers partner, merge or otherwise collaborate with secular healthcare providers, community stakeholders, including licensing agencies, should demand and receive a clear understanding of the implications for healthcare access of the proposed alliance. Each bishop acts as the ultimate arbiter of the Ethical and Religious Directives, which means that interpretations can vary by diocese. For example, a minority of bishops have raised questions about the kind of emergency care administered by hospital emergency departments to rape survivors, out of an over-abundance of medical and moral caution, in my view, that the treatment might interfere with a pregnancy. Thus, it is essential that regulators understand the implications of Catholic teachings for healthcare access, so that patients clearly understand the limitations of Catholic providers and, where appropriate, have alternatives to access services. Our healthcare system has and will likely always be extremely pluralistic. We have, and should continue to make every effort, to accommodate the religious beliefs of providers, while ensuring access to care to which patients are legally entitled.
Further, the public debate about what kind of care should be legally available should take seriously the perspective of those whose viewpoints are informed by moral concerns, whether those concerns arise from religious or philosophical principles. Finally, both The United States Catholic Conference and individual bishops should ensure that they receive a robust analysis of ethical issues related to healthcare from the Church’s best theologians with relevant expertise before promulgating guidance to those engaged in healthcare ministry. Importantly, bishops should also hear from those who are involved daily in caring for and ministering to patients.
The ultimate goal of reform is one upon which both Catholic healthcare providers and proponents of women’s health agree — increased access to healthcare for all. Collaboration on the pursuit of this unified goal should enable us to identify means by which the plural interests of the stakeholders can be accomplished. Transparency and conversation are key to achieving these ends. In my conversations with those concerned about changes in the healthcare delivery system, I have always found them to be very respectful of religious freedom, appreciative of the role religious providers play in society, and desirous of finding a common way forward. While the number of religious sisters is shrinking in the United States, women remain a significant presence in the leadership of Catholic healthcare. A cursory review of the areas where Catholic healthcare predominates reveals a strong commitment to women’s health and wellness. For these reasons, I feel confident that common ground exists to ensure access to health care for all, while carving out space for Catholic fidelity to the demands of their religion.
Filed under: Bioethics, Drugs & Medical Devices, Transparency
CMS has published proposed rules for its implementation of the Physician Payment Sunshine Act (SUNSHINE ACT or Act), which was enacted by Congress as part of the 2010 Patient Protection and Affordable Care Act. In short, the SUNSHINE ACT requires life science companies to report annually to CMS their conferral of anything of value, whether it be payment for services or a dinner, in connection with a particular product of the paying company. By requiring CMS to post the information on its website, the Act seeks to ensure that interested patients become aware of physicians’ conflicts of interest that could affect their prescription of a branded drug or choice of a specific medical device.
The SUNSHINE ACT represents another example of the transparency movement, which has had varying degrees of success in either changing the behavior of the parties subject to disclosure, and/or enabling consumers to make better decisions based upon their access to the disclosed information. It is likely that the SUNSHINE ACT will impact physicians and manufacturers’ behavior more than it will enlighten consumers about conflicts of interest. Some physicians will simply conclude that accepting certain gifts or benefits from pharmaceutical or medical device companies isn’t worth having their names on the CMS website. Some companies have already discovered that they haven’t necessarily reaped the value of the costs of gifting many physicians, or that the cost of recording certain activities simply isn’t worth the return on investment. Unquestionably, certain transactions will continue to be valuable to both physician and company, and will continue.
It is unlikely that most patients will access the information either before or after a physician visit, or know what to do with the information even if they discover that their physician has an equity interest in the knee she plans to use in next week’s surgery – does such a close relationship with the knee manufacturer signal that the physician is great, or that something nefarious is going on? The information is likely to be used by consumer watchdog groups, as well as hospital formulary committees and medical school deans interested in knowing the sources and amounts of outside income being earned by faculty. Divorce attorneys are likely to find the information useful if their client’s soon-to-be ex-spouse hasn’t reported significant pharma consulting fees as income.
CMS rulemaking is behind schedule, thereby delaying the SUNSHINE ACT’s implementation. It is likely, however, that the ultimate rules will still require that 2012 data be submitted, even if not by the deadline originally contemplated by Congress.
