Answer each Question from Health Law and Ethics

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CHAPTER 9

Corporate Structure and Legal Issues

Learning Objectives (1 of 2)

Explain from where a corporation derives its authority.

Explain the difference between express, implied, and corporate authority.

Discuss corporate organization and committee structure.

Describe corporate ethics, the Sarbanes–Oxley Act of 2002, and corporate compliance.

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

Learning Objectives (2 of 2)

Describe the duties of healthcare organizations, the CEO, and medical staff.

Explain the purpose of corporate reorganization and the process of restructuring.

Describe the parent holding company model.

Describe what the Safe Harbor Act is designed to regulate.

Healthcare Corporations

Have certain powers expressly or implicitly granted to them by state statutes

Corporate authority is expressed in:

The law under which the corporation is chartered

The corporation’s articles of incorporation

Fiduciary Responsibility

Fiduciary

Relationship of trust or confidence with another

Designed to meet only the needs of the organization

Must act without regard to one’s own needs

Entrusted with overseeing fulfillment of the organization’s mission

Corporate Authority

Express

Authority designated by statute

Implied

Authority not expressed by written words

Ultra vires acts

Acting beyond scope of authority

Corporate Committee Structure: Executive Committee

Liaison between management and full board

Reviews and make recommendations on management proposals

Performs special assignments as may be delegated by full board

Business transacted reported at regular sessions of the governing body and ratified

Powers of the governing body

Bylaws Committee

Reviews and recommends bylaw changes to the governing body

Bylaws generally are amended or rescinded by a majority vote of the governing body.

Finance Committee

Oversees financial affairs of the organization

Directs and reviews preparation of financial statements, operating budgets, major capital requests, etc.

Joint Conference Committee

Often consists of an equal number of representatives from:

Governing body

Medical staff

Administration and nursing

Acts as a forum for discussion of matters of policy and practice pertaining to patient care

Nominating Committee

Develops and recommends criteria for governing body membership

Recommends appointments for new board members

Planning Committee (1 of 3)

Periodically reviews organization's mission and vision statements

Conducts community health needs assessments

Develops strategic plans and ongoing monitoring

Develops short-term and long-range goals

Planning Committee (2 of 3)

Maintains the organization’s physical facilities

Prepares capital budgets

Oversees expansion programs

Acquires major equipment

Planning Committee (3 of 3)

Adds new services based on identified community need

Downsizes and closes services

Gives planning progress reports to the full board

Develops programs

Patient Care Committee (1 of 2)

Corporate development

Identifies patient and family needs and expectations

Determines methodology for reviewing data

Patient Care Committee (2 of 2)

Identifies patterns of concern

Forwards information to those responsible change

Reviews, evaluates, and implements plans for improving performance

Audit Committee (1 of 4)

Develops corporate auditing policies and procedures

Recommends independent auditors (IAs)

Reviews credentials and facilitates change in auditors, as appropriate

Audit Committee (2 of 4)

Reviews the scope and extent of audit duties and responsibilities

Reviews scope and results of annual audit(s)

Sets, oversees, reviews, and acts on recommendations of internal audit staff

Audit Committee (3 of 4)

Reviews internal accounting practices of corporation

Reviews and evaluates financial statements

Promotes prevention, detection, and reporting of fraud

Audit Committee (4 of 4)

Reviews means for safeguarding assets

Ensures financial reporting functions comply with accepted accounting principles

Reviews reliability and integrity of financial & operating information

Safety Committee

Oversees safety management programs

Emergency preparedness

Equipment management

Fire safety

Risk management

Utilities management

Quality Care Committee

Provides mechanisms for reviewing and improving the overall quality of patient care.

