Med Law Blog

PHYSICIANS LEARN THAT CHARITY ENDS AT THE OFFICE

Although charity may begin at home, two different physician groups, one on the east coast and one on the west, have learned that charity stops at the office.

Tax Deductions For Contributing Good Will

In Derby v. Commissioner, TC No. 10930-02, the United States Tax Court rejected the attempts by 12 physicians to deduct “contributed good will” arising out of the sale of their medical practices to Sutter Health in 1994. The physicians tried to argue that the value of their practices, as established by a third-party appraisal, exceeded the actual acquisition price paid by Sutter Health and the shortfall was a charitable donation to Sutter Health.

The Court rejected the arguments on the basis that the physicians were wholly compensated under the terms of the employment agreements, that the transaction lacked any donative intent because it was a tightly negotiated deal entered into for significant consideration, and the long-term employment contracts entered into by the physicians could not be ignored in establishing the actual value of the acquisition price. 

Charitable Immunity Statutes Does Not Protect Practice Group From Malpractice Liability

A faculty practice group affiliated with the University of Virginia attempted to claim charitable immunity from malpractice suits under the states charitable immunity laws. In University of Virginia Health Services Foundation v. Morris, the Virginia state high court held that Virginia law confers such immunity only on organizations organized and operated for charitable purposes, and that University of Health Services Foundation, although organized as a charitable organization, did not operate in accordance with those principles. Instead, the Court concluded the Foundation operated like a for-profit business with extensive assets and revenues paid to the member physicians, despite the charitable care provided by the group.

I spoke with Eric Berkman as he reported the lead story on retail clinics in the current issue of Massachusetts Medical Law Report, as did a number of other authorities on the subject.  Massachusetts recently promulgated "limited service" clinic regulations in order to regulate retail clinics appropriately, after CVS applied for a host of waivers to standard clinic licensure requirements as it prepared to open some Minute Clinics here in the Bay State.  For further info, see more HealthBlawg posts on the retail clinic issue.

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There have been two recent developments regarding the enforcement of expert witness standards, one enforcing standards by a society and one declining to enforce the standards in a private defamation action.

The American Academy of Orthopaedic Surgeons suspended one member and censored another for violating the Standards of Professionalism (SOPs) on orthopaedic expert witness testimony. The suspension was based in part on the expert witness’ failure to review all pertinent medical records related to a particular patient prior to rendering an opinion and the censure was based upon a failure to provide opinions and/or factual testimony in a fair and impartial manner, the latter being based upon the witness’ failure to adequately disclose the extent of his expert witness testimony in other cases.

While the AAOS was enforcing expert witness standards, the United States Court of Appeals for the Seventh Circuit, in the case of Margaret McGregor vs. L. David Rutberg, found that the expert witness standards of the American Association of Neurological Surgeons did not create a contract between members of the society allowing individual members to enforce the standards. Dr. McGregor sued Dr. Rutberg for defamation and breach of contract, alleging that the AANS standards created an obligation between the two individual physicians. The Court concluded that only the AANS had a cause of action for enforcing its standards and that the standards did not create third party beneficiary contracts between the members.

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Henry Butler, M.D. asks what the PA  MCARE report means in laymen's language. Although the surchaerges are decreasing, the unfunded liability is $2.33 and rising!  Physician migration from PA  appears to have remain unchanged during the program. PA desires to end the program and encourage privitization of the excess or second layer of covergage. Worthy goals, but no answers yet.

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The Pennsylvania Commission on the Medical Care Availability and Reduction of Error Fund (MCARE Fund) was created in December of 2005 for the purpose of investigating methods to reduce the unfunded liability of the MCARE Fund and the phasing out of the MCARE Program. The MCARE Program was created by Act 13 of 2002 to replace the Pennsylvania Catastrophic Loss Fund, to stabilize the professional liability insurance market in Pennsylvania and to assure continued access to quality health care.

