Reproduced with permission from BNA’s Health LawReporter, 19 HLR 5, 1/7/2010. Copyright � 2010 byThe Bureau of National Affairs, Inc. (800-372-1033)http://www.bna.com

Outlook 2010

Restructuring, Consolidation in Health CareMake Reform Top Health Law Issue for 2010

A mong all the uncertainties surrounding pendinghealth care reforms, one thing seems clear toBNA’s Health Law Reporter advisory board

members—reform will change, if not send shock wavesthrough, virtually the entire health law field.

Board members asked to rank the Top 10 issues fac-ing health care providers in 2010 overwhelmingly se-lected health care reform as the top issue. As KirkNahra said, ‘‘health care reform will dominate legal ef-forts in health care in 2010 and beyond as it signifi-cantly alters many of the areas of traditional practice.’’Nahra is with Wiley Rein LLP in Washington.

Fraud and abuse, Medicare, quality, and antitrustrounded out the top half of the list, followed by healthinformation, taxation, health plan regulation, medicalstaff, and labor and employment in the bottom half.Most advisory board members agreed that health carereform would be an issue with reverberations through-out all of the others.

Fredric J. Entin, with Polsinelli Shughart PC in Chi-cago, said that practically every area of health law willbe influenced in obvious and indirect ways by reform,other key legislative initiatives in Congress, and theimplementation of legislation already passed such asthe American Recovery and Reinvestment Act (ARRA).‘‘While much of the focus has been on insurance re-form, bills in both houses of Congress have provisionsthat would encourage the creation of new modes of de-livery, enhanced collaboration between hospitals andphysicians, and alignment of incentives to encouragenecessary cooperation. Whether this really results insignificant change to the health care delivery in theUnited States, there will be a raft of new matters forproviders to consider,’’ he said.

Richard Raskin with Sidley Austin LLP in Chicagosees reform driving significant industry restructuringand consolidation, while Howard Wall, at CapellaHealthcare Inc. in Franklin, Tenn., predicted a surge inboth mergers and acquisitions and health care financ-ing. Gerald M. Griffith, with Jones Day in Chicago, saidthat as clinical integration increasingly is seen as hav-ing tremendous potential to create efficiencies and im-prove patient care quality, antitrust issues will loom.

Several advisory board members commented on theneed for hospital boards of directors to take on in-creased governance responsibilities and warned thatunless Congress modifies fraud and abuse laws to com-port with the changes needed to make the nation’shealth system more effective and efficient, the resultinglegal tensions will make work for providers and their at-torneys for years to come.

To pay for reform, Congress is cutting provider pay-ments but also zeroing in on fraud and abuse, recogniz-ing, Nahra said, that fraud is a significant cost driverand that better anti-fraud efforts can help control costs.‘‘With the new rules that will be generated as part of re-form, there is the increased likelihood of a ‘got you’ en-forcement approach, where the government can re-cover significant dollars from mistakes and errors inimplementing the new rules,’’ he said.

Mark A. Kadzielski with Fulbright & Jaworski LLP inLos Angeles said he sees this happening in the states aswell. New laws and fines are ‘‘not a bad way to supple-ment a strapped state health budget,’’ he said, as statestake notice that California’s laws on ‘‘never event’’ re-porting enabled it to collect almost $2.5 million in finesover a recent two-year period.

Elisabeth Belmont with MaineHealth in Portland,Maine, sees reform leading to substantial changes inexisting health information and technology and itsfunctionality in a range of categories.

Katherine Benesch with Duane Morris LLP in Prince-ton, N.J., said she sees an already difficult financial cli-mate for hospitals and physicians being made worse by

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increased mandates for provision of care without themoney to pay for them. ‘‘In addition,’’ she said, ‘‘budgetshortfalls in several states are forcing cutbacks in pay-ments for Medicaid and hospital charity care, which islikely to lead to more hospital closures and unrest, asessential health care employees are laid off.’’