The statute requires manufacturers of drugs, devices, biological or medical supplies covered by Medicare, Medicaid or the Children’s Health Insurance Program (CHIP) (“applicable manufacturers”) to report annually to HHS payments or transfers of value to physicians and teaching hospitals (“covered recipients”). Failure to comply will result in Civil Monetary Penalties. HHS, in turn, must publish this information on a public web site which is searchable, downloadable and able to be aggregated. Compliance with the SUNSHINE ACT’s reporting requirements does not exempt applicable manufacturers from application of fraud, waste and abuse laws.
The proposed rule merges the SUNSHINE ACT definition of “manufacturer of a covered drug, device, biological, or medical supply” with the statutory section clarifying that the entity covered by the SUNSHINE ACT must be “operating in the United States, or in a territory, possession, or commonwealth of the United States” to define applicable manufacturer as one
(1) Engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States; or
(2) Under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply for the sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States.
The operative activity that invokes statutory coverage, then, is sale of a product in the United States, as opposed to where the product is produced, or where the entity is located or incorporated. Pursuant to the rationale that risks inhere in conflicts of interest irrespective of where the manufacturer is located if the product is sold in the United States, any entity under common ownership with the manufacturer that is involved in the production, distribution or sale of at least one covered product in the United States must report all payments and conferral of value upon covered recipients. Further, as proposed, the product sponsor (i.e., the entity that obtained FDA approval) is subject to the reporting requirement, even if the sponsor is not involved in the manufacture of the covered product. CMS is considering alternative interpretations of the common ownership concept.
Covered Drug, Device, Biological, or Medical Supply (“covered product”)
The SUNSHINE ACT focuses upon those products for which Medicare, Medicaid and CHIP pay. This is relatively straightforward in many contexts, but CMS seeks to ensure that it captures situations where such products are part of a composite rate payment, such as the inpatient or outpatient hospital reimbursement, or the end-stage renal disease prospective payment system. As such, CMS proposes to define “covered drug, device, biological, or medical supply” as:
Any drug, device, biological, or medical supply for which payment is available under Title XVIII of the Act or under a State plan under title XIX or XXI (or a waiver of such plan), either separately, as part of a fee schedule payment, or as part of a composite payment rate (for example, the hospital inpatient prospective payment system or the hospital outpatient prospective payment system). With respect to a drug or biological, this definition is limited to those drug and biological products that, by law, require a prescription to be dispensed. With respect to a device or medical supply, this definition is limited to those devices (including medical supplies) that, by law, require premarket approval by or premarket notification to the Food and Drug Administration.
CMS seeks comments on its plan to exclude from the scope of regulation those manufacturers who produce and sell only over the counter (OTC) products. More specifically, this exemption would not extend to a manufacturer who sells even one prescription product who is otherwise subject to the reporting requirements of the SUNSHINE ACT. Similarly, CMS seeks to interpret the SUNSHINE ACT to cover only those medical devices that require premarket approval, on the theory that this is the segment of the market most likely to have extensive provider relationships. If a device manufacturer produces a single product that requires pre-market approval, it would have to report all payments and conferrals of value to covered recipients.
The SUNSHINE ACT defines “covered recipients” as (1) a physician, other than a physician who is an employee of an applicable manufacturer; or (2) a teaching hospital. The term physician includes both doctors of medicine and osteopathy as well as podiatrists, optometrists and licensed chiropractors. CMS interprets the statute to include within its scope those who act on behalf of covered recipients. Teaching hospital is not defined by the statute; CMS seeks comments on its proposal to identify such entities by virtue of their receipt of Medicare graduate medical education funds. CMS will publish this list annually on its website for manufacturers’ reference.
CMS plans to utilize the National Plan & Provider Enumeration System, which it maintains on its website, to collect the data regarding covered recipients required by the SUNSHINE ACT: covered recipient’s name and business address, and, for physicians, the National Provider Identifier and specialty.
Payments or Other Transfers of Value
The report must also include the date, form (i.e., cash, stock, ownership interest), nature (i.e., education, research, consulting fees, food) and amount of payment, and the market name of the product associated with the payment. CMS continues to consider how to handle payments made to a single covered recipient related to multiple products. CMS seeks to generate data in a form most easily understood by consumers.