MCARE operated basically by providing additional professional liability insurance to health care providers in Pennsylvania at subsidized premium rates, which were dependent upon actuarial funding programs, that basically paid expenses as incurred without funding for future liabilities, and providing for the abatement of the professional liability insurance premiums for physicians and other providers in Pennsylvania. Certain medical specialties qualify for 100% abatement while other specialties and providers qualify for 50% abatement. Although the MCARE operating expenses have decreased annually since inception, PricewaterhouseCoopers, the actuarial consultants for the state program, have reported that the unfunded liability has reached $2.33 billion.

The Insurance Department issued a report on November 30, 2006 listing the highlights of the Commission’s recommendations, which are as follows:

§      To continue the state’s MCARE abatement program which subsidizes health care providers’ catastrophic malpractice claims payments until MCARE coverage has been phased out. The MCARE abatement program was initially proposed by Governor Edward G. Rendell in 2003 to encourage health care providers to continue practicing in the Commonwealth and has defrayed nearly $1 billion of malpractice expenses for Pennsylvania health care providers;

§      To privatize MCARE malpractice coverage as directed under the Act 13 of 2002 as soon as is feasible, ideally in the period between 2008 and 2011. Currently, most health care providers are required to buy $1 million in malpractice coverage - the first $500,000 from the private market and the remaining $500,000 from the government-run MCARE Fund;

§      To eliminate the MCARE assessments paid by health care providers to support the MCARE Fund once private insurers begin covering the entire amount of required malpractice insurance, thereby reducing health care providers’ medical malpractice costs;

§      To use the public funds currently committed to the MCARE abatement program to retire the unfunded liabilities of the MCARE Fund, once the MCARE program ends;

§      To use any remaining currently committed public funds to mitigate increases in health care provider malpractice insurance costs, with a target of limiting the maximum increase in aggregate medical malpractice liability insurance costs in Pennsylvania to 10 percent annually; and

§      To aggressively promote health care quality initiatives, which will, among other things, reduce future malpractice expenses and maximize public funds that can be dedicated to health care services.

The complete text of the Insurance Department announcement and the “Final Report and Recommendations of the Pennsylvania Commission on the Medical Care Availability and Reduction of Error Fund” are available on the MCARE Program website, which is available as one of the links provided by the MedLaw Blog.

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On October 27, 2006, Pennsylvania Governor Edward Rendell signed Senate Bill 972, extending the MCARE malpractice subsidy through 2007. Physicians who are eligible for 100% abatement of their assessments are surgeons, neurosurgeons, orthopedic surgeons, obstetricians, emergency physicians, rural doctors who routinely deliver babies, certified nurse-midwives, and nursing homes. All other physicians and podiatrists are eligible for an abatement of 50%. 

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Further progress towards malpractice or tort reform was delayed, perhaps permanently, by the failure of the Senate to approve cloture. The Medical Care Access Protection Act of 2006
(S. 22) and the Healthy Mothers and Healthy Babies Access to Care Act (S. 23), both sponsored by Republicans and both of which would impose limits on non-economic damages, although
S. 23 is directed only to obstetricians and gynecologists, are now stalled in the Senate with little hope of receiving 60 votes necessary to cloture, given that Republicans control only 55 seats. Cloture is the parliamentary procedure by which debate on a particular item is ended, and the matter put to a vote; involving cloture in the Senate requires a super-majority vote.

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Both houses of Pennsylvania have extended the MCare abatement program for 2006. The bill now goes to Governor Rendell for signature.

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The Pennsylvania Insurance Department announced on October 31, 2005 that the 2006 MCARE assessment will be 29% of the primary prevailing premium. Earlier in the week, Pennsylvania Governor Ed Rendell promised extending the MCARE abatement program for 2 more years.

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Several hundred medical malpractice cases settled or adjudicated by the Department of Health and Human Services between 1997 and 2004 were not reported to a national repository of provider data, the HHS Office of Inspector General said in report released Oct. 19.

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A headline in the Wall Street Journal recently read: "High Court Rules IRAs Untouchable." This headline was prompted by a recent U.S. Supreme Court case (Rousey v Jacoway) which held that creditors may not execute on individual retirement accounts (IRAs) in a bankruptcy proceeding. This decision has been hailed as a huge victory for IRA owners.

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