5530: Chapter 7


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5530: Chapter 7

  1. 1. Chapter 7Corporate Structure and Legal Issues 2
  2. 2. Authority of Corporations• Express – Authority designated by statute . . . .• Implied – Authority not expressed by written words• Ultra Vires Acts – Acting beyond scope of authority 3
  3. 3. Executive Committee• Liaison between management & full board• Review & make recommendations on mgm’t proposals• Performing special assignments as may be delegated by full board• Business transacted reported at regular sessions of the governing body & ratified• Powers of the governing body 4
  4. 4. Bylaws Committee• Reviews & recommend bylaw changes to the governing body• Bylaws generally are amended or rescinded by a majority vote of the governing body 5
  5. 5. Finance Committee• Overseeing financial affairs of the org.• Direct & review preparation of financial statements, operating budgets, major capital requests . . . . 6
  6. 6. Joint Conference Committee• Committee often consisting of an equal # of representatives from – governing body – medical staff – administration & nursing• Committee acts as a forum for discussion of matters of policy & practice pertaining to patient care 7
  7. 7. Nominating Committee• Develop & recommend criteria for governing body membership• Recommend appointments for new board members. 8
  8. 8. Planning Committee – I• Periodic review of organization’s mission & vision statements• Conduct of community health needs assessments• Develop strategic plans & ongoing monitoring• Develop of short-term & long-range goals 9
  9. 9. Planning Committee – II• Maintenance of the organizations physical facilities• Preparation of capital budgets• Oversight of expansion programs• Acquisition of major equipment 10
  10. 10. Planning Committee – III• Addition of new services based on identified community need• Downsizing & closing services• Planning progress reports to the full board• Program development 11
  11. 11. 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 organization• Review, evaluate, & implement plans for improving organizational performance 12
  12. 12. Audit Committee Responsibilities – 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 with IAs & organizations management• Set, oversee, review, & act on recommendations of internal audit staff 13
  13. 13. 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 14
  14. 14. Safety Committee Responsibilities• Responsible for overseeing organization’s safety management program• Review & act on reports involving organization’s emergency preparedness, equipment management, fire safety, risk management & utilities management programs 15
  15. 15. Corporate Ethics – Outline• Purpose of Code of Ethics• Developing Code of Ethics• Corporate Conduct Under Scrutiny• Sarbanes-Oxley Act• Build and Restore Trust 16
  16. 16. Corporate Ethics – Purpose• Provide guidelines for behavior – that help carry out an organization’s mission vision, and values• Build trust• Increase awareness of ethical issues• Guide decision making• Encourage staff to seek advice• Report misconduct 17
  17. 17. Developing a Code of Ethics1. Compliance with the organization’s code of ethics − compassionate care; understanding and acceptance of organization’s mission, vision, & values; & adherence to one’s professional code of conduct2. Honesty & fair in dealings with employees3. Develop & maintain high ethical-legal standards4. Employers & employees impartial when personal interests conflict with those of others . . . 18
  18. 18. Corporate Conduct Under Scrutiny• False advertisements• Knowingly using flawed data• Schemes designed to deny patients insurance benefits• Accepting kickbacks• Entering into financial arrangements that are clearly a conflict of interest• Covering up wrongdoing• Falsification of records• Fraudulent activities (e.g., reimbursement schemes) 19
  19. 19. Sarbanes-Oxley Act• Sarbanes-Oxley Act was signed into law by President Bush on July 30, 2002 in response to the Enron debacle & high profile cases of corporate mismanagement.• The Act contains 11 titles, or sections, ranging from add’l Corporate Board responsibilities to criminal penalties, & requires Securities & Exchange Commission to implement rulings on requirements to comply with SOX. 20
  20. 20. Major provisions of SOX – I• Certification of financial reports .• Ban on personal loans to exec officer & director.• Accelerated reporting of trades by insiders.• Prohibition on insider trades during pension fund blackout periods.• Public reporting of CEO & CFO compensation & profits.• Inside audit board independence. 21
  21. 21. Major provisions of SOX – II• Criminal & civil penalties for securities violations.• Obligation to have an internal audit function, which will need to be certified by external auditors.• Significantly longer jail sentences & larger fines for corporate executives who knowingly misstate financial statements .• Code of ethics & standards of conduct for executive officers and board members. – Most companies have expanded code of ethics to include all employees. 22
  22. 22. Sarbanes-Oxley Act of 2002 – II Promoting Due Diligence• SOX is not about regulation; its about self-regulation.• Selecting a leader with morals & core values.• Examining incentives.• Monitoring the organization’s culture.• Build a strong knowledgeable governing body.• Searching for conflicts of interest.• Focusing attention on the right things.• Having courage to speak out. 23
  23. 23. Sarbanes-Oxley Act of 2002 – III Know your Moral Values• Be willing to stand up for them• Be prepared to pay the cost “the tragedy of society is not the noisiness of the so-called bad people, but the appalling silence of the so-called good people.” - Martin Luther King, Jr. 24
  24. 24. Build and Restore Trust - I• Conduct business in compliance with applicable laws, rules, and regulations.• Adhere to the highest of ethical standards.• Provide cost-effective care.• Fairly and accurately represent the organization’s capabilities when treating a patient’s ailments.• organization, regardless of a person’s ability to pay, race, creed, color, and/or national origin. 25