The statutory definition requires such conferrals to be reported irrespective of whether they were requested by the physician or hospital and includes those made by third parties as long as the applicable manufacturer knows the identity of the covered recipient. CMS proposes that payments made through a group practice be reported under the specific recipient physician’s name. If a physician requests the conferral to be directed to another physician or entity, the manufacturer should report the conferral under the requesting physician’s name as well as the name of the actual recipient.
Charitable contributions by an applicable manufacturer to, at the request of, or on behalf of a covered recipient are reportable.
The SUNSHINE ACT excludes from its reporting requirement the following payments:
- Transfers of value less than $10, unless the aggregated amount exceeds $100 in a calendar year
- Product samples not intended to be sold that are intended for patient use
- Educational materials that directly benefit patients or are intended for patient use
- The loan of a covered device for a period not to exceed 90 days, to permit evaluation
- Items or services provided under a contractual warranty
- A transfer of value or payment to a covered recipient when that person is receiving the conferral in his/her capacity as a patient
- Discounts, including rebates
- In-kind items used for the provision of charity care
- A dividend or profit distribution from ownership or investment interest in a publicly traded security or mutual fund
- Self-insurance payments to covered employees by an applicable manufacturer
- Non-medical services
- Transfers of value made by third parties where the applicable manufacturer is unaware of the identity of the covered individual
CMS will be moving rapidly to respond to comments and finalize these rules, which will likely involve changes from the discussion here. State laws that pre-date the Act are pre-empted to the extent that they require reporting of the same information, which leaves them the discretion to retain those reporting requirements that are not redundant. States seeking to impose as much of a burden on manufacturers as possible are likely to retain their individualized reporting requirements, others may find the costs not worth the benefits now that the feds have finally stepped in.
 Section 1128G(e)(9).
 Subsection (e)(2) further clarifies that the entity covered by the SUNSHINE ACT must be “operating in the United States, or in a territory, possession, or commonwealth of the United States.”
Filed under: Conflicts of Interest, Research
Seton Hall University School of Law’s Center for Health & Pharmaceutical Law & Policy has issued a White Paper, “The Limits of Disclosure as a Response to Financial Conflicts of Interest in Clinical Research,” in which the Center agrees that public policy should encourage researchers and institutions to make information about their financial relationships with industry available to the public, but-contrary to many other commentators’ recommendations- concludes that disclosure of financial information should not routinely be required as part of the informed consent process.
While reiterating the Center’s prior recommendations for direct measures to eliminate, reduce, and manage problematic financial relationships in clinical research, the Center notes that, despite “the importance of transparency as an ethical value, incorporating financial issues into the informed consent process would provide few, if any benefits to research subjects and could in fact cause significant harms.”
The Center notes the problem of “information overload,” as clinical research informed consent documents have already become “long and complex, thereby confusing and overwhelming potential research participants,” and evidence indicates that “participants are often unable to sift through the morass of information to tease out the content they find salient or material.” In addition, qualitative studies have shown that “brief concise statements about financial interest within informed consent documents were rarely understood, and sometimes only served to confuse potential participants.
The Center concludes that, if a conflict of interest is so serious that its disclosure would lead a reasonable person to refuse to participate in a study, the proper remedy is to eliminate the conflict. It is therefore essential to ensure that information about financial interests is made available to institutional review boards (IRBs) and conflicts of interest committees, so that they can ensure that any problematic conflicts are eliminated before a study begins.
The Center notes that its conclusion that financial conflicts of interest should not be routinely disclosed as part of the informed consent process is not inconsistent with the California Supreme Court’s decision in Moore v. Regents of the University of California.
While Moore creates the possibility that, in the right set of circumstances, a physician’s failure to disclose research-related financial interests could give rise to liability, it does not mean that any and all financial relationships with industry must necessarily be disclosed. Rather, as in any informed consent claim, liability would depend on the plaintiff’s ability to establish the element of causation–i.e., that, if the omitted information had been disclosed, a reasonable person in the plaintiff’s position would not have consented to the procedure. As explained above, under the Center’s proposed framework, any conflict serious enough to affect a reasonable person’s decision about enrollment would already have been eliminated before the research began.
“The Limits of Disclosure as a Response to Financial Conflicts of Interest in Clinical Research” may be found at http://law.shu.edu/HealthLawPublications.
