Many providers are familiar with compliance in a health care context. They know to make agreements compliant with the Stark Law and the Anti-Kickback Statute, for instance. But the keys to a good compliance system (policies and procedures, designation of a compliance officer/committee, training and education, communication, ethics and culture, top-down compliance, enforcement, auditing and monitoring, and corrective action) apply to areas outside of health care as well, including the operation of a business. This article will discuss two areas in which a business should apply the principles of compliance to their business practices: antitrust and tax.
Broadly speaking, antitrust laws are about protecting and promoting competition in the marketplace. Section 1 of the Sherman Act prohibits agreements between parties that unreasonably restrain trade. Two types of analyses are employed in evaluating whether agreements between competitors constitute unreasonable restraints: per se and rule of reason. Certain agreements are so likely to harm competition with no immediately discernable procompetitive benefit are subject to challenge as per se unlawful. Examples include price-fixing, bid-rigging, or agreements between competitors to divide markets. The rule of reason is a factual inquiry into the agreement’s overall competitive effect to determine whether procompetitive benefits of an agreement outweigh any harm to competition resulting from a restraint. It is a more flexible inquiry that can vary in scope and detail depending on the nature of the agreement and market at issue. Because agreements subject to per se treatment are sometimes hard to identify, antitrust compliance should focus on ensuring compliance with any applicable safety zones and training individuals to identify conduct that can be problematic, including discussions regarding price between two competitors, agreements to allocate markets based on geographic boundaries, agreements to divide customers among competitors (such as patients). The need for antitrust compliance cannot be overstated. In July 2019, the DOJ released guidance instructing its prosecutors in criminal enforcement actions to evaluate corporate compliance programs in both the charging and sentencing stage of a case. It also reinforces, among other things, certain key elements of corporate compliance programs.
For example, many health care organizations and providers are involved in certain organizations, such as group purchasing organizations (“GPOs”), that facilitate purchases of health care products or services. Generally, an agreement among competitors to offer or pay the same price to purchase a product or services would be “price-fixing,” subject to per se treatment. However, much like the Anti-Kickback Statute Safe Harbors, there are certain enumerated “safety zones” which, if met, protect against enforcement absent extraordinary circumstances. In the example of a health-care GPO, one potential safety zone for joint purchasing arrangements may apply, if the purchases account for less than 35% of the total sales of the purchased products or services, and the cost of the purchased products or services account for less than 20% of the total revenues each competing participant in the GPO receives from sales. Failure to meet a safety zone does not automatically result in an antitrust violation. Other mitigating factors might exist to protect the arrangement; such situations will be subject to the fact intensive rule of reason analysis.
Compliance for tax purposes should focus on ensuring compliance with the requirements of a chosen tax structure. For instance, a 501(c)(3) tax-exempt hospital needs to ensure that it only operates for an exempt purpose, does not engage in certain political activities, and the earnings are not paid to any private individual or shareholder. Under the Affordable Care Act and its implementing regulations, hospitals must meet other requirements, such as conducting a community health needs assessment every three years and developing a plan to address the needs identified. The hospital must also adopt a financial assistance policy, describing who is eligible, the nature of the assistance, the basis for calculating charges, and a statement that those eligible will be charged no more than the amounts generally billed. If the hospital has an emergency department, it must establish an emergency medical care policy that prohibits certain activities that could discourage individuals from seeking care, such as demanding payment upfront. Finally, the hospital must make reasonable efforts to determine a patient’s eligibility for financial assistance before taking extraordinary collection actions, such as debt collection. Failure to meet the requirements could result in the hospital losing its tax-exempt status.
For an “S corporation,” the compliance and tax team should ensure the requirements are met and that no actions are taken to destroy that election, such as not having owners that are excluded business entities or non-resident aliens, having more than 100 shareholders, or more than 1 class of stock.
The compliance team must ensure consistent reporting of its structure, since tax returns are discoverable and not privileged. If a physician files a return claiming his spouse is a partner, but reports to Medicare the entity is wholly owned by the physician, this can create issues of certifying false information or violating a state corporate practice of medicine law. Furthermore, such a discrepancy can cause issues in certain transactions, as the fear of potential tax or other liabilities may make the business less attractive.
A good compliance program watches out for the interests of the business as a whole. While health care compliance is extremely important, an effective compliance team should also work to ensure the business practices also operate in a compliant manner.
Originally published in Healthcare Michigan, March 2020.
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