  25. 25. Build and Restore Trust - II• Consider patient values and preferences as part of recognizing the organization’s legal responsibilities• Inform patients of their rights and responsibilities• Develop and recommend guidelines that assist and support patients and their families in exercising their rights• Describe the process to patients by which hospital staff interact and care for them 26
  26. 26. Doctrine of Respondeat Superior• Respondeaat 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 27
  27. 27. 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 28
  28. 28. Independent Contractors• Responsible for their own negligent acts• Principal must not have right to control agent’s work 29
  29. 29. Corporate Officer/DirectorAn 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. 30
  30. 30. Corporate Negligence• Doctrine under which hospital is liable if it fails to uphold proper standard of care owed the patient• Theory of liability creates a non-delegable duty which the health care corporation owes the patient 31
  31. 31. 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 32
  32. 32. Benchmark Case Trial - II• No expert testimony presented• Documentary Evidence included – Medical records – Hospital’s bylaws, rules & regulations – Illinois Hospital Licensing Act – JCAHO standards 33
  33. 33. Benchmark Case – III• Hospital, as a corporate entity, liable for: – Negligent act of nurses – Negligent acts of physicians 34
  34. 34. Benchmark Case Lessons- IV• 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 35
  35. 35. Corporate Responsibility and Physician CompetencyHealthcare organizations have a responsibility to ensure the competency of their medical staffs and to evaluate the quality of medical treatment rendered on their premises. 36
  36. 36. Joint Liability• All joint or concurrent tort-feasors are independently at fault for their own wrongful acts.• Both hospital & its physicians can be held jointly liable for damages suffered by patients. 37
  37. 37. Governing Responsibilities - I• CEO Selection – Administrator Licensure• Comply with the law• Comply with Standards of Accrediting Bodies• Provide timely treatment• Avoid Conflicts of Interest 38
  38. 38. Corporate Duties - II• Provide adequate staff – Deficient Nursing Care – Timely Response to Patient Calls – Postoperative Care – Nursing Facility Staffing – Deficient Care Given 39
  39. 39. Corporate Duties - III• Provide adequate facilities & equipment• Provide adequate insurance• Be financially scrupulous• Require competitive bidding 40
  40. 40. Corporate Duties - IV• Provide a safe environment – Hospital Created Unsafe Conditions – Chemical Hazards – Medical equipment – Failure to Educate Staff – Construction Hazards – Fire Hazards – Failure to Properly Maintain Equipment – Contracted Preventative Maintenance 41
  41. 41. Corporate Duties - V• Duty to prevent falls – Parking lot safety – Hospital Lobby Safety – Stretcher safety – Safe use of restraints – Window safety – Slippery floors – Loading dock safety 42
  42. 42. Corporate Duties - VI• Safeguard patient valuables 43
  43. 43. CEO/Administrator’s Role & Responsibility• Tort Liability of the CEO – CEOs Liability for the Acts of Others• Regulatory Agencies• Case Reviews 44
  44. 44. Medical Staff• Gov body, ultimate responsibility for approving: – 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 45
  45. 45. Corporate Reorganization• Hospitals, because of fewer 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 46
  46. 46. Regulatory Pressures• Taxation• Third-party reimbursement• Certificate of need• Financing – Corporate Restructuring – Parent Holding Company Model – Controlled Foundation – Independent Foundation 47
  47. 47. Corporate Reorganization, con’t• General Considerations• Medical Staff Restructuring• Fund-Raising• Regulatory Authority Checklist 48
  48. 48. Regulatory Authority Checklist – I1. 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, & minutes of first governing body meeting – bank account 49
  49. 49. Regulatory Authority Checklist – II2. For-profit corporations – business corporation law – taxpayer identification number – bylaws, organization minutes, minutes of first governing body meeting, & issuance of stock – bank account 50
  50. 50. Regulatory Authority Checklist – III3. Hospitals – reimbursement regulations – CON regulations – governing body bylaws & relationship to additional corporations – fraud and abuse laws, rules, & regulations 51
  51. 51. Competition & Restructuring• Restructuring is an undertaking that requires careful planning & legal & accounting advice• Restructuring should be undertaken not because it is "fashionable" but rather because it will provide the hospital with opportunities not available under its current structure 52
  52. 52. Safe-Harbor RegulationsSafe-harbor regulations describe how health care providers should structure financial arrangements in order to be exempt from prosecution by the DOJ & the FTC 53
  53. 53. Antitrust Safety Zones• DOJ & the FTC issued policy “statements” that address antitrust safety zones• Statements are designed to provide education & instruction to the health care community on issues related to mergers & joint ventures• Statements give health care providers guidance in the form of antitrust safety zones, which describe circumstances under which agencies will not challenge conduct as violative of antitrust law 54
  54. 54. Review Questions –I1. Describe the organization, responsibilities,duties, & legal risks of a governing body.2. List some of the major provisions of theSarbanes-Oxley Act, as presented in the text.3. Describe the meaning of the legal doctrinerespondeat superior. 55
  55. 55. Review Questions –II4. Describe the term corporate negligence.5. Why is the Darling case described as abenchmark case?6. Does the legal doctrine respondeat superiorapply to an independent contractor? Explainyour answer. 56
  56. 56. Review Questions –III7. What is meant by the parent holdingcompany model?8. What does the Safe Harbor Act regulate? 57