Wall said he sees medical malpractice reform ‘‘crawl-ing back into the spotlight’’ while J. Mark Waxman,with Foley & Lardner LLP in Boston, said he anticipatesreform driving reconsideration of alignment and the‘‘startup of an entire series of health care transactionsbetween physicians and hospitals, hospitals and hospi-tals, and ancillary providers as all are considering whatis strategically required to be successful in the nextphase of health care delivery and financing.’’

In all, board members agreed that 2010 promises tolead to the most radical changes for health care provid-ers since Medicare came on the scene in 1965.

1. Health Care Reform. ‘‘There are at least $849 billionreasons—the Congressional Budget Office estimate forthe Senate bill’s cost over 10 years—why health lawyersshould be gearing up for health reform,’’ Howard Wallsaid, adding that ‘‘lawyers will be in the middle of modi-fying employer health plans to incorporate reforms, un-winding and reworking physician-owned hospital deals,and establishing accountable care organizations(ACOs).’’

Mark Waxman said that reconsidering alignment hashospital systems making decisions ‘‘to reduce their size,by either closing facilities, or cutting the cord of somehospitals to larger systems, or even transferring them toothers. Physicians continue to form groups, or becomeemployees of groups or hospital systems. Mergers and

acquisitions of hospitals continue to be much dis-cussed.’’

Several board members commented on the media’sfocus on proposed insurance reforms. Jack A. Rovnerwith The Health Law Consultancy in Chicago com-mented that ‘‘since summer, when the presidentchanged the subject from health reform to health insur-ance reform, reform has lost its cost and quality dimen-sions.’’ Reform was supposed to address the ‘‘triplethreat’’ to personal health and economic welfare—cost,quality, and access—but without a fix to the misguidedfee-for-service payment system ‘‘promoted and pro-tected most by Medicare, our nation cannot effectivelysolve the access or the quality problem,’’ he said.

Kirk Nahra, too, was doubtful about current efforts.He said that their partial nature means the nation is‘‘not going to solve the health care problem, and law-yers will be dealing for years with what else needs to bedone and how the government will pay for it.’’

Board members applauded reform’s major goals: in-creasing access to needed health care services, promot-ing provider coordination and integration, supporting astronger role for primary care and improving care forpeople with chronic conditions or complex needs, hold-ing providers more accountable for results, and increas-ing health system efficiencies. They debated, however,whether current initiatives would bring these changesabout and whether congressional proposals will justcreate more problems down the road.

Citing the unsustainability of ‘‘runaway’’ health carecosts, including in the Medicare and Medicaid system,‘‘with its many medical errors, poor outcomes, misuseof resources, uncoordinated episodes of care, and pay-ments that reward volume not value,’’ Douglas A. Hast-ings, with Epstein Becker & Green PC in Washington,said reform should focus on the payment and deliverysystem, ‘‘the real engine of true, long-term improve-ment in both the effectiveness and efficiency of care.’’

This cannot come a moment too soon for DouglasRoss of Davis Wright Tremaine LLP in Seattle. He seeslegislators continuing to search for the ‘‘payment uni-corn.’’ Two decades after diagnosis related groups wereintroduced, ‘‘we continue to believe that if we try hardenough, we can perfect a system of administered pricesand solve the affordability problem. Today’s notions en-compass plans to move from pay-for-procedure to pay-for-performance; more demonstration projects onACOs; the ‘medical home’ idea; a return to discussionsof capitated payments and other forms of sharing finan-cial risk/rewards, etc., each of which fixes some prob-lems while creating others,’’ Ross said.