Seton Hall Law School’s Center for Health & Pharmaceutical Law & Policy is a think tank that fosters dialogue, scholarship, and policy solutions to critical issues in health and pharmaceutical law. As part of its mission, it convenes policymakers, consumer advocates, the medical profession, industry, and government in the search for concrete solutions to the ethical, legal, and social questions presented in the health and pharmaceutical arenas. The Center also runs a compliance training program covering the state and federal laws governing the development and marketing of drugs and medical devices.
Filed under: Medicare & Medicaid, State Initiatives
I can’t read another paean to Mississippi Gov. Haley Barbour for granting a release from imprisonment to Gladys Scott on condition that she “donate” a kidney to her sister.
The Scott sisters were sentenced to life 16 years ago for an armed robbery that yielded them $11. The women will be eligible for parole in 2014.
Civil rights advocates have sought the two women’s release for some years, arguing that their sentences were excessive.
Barbour’s decision has been hailed by the NAACP President and CEO as “a shining example of the way a governor should use the power of clemency.” A primary reason cited by Barbour for his decision is that sister Jamie’s dialysis is costing the state a lot of money. According to Gladys Scott’s attorney, the idea that she donate a kidney to her sister was her own, which is why he included it in the petition for release.
While available reports do not provide sufficient facts for robust legal-moral analysis, this story raises issues that should give us pause.
First and foremost, I am concerned on Gladys Scott’s behalf that a kidney donation is in neither her short- or long-term best interests – I can only wonder whether her own health makes her an ideal donor after serving a 16-year prison sentence.
We don’t know what led to Jamie’s end-stage renal disease, but it is crucial that Gladys know what her own risk for the disease is before she gives up a healthy kidney. Will her physicians feel comfortable recommending against the surgery if her long-term prognosis is poor – would such a decision result in the revocation of the prison release, or is the release contingent upon a medical “OK” for the procedure?
To what extent will the transplant physicians be required to compromise their own ethical duties to the health of these women to accommodate their desire for freedom?
Hopefully, Barbour’s release decision depends upon Gladys’ willingness to be considered as an organ donor, as opposed to her having to actually go through with it.
While I believe it possible that Gladys wishes to donate her kidney to save her sister’s life, the conditions under which she has made this decision are hardly ideal to voluntariness, which our law normally dictates is a necessary condition precedent to organ donation.
These women have been incarcerated their entire adult lives, and have likely made very few decisions on their own behalf, much less life-and-death ones.
Other doubts haunt this scenario. If indeed the Scott sisters merited a suspension of their sentences because they are excessive, then the governor should have made his decision for that reason, thereby enabling the women to resolve how to proceed in addressing Jamie’s kidney failure in the context of their private lives, without state compulsion and outside the glare of the media.
I hope they have significant and stable support upon their release – in addition to undergoing a significant medical procedure, they may not be well-prepared for successful reentry even in the best of circumstances.
Barbour cites the opportunity to save the state health costs by releasing the sisters to pursue the transplant. If the transplant is both a cost-effective and humane alternative to dialysis (which I believe it is) why wasn’t it allowed during the sisters’ incarceration?
While the state may be expecting to save money for the sisters’ health care, it is presumably Medicare that will be covering the cost of the transplant and the extremely expensive post-surgical anti-rejection drugs that Jamie will require (although Jamie’s eligibility for Medicare will likely be fraught with hurdles).
Thus, a large part of the state’s motivation here seems to be the chance to shift Scott from the state’s Medicaid roll to the federal government’s Medicare program.
A fragmented system
While this might work out in the end for the Scott sisters, it represents yet another perversity of our fragmented health care system.
The Scott sisters must be wonderfully excited about their imminent release, and the possibility of saving Jamie’s life, and I am pleased for them.
I am less excited, however, about Barbour’s decision becoming a precedent for other governors.
This article originally appeared in The Record, New Jersey’s most awarded newspaper.
