Health care law and legislation

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Corporate Structure and Legal Issues

Chapter 7

LEARNING OBJECTIVES

Describe how a corporation derives its authority.

Explain what is meant by fiduciary responsibility.

Discuss corporate organization & committee structure.

LEARNING OBJECTIVES - II

Describe the Sarbanes–Oxley Act & the purpose of corporate compliance programs.

Explain the terms corporate negligence, respondeat superior, & independent contractor.

Describe the various corporate duties of healthcare organizations.

HEALTHCARE CORPORATIONS

Incorporated under state law as freestanding for-profit or not-for-profit corporations.

Corporations have governing bodies.

Governing body has ultimate responsibility for operation of the corporation.

Authority creates certain duties and liabilities for governing boards and their individual members

HEALTHCARE CORPORATIONS - II

Not-for-profit healthcare organizations are usually exempt from federal taxation.

Tax-exempt status of healthcare corporations is coming under increased scrutiny as they diversify their activities.

Governing Boards Duties Include:

holding meetings, establishing policies, being financially scrupulous, providing adequate insurance, & paying taxes where required by law.

Fiduciary Responsibility

Governing body has ultimate responsibility for the operation of the organization.

Board members (trustees, directors) are responsible for overseeing fulfillment of the organization’s mission.

Authority of Corporations

Express

Authority designated by statute . . . .

Implied

Authority not expressed by written words

Ultra Vires Acts

Acting beyond scope of authority

CORPORATE COMMITTEES Executive Committee

Liaison between management & full board.

Review & make recommendations on management proposals.

Performing special assignments as may be delegated by full board.

Business transacted should be reported at regular sessions of the governing body & ratified.

Committee generally has all the powers of the governing body.

Bylaws Committee

Reviews & recommend bylaw changes to the governing body.

Bylaws generally are amended or rescinded by a majority vote of the governing body.

Finance Committee

Overseeing financial affairs of the organization

Direct & review preparation of financial statements, operating budgets, major capital requests . . . .

Joint Conference Committee

Composed of an equal number of representatives from the executive committees of the governing body & medical staff, along with representation from administration and nursing.

A forum for discussion of matters of policy and practice pertaining to patient care.

Nominating Committee

Develop & recommend criteria for governing body membership.

Recommend appt’s for new board members.

Planning Committee

Periodic review of org's mission & vision statements.

Conduct of community health needs assessments.

Develop strategic plans & ongoing monitoring.

Develop of short-term & long-range goals.

Maintenance of the organization's physical facilities.

Planning Committee – II

Preparation of capital budgets.

Oversight of expansion programs.

Acquisition of major equipment.

Addition of new services based on identified community need.

Downsizing & closing services.

Planning progress reports to the full board.

Program development.

Patient Care Committee

Corporate development.

Identify patient & family needs & expectations.

Determine methodology for reviewing data.

Identify patterns of concern.

Forward information to those responsible for implementing change in the org.

Review, evaluate, & implement plans for improving organizational performance.

Audit & Regulatory Compliance Committee

Develop corporate auditing policies & procedures.

Recommend independent auditors (IA).

Review credentials of IAs & facilitating change in auditors as appropriate.

Audit & Regulatory Compliance Committee - II

Review with IAs scope & extent of their audit duties & responsibilities.

Review scope & results of annual audit

Set, oversee, review, & act on recommendations of internal audit staff.

Audit Committee Responsibilities

Review internal accounting practices of corporation.

Reviewing & evaluate financial statements.

Promote prevent, detect, deter, & report fraud.

Review means for safeguarding assets.

Ensure financial reporting functions comply with accepted accounting principles.

Review reliability & integrity of financial & operating information.

Safety Committee

Responsibility for overseeing organization’s safety management program.

Reviews & acts on reports involving”

emergency preparedness

equipment management

fire safety

risk management

utilities management

Corporate Ethics

Describes ethics of an organization & how it responds to internal or external circumstances affecting the organization’s mission & values

Develops a Code of Ethics

Sarbanes-Oxley Act

Sarbanes-Oxley Act (SOX) was signed into law by President Bush on July 30, 2002 in response to the Enron debacle & high profile cases of corporate mismanagement.

Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, & requires Securities & Exchange Commission to implement rulings on requirements to comply with SOX.

Major provisions of SOX – I

Certification of Financial Reports

Ban on Personal Loans

Accelerated Reporting of Trades by Insiders

Prohibition: Insider Trades during Pension Fund Blackout Periods

Public Reporting of Compensation & Profits

Inside Audit

Major Provisions of SOX – II

Criminal & Civil Penalties

Internal Audit Certified by External Auditors

Increased Criminal Penalties

Code of Ethics & Standards of Conduct

Sarbanes-Oxley Act of 2002 Promoting Due Diligence

SOX is about self-regulation:

Selecting leader with morals & core values

Examining incentives

Monitoring organization’s culture

Building a strong knowledgeable governing body

Searching for conflicts of interest

Focusing attention on the right things

Having courage to speak out

Corporate Compliance Program

Internal mechanisms for preventing, detecting, & reporting criminal conduct.

Compliance Officer

maintains confidentiality & privacy rights of employees

satisfying expectations of management & governing

adheres to applicable laws, rules, & regulations

Corporate Negligence

Doctrine under which hospital is liable if it fails to uphold required standard of care

Corporation treated no differently than individual

Liability to injured party

Benchmark Case Facts - I Darling v. Charleston Comm. Mem. Hosp.

18 Yr. Old Football Player injured

Fracture of tibia & fibula

Leg casted by General Practitioner in ED

Patient complains of pain

No specialist called for consultation

Two weeks later - student transferred

Eventually leg amputated

Benchmark Case Trial - II

No expert testimony presented

Documentary Evidence included

Medical records

Hospital’s bylaws, rules & regulations

Illinois Hospital Licensing Act

JCAHO standards

Benchmark Case – III

Hospital, as a corporate entity, liable for:

Negligent act of nurses

Negligent acts of physicians

Benchmark Case Lessons: Provide Competent Staff

Verify licensure, as appropriate

Verify training & experience

Provide procedures for credential & privileging

Monitor quality of care

Require consultations

Alert supervisor of care concerns

DOCTRINE OF RESPONDEAT SUPERIOR

“let the master respond”

Legal doctrine holding employers liable for the wrongful acts of their employees.

Also referred to as vicarious liability, whereby an employer is answerable for the torts committed by employees.

Respondeat Superior – II

To impute liability to the employer:

Master-servant relationship between employer & employee must exist.

Wrongful act of employee must occur within scope of employment.

Independent Contractors

Responsible for their own negligent acts.

Principal must not have right to control agent’s work.

Governing Body Responsibilities

Appointment of CEO

Licensure

CEO Code of Ethics

Governing Body Responsibilities - II

Appointment of Competent Staff

Medical staff bylaws

Application requirements for privileges

Process for granting emergency staff privileges

Requirements for medical staff consultations

Governing Body Responsibilities - III

Peer-review process

Process auditing medical records

Process for addressing disruptive physicians

Process for disciplinary action

Governing Body Responsibilities - IV

Ensure a Safe Working Environment

Comply with the laws & regulations

Comply with Accreditation Standards

Provide timely treatment

Avoid self-dealing & conflict of interest situations

Provide adequate staff

Provide adequate insurance

Governing Body Responsibilities - V

Be financially scrupulous

Require competitive bidding

Provide adequate facilities, equipment & supplioes

Governing Body Responsibilities - VII

Provide a safe environment

Toxic Fumes

Fire Hazards

Prevent Falls

Properly Maintain Equipment

Review Questions – I

Describe the organization, responsibilities, duties, and legal risks of a governing body.

List some of the major provisions of SOX

Describe the meaning of the legal doctrine respondeat superior.

Describe the term corporate negligence.

Why is the Darling case described as a benchmark case?

Does the legal doctrine respondeat superior apply to an independent contractor? Explain your answer.