Provides oversight, monitoring, and assessment of key organizational processes and outcomes

Reviews external reports

Performance Improvement Committee

Sets expectations for patient care

Designs, measures, and assesses processes related to patient care

Implements processes for performance measurement, assessment, and improvement

Corporate Ethics (1 of 2)

Promote responsible behavior in the decision-making process

Provide a written code of conduct

Provide training and education

Provide guidelines for behavior

Build trust

Corporate Ethics (2 of 2)

Increase awareness of ethical issues

Guide decision making

Encourage staff to seek advice

Provide for confidential reporting

Report misconduct

Corporate Conduct Under Scrutiny (1 of 2)

False advertisements

Knowingly using flawed data

Schemes designed to deny patients insurance benefits

Accepting kickbacks

Corporate Conduct Under Scrutiny (2 of 2)

Entering into financial arrangements that are conflicts of interest

Covering up wrongdoing

Falsification of records

Fraudulent activities (e.g., reimbursement schemes)

Code of Ethics (1 of 4)

Ensure compliance with the code of ethics.

Ensure honest and fair in dealings with employees.

Develop and maintain an ethical and legal environment.

Remain impartial when personal interests conflict.

Ensure freedom to speak up.

Code of Ethics (2 of 4)

Provide for critical evaluation of ideas by “all” employees.

Provide a safe environment within which to work.

Drive to increase revenues will not be tied to unethical activities.

Employees will avoid conflict-of-interest situations.

Code of Ethics (3 of 4)

Provide high-quality care.

Provide treatment with honesty, dignity, respect, and courtesy.

Patients

Are informed of risks, benefits, and alternatives to care

Treatment preserves rights, autonomy, self-esteem, privacy, and involvement in their care

Code of Ethics (4 of 4)

Show respect for each patient’s culture, religion, and heritage.

Provide patients and families access to a patient advocate.

Provide support services for those with language barriers.

Hearing, language, sight

Provide patients with a “Bill of Rights.”

Honor advance directives.

Sarbanes–Oxley Act

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

Act titles, or sections, range from corporate board responsibilities to criminal penalties and require the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the act.

Major Provisions of the Sarbanes–Oxley Act

Certification of financial reports

Ban on personal loans to executive officers and directors

Accelerated reporting of trades by insiders

Prohibition on insider trades during pension fund blackout periods

Public reporting of CEO and CFO compensation and profits

Inside audit board independence

Sarbanes–Oxley Act of 2002: Promoting Due Diligence

The act is not about regulation; it’s about self-regulation.

Selecting a leader with morals and core values

Examining incentives

Monitoring the 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 (1 of 2)

Appointment of a corporate compliance officer

Development of standards of conduct

Assignment of duties, authority, and responsibility

Communication and education of all employees and agents

Corporate Compliance Program (2 of 2)

Monitoring and auditing systems to detect criminal conduct

Policies must be consistently enforced

Respond appropriately to any offense to prevent similar offenses

Annually audit compliance program

Corporate Negligence

The doctrine under which the hospital is liable if it fails to uphold the proper standard of care owed the patient.

Theory of liability creates a nondelegable duty that the healthcare corporation owes the patient.

Benchmark Case Facts: Darling v. Charleston Comm. Mem. Hosp. (1 of 3)

18-year-old football player injured

Fracture of tibia and fibula

Leg casted by general practitioner in emergency department (ED)

Patient complains of pain

No specialist called for consultation

Two weeks later, student transferred

Eventually leg amputated

Benchmark Case Facts: Darling v. Charleston Comm. Mem. Hosp. (2 of 3)

No expert testimony presented

Documentary evidence included

Medical records

Hospital’s bylaws, rules, and regulations

Illinois Hospital Licensing Act

JCAHO standards

Benchmark Case Facts: Darling v. Charleston Comm. Mem. Hosp. (3 of 3)

Hospital, as a corporate entity, liable for:

Negligent acts of nurses

Negligent acts of physicians

Benchmark Case Lessons

Provide competent staff.

Verify licensure, as appropriate.

Verify training and experience.

Provide procedures for credential and privileging.

Monitor quality of care.

Require consultations.

Alert supervisor of care concerns.

Corporate Officer/Director

An officer or a director of a corporation is not personally liable for the torts of corporate employees.

To incur liability, the officer or the director ordinarily must be shown to have in some way authorized, directed, or participated in a tortious act.

Doctrine of Respondeat Superior (1 of 2)

Respondeat superior

“Let the master respond.”