Recommended Reading, “Regulating Conflicts of Interest in Research: The Paper Tiger Needs Real Teeth”
Jesse Goldner’s Regulating Conflicts of Interest in Research: The Paper Tiger Needs Real Teeth, 53 St. Louis U. L.J. 1211 (2009), is a must-read for anyone who has anything to do with oversight of researchers’ conflicts of interest. The article reflects an insider’s understanding of academic physicians’ perspectives on this still-contentious topic, provides a terrific survey of the literature, and proposes regulatory fixes by the feds that HHS will hopefully seriously consider. The article’s timing is perfect, given that HHS is receiving comments until August 19, 2010 on proposed changes to its conflict of interest regulations. See http://grants.nih.gov/grants/policy/coi/. Even in the short time since the publication of Goldner’s article, HHS OIG has issued yet another report on conflicts of interest management, entitled “How Grantees Manage Financial Conflicts of Interest in Research Funded by the National Institutes of Health,” (Nov. 2009), available at http://oig.hhs.gov/oei/reports/oei-03-07-00700.pdf. Based upon an in-depth audit of 41 grantee institutions that reported conflicts in FY 2006, the OIG found that equity interests represent the most pervasive form of financial conflict of interest. The most popular tool employed by entities managing conflicts is disclosure to publications or at academic presentations; entities only rarely required the reduction or elimination of conflicts. As important, and unsurprising based upon AAMC surveys, is the unreliability of the conflict reporting mechanisms used by most academic institutions.
The OIG report emphasizes the need for increased oversight of conflicts of interest. Academic medical centers have had plenty of time and forewarning to address the issue but, as demonstrated by a vignette described by Goldner about his own efforts to accomplish this through the IRB which he chaired, faculty resistance is significant. Consequently, Goldner is exactly right in calling upon HHS to issue aggressive regulations that accomplish the necessary reforms. He would require the establishment of conflict of interest committees at every research institution, comprised primarily of independent members, to which faculty would report all financial relationships that create conflicts of interest. Resolution of such conflicts would be a condition precedent to proceeding with proposed research, and violations would result in significant penalties, including debarment from research.
As shall be discussed in a forthcoming Seton Hall White Paper entitled The Limits of Disclosure as a Response to Conflicts of Interest in Clinical Research, I do not have confidence in benefits accruing from requiring disclosure of conflicts to research participants in consent forms, although research participants do have a right to know of such conflicts. This is a minor quibble. Goldner’s article is a great contribution to the literature.
James J. Fishman’s Stealth Preemption: The I.R.S.’s Nonprofit Corporate Governance Initiative, recently posted on SSRN, joins the growing chorus of critics of the IRS’s preemption of state nonprofit corporate law via the addition of an entire “governance section” to Forms 1023 and 990. The underlying hypothesis is, of course, that by virtue of asking particularized questions regarding governance, the IRS will affect changes to facilitate the provision of the “right” answers on the respective forms; the IRS specifically acknowledges that no federal tax law addresses most of the issues about which it inquires. The article is a great survey of the bases of criticism of the IRS foray into governance reform, particularly as it applies to the medium to small nonprofit. It also catalogues examples of applicants being denied 501(c) (3) exemption as a result of concerns about, for example, conflicts of interest which, Fishman explains, the IRS appears to believe are per se bad, without an acknowledgement of why they may be necessary and appropriate for the small nonprofit, and can be managed, as is required by state law, to avoid foreseeable evils. An important theme of Fishman’s article is the lack of empirical data showing that the IRS’s structural governance preferences actually have a positive substantive impact on the operation of nfps.
John D. Columbo’s The NCAA, Tax Exemption, and College Athletics, 2010 U.Ill. L. Rev. 109 is simply fun for those academics who enjoy complaining about the outrageous salaries of coaches, or who flinch at the reference to the “scholar athlete.” More relevantly, however, Columbo’s article comprehensively outlines the doctrine relevant to analyzing the sparse legal guidance available regarding the assessment of the reasonableness of executive compensation, and whether it violates the prohibition on inurement or excess private benefit. This analysis is timely as well: the IRS may be on the verge of delving into the salaries of coaches as part of its college audits. The article also makes incredibly accessible UBIT analysis, also of importance in teaching health law. Like most of Columbo’s work, he makes hard concepts seem easy. As the IRS may be taking a closer look at coaches’ salaries.
