Health care law and legislation assignment week 3

Chapter 8

Corporate Structure

and Legal Issues

LEARNING OBJECTIVES

• Explain express, implied, and corporate authority.

• Discuss corporate organization and committee structure.

• Describe the Sarbanes–Oxley Act.

• Explain the terms respondeat superior and corporate negligence.

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• Bylaws generally are amended or rescinded by a majority vote of the governing body.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

Nominating Committee

• Develop & recommend criteria for governing body membership.

• Recommend appt’s for new board members.

Planning Committee – I

• 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 – I

• Develop corporate auditing policies & procedures.

• Recommend independent auditors (IA). • Review credentials of IAs & facilitating change

in auditors as appropriate. • 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 – II

• 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.

Organizational Ethics

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

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, and reporting criminal conduct.

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

Respondeat Superior – I

• “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.

Corporate Duties - I

• Appoint CEO

• Comply with the laws & regulations

• Comply with Joint Commission standards

– When accredited by the JC

• Provide timely treatment

• Avoid self-dealing & conflict of interest situations

• Provide adequate staff

• Provide adequate insurance

Corporate Duties - II

• Be financially scrupulous

• Require competitive bidding

• Provide appropriate supplies & equipment

• Provide a safe environment

– Fire Safety

– Prevent Falls

• Safeguard patient valuables

• Appoint a CEO

– Code of Ethics

Medical Staff: Responsible for…

• medical staff bylaws

• application requirements for privileges

• process for granting emergency staff privileges

• requirements for medical staff consultations

• peer-review process

• process auditing medical records

• process for addressing disruptive physicians

• process for disciplinary action

Corporate Reorganization

• Due to lewer revenues from traditional sources (3rd party payors) have restructured to set-up related business enterprises in order to increase revenues to support patient care operations.

• Legal pressures present substantial impediments.

Regulatory Pressures

• Taxation

• Third-party reimbursement

• Certificate of need

• Financing

• Certificate of Need

Review Questions – I

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

2. List some of the major provisions of SOX

3. Describe the meaning of the legal doctrine respondeat superior.

4. Describe the term corporate negligence.

5. Why is the Darling case described as a benchmark case?

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