Stephanie W. Kanwit with America’s Health Insur-ance Plans in Washington called payment reform ‘‘criti-cal,’’ saying the legal system must eliminate barriers toinnovative payment models that promote quality whilemaking care more affordable. Models may include bun-dling payments for better management of chronic con-ditions, designation of a medical home, incentive pro-grams to coordinate care and develop patient-centeredcare, and global case rate models, she said. Also ‘‘on thetable for the future is updating the Medicare physicianfee schedule and instituting a transparent, public pro-cess that can be adjusted for gains in efficiency and pro-vider productivity. Look also to see measures intro-duced that help set (through regulatory and othermeans, like licensure, certification and accreditation)

Health Law Reporter’s Top 10 for 2010

Advisory board members ranked these themost important health law issues for 2010:

1. Tensions created by health care reformaffect all other practice areas and make it theyear’s top health law issue.

2. Fraud and abuse continues to consumeinordinate time and health lawyer resources.

3. New Medicare payment regimes focusedon quality and efficiency impact providers.

4. Quality, the health care ‘‘Holy Grail,’’ re-mains elusive.

5. Provider consolidation pressure stem-ming from reform and economic stresses keepantitrust hot.

6. Health information gets a HITECH shotin the arm.

7. IRS and state oversight of tax-exempthospitals keeps taxation on the front burner.

8. Health plan regulation evolves in re-sponse to federal health insurance reforms.

9. Complicated medical staff issues con-tinue to arise out of physician employment andpeer review by hospitals.

10. Shortages of personnel in key areas andunion activity dominate the labor and employ-ment arena.

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minimal threshold performance levels for health careorganizations and professions,’’ Kanwit said.

Many board members said they worry that the ag-gressive enforcement of current Medicare fraud andabuse laws will hamper needed payment system inno-vations. Others said they worry about the proliferationof burdensome regulations.

Robert L. Roth with Crowell & Moring LLP in Wash-ington said he expects increased enforcement in theMedicaid program because ‘‘the federal governmentand the states have spent the past couple of years build-ing a vast Medicaid enforcement infrastructure, whichmoved in 2009 from planning to implementation. Lookfor that trend to accelerate in 2010.’’

Wall, like others, expressed concern about the rise ofeven more cumbersome regulatory systems and pre-dicted reform will ‘‘add yet another layer to the alreadyburdensome system of federal and state regulation thatmakes the business of health care more difficult witheach passing year.’’ The Health Insurance Portabilityand Accountability Act (HIPAA), the Emergency Medi-cal Treatment and Labor Act (EMTALA), state certifi-cate of need (CON) and licensure issues, Centers forMedicare & Medicaid Services (CMS) reporting re-quirements, new rules for patient safety organization,Federal Trade Commission (FTC) red flag security rulesall are examples of how new layers of regulation areadded or increased without eliminating existing ones,Wall said. In evaluating the real reason why health carecosts almost 17 percent of U.S. gross national product,he said, ‘‘maybe the answer lies not just in excessivejury verdicts or billing fraud, but in the administrativeburden of excessive, duplicative regulations.’’

Kanwit agreed. ‘‘There’s a concern about the regula-tory complexity created by proposed reforms that cre-ate an entirely new federal system of insurance regula-tion instead of building on the state regulatory system,’’she said. She gave the example of the proposed Afford-able Health Care for America Act (H.R. 3962), whichwould duplicate oversight in many areas already highlyregulated by the states, such as coordination of ben-efits, external review, and prompt pay. ‘‘The question iswhen overlapping regulations simply create confusionand complexity and unnecessarily raise costs,’’ Kanwitsaid.

John D. Blum of the Loyola University ChicagoSchool of Law cited problems even with existing pro-vider regulation, saying ‘‘far greater clarity needs to bearticulated by state and federal regulators over issuesinvolving safety net matters such as EMTALA, charitycare, and even CON statutes.’’ Existing CON lawsshould be tailored only to these matters, Blum said.

Michael W. Peregrine with McDermott Will & EmeryLLP in Chicago said the collection of anti-fraud provi-sions and quality-of-care rules in pending proposals willincrease the work of hospital compliance committees‘‘exponentially.’’

Eric A. Tuckman, with the Advisory Health Manage-ment Group in Irvine, Calif., said he sees Medicare re-imbursement issues ‘‘exploding’’ as health reformchanges the current payment scheme. ‘‘This will be-come especially important to safety-net hospitals as fed-eral and state disproportionate share programs are re-defined or eliminated,’’ he said. It is even possible thattraditional Medicare reimbursement advocacy will findhealth providers taking a much more active role in im-

migration reform in order to qualify patients for cover-age under the new system, he said.