James R. Hines, Jill Horwitz & Austin Nichols’ The Attack on Nonprofit Status: A Charitable Assessment, just posted on SSRN, forthcoming in 108 Mich L. Rev. 1179 responds to the literature advocating for tax benefits to any entity, including the for-profit, that engages in charitable activity, regardless of organizational status. Ultimately, the authors argue for the exclusive retention of tax exemption for the nonprofit firm, employing economic analysis and extant though limited empirical data to suggest the superior efficiency, higher quality and lower costs of nonprofits for at least some charitable activities. The article is rich with empirical data about the demographic differences between the for-profit and non-profit employee, from which it suggests employees of the two sectors may be differently motivated – by altruism as opposed to monetary incentives — thereby reducing costs and arguably increasing efficiency and quality. Professor Horwitz’s work always makes an important contribution to the literature, and she doesn’t disappoint in this article either.
Lloyd Hitoshi Mayer and Brendan M. Wilson’s Regulating Charities in the 21st Century: An Institutional Choice Analysis, available on SSRN, forthcoming in Chicago-Kent Law Review, invokes institutional choice theory to determine the best locus for the regulation of the charitable sector. The article concludes that charity governance, comprising rulemaking and enforcement, best resides in a state agency independent of but related to the attorney general. This outcome respects the historic role of the state in regulating charities, takes advantage of the state’s expertise in nonprofit oversight, and enables the state to be nimble in its regulatory approach. The provision of sufficient funding remains a concern with this choice. Also of concern is inter-state consistency in regulating the multi-state nonprofit charity; inconsistency can foster regulatory arbitrage.
Filed under: 501(c)(3), Nonprofit, Recommended Reading
Miranda Perry Fleischer’s Theorizing the Charitable Tax Subsidies: The Role of Distributive Justice, just published at 877 Wash. U.L. Rev. 505 is a must-read for anyone asking what justifies hospitals’ tax-exemption in a post-reform world. The least that can be said for this incredibly thoughtful article, which is apparently the first in a series on the topic, is that it provides a superb overview of tax-exemption theory for those who do not regularly read this literature. It is perfect background reading for the non-tax teacher who introduces students to the topic in her health survey class, or the person who just wants a quick overview of the extant theoretical justifications for the charitable tax exemption. Fleischer makes two primary points. First, she chides tax theorists for their failure to acknowledge that tax exemptions for charities, and the attendant deductibility of charitable contributions, are redistributive. Second, she seeks a clearer justification for the determination for the charitable exemption, and convincingly enumerates disparate examples that prove the lack of coherence of current IRS policy, particularly with respect to the question as to whether charities are expected to serve the poor. Unsurprisingly, hospitals are but one example. She urges the adoption of a moral theory to facilitate the development of a coherent system of tax exemption, and starts the process of describing potential outcomes if we subscribed to a utilitarian, maximin, egalitarian or capabilities approach to defining charity. Apparently, this project will be further developed in future articles, which is just in time, at least for the health care sector.
Jessica Berg’s Putting the Community Back into the “Community Benefit” Standard, just published at 44 Ga. L. Rev. 375, represents one of the first articles of what can be expected to be a flurry of post-PPACA proposals to reform the criteria for hospitals’ tax-exempt status when charity care begins to decrease, at least in some markets (undocumented aliens will continue to be a significant burden in several states). Professor Berg seeks to shift the focus from the provision of individual charity care as a means to satisfy the community benefit standard, to the provision of population health care benefits, which can be measured by local, state and federal authorities to justify their respective tax exemptions. Berg seeks to avoid adopting a method for quantifying the value of the hospital’s community benefit that encourages hospitals to expend resources for the purpose of earning the tax exemption, rather than promotion of population health. Consequently, she proposes that tax authorities measure the value of the effect or outcome of the hospital’s population health programs, by analyzing participation, mind states, behavior, health status, sickness care utilization, sickness care expenditures, and community value, which can be accomplished by looking at statistical lives saved, lack of pain and suffering, gains in productivity, and risk reductions. Berg also proposes the administrative mechanism, which would include community participation, for identifying appropriate programs for hospitals’ implementation. As is generally the case with Professor Berg’s scholarship, this article proposes on-the-ground solutions to pressing problems of the day worthy of serious consideration.