Legal doctrine holding employers liable for wrongful acts of employees

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

Doctrine of Respondeat Superior (2 of 2)

To impute liability to the employer

Master–servant relationship between employer and employee must exist

Wrongful act of employee must occur within scope of employment

Independent Contractors

Contractors are responsible for their own negligent acts.

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

Governing Body: Responsibilities (1 of 9)

Appointment of CEO

Licensure

Responsibility

Tort liability

Liability for the acts of others

Governing Body: Responsibilities (2 of 9)

Medical staff appointments and privileging

Ensure medical staff competency.

Discipline abusive behavior (e.g., rage in the operating room; disruptive physicians).

Suspend privileges.

Enforce standards of professional ethics.

Governing Body: Responsibilities (3 of 9)

Duty to be financially scrupulous

Duty to require competitive bidding

Duty to avoid conflicts of interest

Duty to provide adequate insurance

Duty to comply with law

Governing Body: Responsibilities (4 of 9)

Duty to comply with accreditation standards

Conflicts of interests

Hospital accreditation and conflicts of interest

Joint Commission national patient safety goals

Joint Commission complaint process

Governing Body: Responsibilities (5 of 9)

Duty to provide adequate and competent staff

Deficient nursing care

Timely response to patient calls

Postoperative care

Nursing facility staffing

Governing Body: Responsibilities (6 of 9)

Duty to provide timely treatment

Duty to provide adequate facilities and equipment

Governing Body: Responsibilities (7 of 9)

Duty to provide a safe environment

Culture of safety

Physical environment

Unsafe walking and driving conditions

Construction hazards

Fire hazards

Chemical hazards

Failure to educate staff

Failure to properly maintain equipment

Contracted maintenance services

Governing Body: Responsibilities (8 of 9)

Prevent falls

Parking lot

Lobby

Stretcher

Restraints

Windows

Floors

Loading dock

Governing Body: Responsibilities (9 of 9)

Safeguard patient valuables

Handle patient property in a safe manner.

Place items in a safe area.

Record all items and place in prenumbered envelope(s).

Corporate Reorganization and Mergers (1 of 3)

Hospitals, because of fewer revenues from traditional sources (third-party payers), have restructured to set up related business enterprises in order to increase revenues to support patient care operations.

Legal pressures present substantial impediments.

Corporate Reorganization and Mergers (2 of 3)

Taxation

Third-party reimbursement

Certificate of need

Financing

Corporate restructuring

Parent holding company model

Controlled foundation

Independent foundation

Corporate Reorganization and Mergers (3 of 3)

General considerations

Reason for restructuring structuring

Mission, legal, tax considerations, etc.

Medical staff restructuring

Explanation to medical staff

Fundraising

Regulatory Authority Checklist (1 of 3)

Not-for-profit corporations

Not-for-profit corporation law

Internal Revenue Code (exemption and taxpayer identification number)

State and local tax laws on exemptions (including real property)

Attorney general or similar charitable registration requirements

Bylaws, organization minutes, and minutes of first governing body meeting

Bank account

Regulatory Authority Checklist (2 of 3)

For-profit corporations

Business corporation law

Taxpayer identification number

Bylaws, organization minutes, minutes of first governing body meeting, and issuance of stock

Bank account

Regulatory Authority Checklist (3 of 3)

Hospitals

Reimbursement regulations

CON regulations

Governing body bylaws and relationship to additional corporations

Fraud and abuse laws, rules, and regulations

Competition and Restructuring

Careful planning

Legal and accounting advice

Restructuring should be undertaken to provide the hospital with opportunities not available under its current structure.

Review Questions (1 of 2)

Explain from where a corporation derives its authority.

Explain how express, implied, and corporate authority differ.

Discuss corporate organization and committee structure.

Describe corporate ethics, the Sarbanes–Oxley Act of 2002, and corporate compliance.

Review Questions (2 of 2)

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

Describe the duties of healthcare organizations, the CEO, and medical staff.

Explain the purpose of corporate reorganization and the process of restructuring.

Describe what is meant by parent holding company model.

Answer each Question from Health Law and Ethics

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