Filed under: 501(c)(3), Hospital Finances, Nonprofit Hospitals
I. New Requirements for Tax-Exempt Hospitals Embedded in PPACA
Sen. Grassley’s fingerprints are evident in the Patient Protection and Affordable Care Act (H.R. 3950). The Act includes in Section 9007 requirements to appear in new IRC §501(r), which applies to § 501(c)(3) charitable hospitals. Every hospital facility, including each hospital in a multi-hospital system must meet these requirements, which fall within the following categories:
Community Health Needs Assessment and Implementation Strategy. Hospitals must work with community representatives and experts in public health to develop community needs assessment made available to the public, as well as an implementation strategy. This section takes effect in tax years that begin after March 23, 2012. The hospital must include a description of how it is meeting the requirements of this section in its 990 filing. The Secretary of the Treasury is mandated to review a hospital’s community-benefit activities at least once every three years. IRC Section 4959 is amended to provide for a $50,000 fine for failure to meet the community health needs assessment provision of §501(r)(3).
Financial Assistance Policy. Hospitals must develop a financial assistance policy which enumerates a) eligibility criteria, b) an explanation of how hospital charges are calculated, c) the process for applying for financial assistance, and d) whether such assistance includes free or discounted care. If the hospital does not have a separate collections policy, the financial assistance policy must explain what happens if a hospital bill is not paid, including collections actions and reports to credit agencies. The financial assistance policy must be widely publicized throughout the entity’s service area.
Limitations on Patient Charges. Hospital charges for emergency or other medically necessary care provided to patients eligible for financial assistance may not exceed the lowest amounts charged to insured patients, and may not be based upon gross charges.
Limitations on Collections Policies. Collection actions may not be undertaken until the hospital has undertaken reasonable efforts to determine if the patient is eligible for financial assistance.
Finally, the PPACA requires hospitals for the first time to include their audited financial statements with the 990 filings.
II. IRS 990 Version 2.0
The new Informational Return 990 for tax exempt organizations continues to raise philosophical questions about the “federalization of nonprofit law,” particularly with its many questions about governance. As presumably intended by the IRS, its questions about the existence of particular policies such as whistle-blower, document retention, etc., inspired many tax-exempt organizations to create these policies. Many tax-exempt boards are actually seeing their entity’s 990 for the first time, again inspired by a question on the 990 itself.
The 990 for fiscal year 2009 reflects several changes, such as:
- Whether the entity follows the rebuttable-presumption-of-reasonableness procedure described in Reg. 53.4958-6(c);
- Whether the entity has made any significant changes to its program services or organizational documents.
Most important to hospitals is that the completion of Schedule H is mandatory for fiscal year 2009 (completion was optional last year). Questions include:
- Whether the organization uses Federal Poverty Guidelines (FPG) to determine eligibility for providing free or discounted care to low-income individuals;
- Whether the organization budgets for free or discounted care, and whether actual expenditures exceeded the budgeted amount;
- The amount of unreimbursed costs from government programs;
- Whether the organization has a written debt collection policy, and how patients are advised of financial-assistance programs for which they might be eligible;
- Whether the organization creates an annual community-benefit report which it provides to the public.
When I heard these words at mass a few weeks ago, my heart soared, because it was the perfect lead-in for a sermon about the urgency of health care reform, based upon Christian notions of distributive justice and social solidarity seeking our collective good. The punch line won’t surprise you — Not a mention of health care. Why aren’t progressives of faith, whether in the pulpit or in the well of Congress, not employing every persuasive tool to advance healthcare reform as an imperative not only for the least among us but for us all?
Evoking religious values has long been effective in achieving social transformation. This tradition of social reformers, clergy and politicians joining together, and invoking faith to obtain fundamental change experienced its apex during the abolition, anti-Vietnam, and civil rights movements. Progressives abandoned the device of transcendent vision almost simultaneous with Conservatives adopting this successful script of shared values and worldview based upon God’s will. The religious right employs Christianity to resist protections against anti-discrimination laws — the Christian Coalition is currently mobilizing on a bill that would give gays and transsexuals federal protection in the workplace — and to support war — President George Bush famously explained to foreign leaders that God told him to invade Iraq and Afghanistan.
Televangelists employ prophetic language to preach against social evils, which are, in their view, largely perpetrated by, well, Democrats. But the prophetic vision also embraces “a vision of a more equitable society characterized by the virtues of solidarity and compassion and of justice inspired by the love of God and neighbor.” (Lisa Sowle Cahill) Why don’t we hear our elected representatives cry that “respect for life” and “human dignity” compel universal access to healthcare?
The left has ceded public policy grounded in faith to the right. It can’t be because nobody on the left prays. A Pew Survey reports that 84% of respondents self-identify affiliation with a specific religious denomination. I interpret that as meaning that progressives go to church and temple too. A Census Bureau 2001 American Religious Identification Study concluded that 76.7% of the U.S. adult population of 208 million is Christian. Democratic presidential candidates emphasize their faith (Obama, Hillary Clinton, Bill Clinton, Jimmy Carter) when they run, but as soon as they take office they revert to dry policy arguments for social goals that meet with passionately poetical threats of sin and damnation from the right. Are Democrats unable to invoke a competing interpretation of faith to inspire outrage that 50 million people living in the United States are uninsured? Such a position could find more persuasive biblical support than the position that “government takeover” of healthcare is unchristian. Progressives were likewise paralyzed in the “death panel” debate, with no politician effectively arguing that the over-medicalization of death seemed an ironic position for people of faith who aspire to an after-life with God.
Many Progressives of faith are organizing to support health care, but Democratic politicians have left behind the rich tradition of invoking faith to achieve social reform. Nobody even has to use the word God — like Susan Dentzer of Health Affairs, we can simply demand a debate about whether our system is ethical and just.
The Chronicle of Philanthropy lead off its annual executive compensation story with the headline that “Nearly three in 10 of the leaders of the nation’s biggest charities and foundations have taken pay cuts in the past year as the recession causes donations to drop and batters endowments”.
USA Today interpreted the annual survey results differently, with yesterday’s headline: “Non-profit execs make millions: Big organizations have highly paid leaders,” coupled with the usual USA Today chart, this one listing the leaders of the pack, compensation-wise. The accompanying article questioned why nonprofit compensation is so high.
How much is too much is a fair question, and one readers of this blog will recall that Attorney General Ann Milgram is asking about Stevens Institute’s President. The ubiquitous Senator Grassley thinks non-profit salaries are too high, and is using health care reform as an opportunity for reforming more than the health sector — one of the 500+ amendments to the Baucus healthcare reform bill comes from Grassley, who wants to eliminate the presumption of reasonableness afforded federally tax exempt organization salaries as long as boards obtain inter alia a comparability study (which unsurprisingly, most do).
According to a recent IRS hospital study, “Although high compensation amounts were found in many cases, generally they were substantiated based on appropriate comparability data”. The IRS is currently focusing on salaries at colleges and universities. Somewhat unclear is whether the comparability study may include salaries from the business sector — the IRS has waffled so far, but then-New York Attorney General Spitzer was pretty clear in his mind that it was improper for Richard Grasso’s friends on the compensation committee to have relied on for-profit numbers when it came to setting Grasso’s $187 million compensation package as head of the then-nonprofit NYSE.
Some are outraged by non-profits’ salaries, which are, after all, subsidized by donors and the tax-payer, while others think that politicians should let nonprofit boards run their own show. The argument is that nonprofits have to compete with the business-world for the best talent.
Is there any law on the subject? Yes, but it’s rarely enforced. State nonprofit corporate law contains a non-distribution constraint–that is, nonprofits can’t pay out dividends or excessively pay its employees or those with whom they do business — the money is supposed to be used to further the entity’s mission. On the tax side, federal law prohibits private inurement and excess benefit, which essentially seeks to accomplish the same goals. So, on the one hand, critics of excessive compensation do have a legal leg to stand on. On the other, all anyone seems to do about the issue is complain – neither the IRS nor state AG’s have boards particularly concerned about their compensation decisions. In fact, all boards have to do is follow the right procedure, and their CEO salaries are presumptively reasonable. So, if all non-profits essentially use the same small group of compensation consultants, and set salaries coincidentally high, then it’s a self-reinforcing system and nobody gets in trouble.
I have little hope that the real questions will be seriously considered, which include what the role of the nonprofit is in our society, and what we expect of nonprofits in exchange for their not having to pay taxes, and for their donors getting tax deductions. The IRS has begun collecting information on the revised 990 about hospital “community benefit”, but the real question is whether any real change will come out of the whole thing, and whether it will go further than health care. Nudge would suggest that merely by asking the right questions behavior will change! I’m more in the Grassley camp of being a noodge….