Doug Hastings said that changing Medicare andMedicaid to bring about a more coordinated andpatient-centered health care system will trigger privatemarket changes as well. ‘‘We have a mixed public/private system for powerful historical reasons. Even thecongressional debate about federal payment changesstimulates change in the private market,’’ he added.

Katherine Benesch cited the worsening financial cli-mate for hospitals and physicians as mandates to pro-vide care increase with no increases in monies to payfor the services rendered. ‘‘On the physician side, prac-titioners have been fighting to maintain past reimburse-ment levels in the face of multiple efforts by insurers toreduce them. In some states, physicians report that de-creased reimbursement levels are leading their col-leagues to move to states with higher payment rates.Much of this activity appears to be in anticipation of in-creased federal regulation,’’ she said.

Thomas Wm. Mayo at Southern Methodist UniversityDedman School of Law in Dallas expressed concernabout reform’s effect on the states. He called the Med-icaid program ‘‘a budgetary balloon that is about toburst,’’ exacerbated by the recession and by mandatingincreased access to the program without helping stateswith their matching share. Given this ‘‘unsustainableburden, health reform is likely to make matters worsefor the states, not better,’’ he said.

Ross said he also sees fallout from greater care ac-cess: ‘‘Physician shortages and crash programs to ex-pand medical education; turf fights over the scope ofpractice of nurses and other paraprofessionals; and ef-forts of specialists vs. primary care practitioners to ‘re-form’ to their advantage physician payments underMedicare’s relative value scale and other insuranceschedules.’’

Elisabeth Belmont also expressed concern about pro-viders, particularly hospitals in states like Maine, whereshe is hospital counsel. To pay for the coverage expan-sion that is a main goal of reform, all the proposals un-der consideration cut Medicare home health and hospi-tal reimbursement, she said. ‘‘But this does not equateto sustainable long-term cost savings for states likeMaine, which already has the second lowest hospital re-imbursement rate.’’

Blum said state programs will need to be significantlyrevamped as current models ‘‘simply may not be sus-tainable even with new revenues. This will not be just astate-based problem, but will filter down to county gov-ernments as well.’’

Rovner said he expects that states will be forced to dowhat Congress has failed to do—tackle cost and quality‘‘by moving more and more away from fee-for-serveinto managed care like the original HMO model thatshifts financial risk to providers forcing those willing orrequired to take Medicaid to invent processes that earnprofit through quality and efficiency, rather than vol-ume and waste.’’

‘‘We have a ‘perfect storm’ in health care fraud.’’

KIRK NAHRA, WILEY REIN LLP, WASHINGTON

Rovner added that, ‘‘unless the industry as a whole—physicians, hospitals, payers, and others—break out of

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their silos of self-financial interest and heal themselves,Congress and the president will have to confront thereal issues of our failing national health care deliverysystem in years to come.’’

But Sanford V. Teplitzky, with Ober Kaler, Washing-ton, pointed out that existing fraud and abuse laws gen-erally require the ‘‘siloing’’ of health care providerswhile health reform encourages and incentivizes coop-erative efforts to improve care and reduce costs. Todate, he lamented, there have been no serious propos-als to amend the statutes in a manner that would letproviders work together without violating the law.

2. Fraud and Abuse. Fraud and abuse remains high onthe Top 10 list, board members said, because of the leg-islative enactments, health reform proposals, and com-plex compliance challenges that perennially vex provid-ers.

While health system reforms, likely to include fund-ing for an increased number of investigations and pros-ecutions, are sure to spur government enforcement in-creasingly geared toward using huge fraud recoveriesto offset the cost of other initiatives, whistleblowerswait in the wings with new tools and ammunition thatcould skew enforcement priorities and, in many cases,confront providers with battles on multiple fronts, theysaid.

Kirk Nahra summed up the concerns of many boardmembers. ‘‘We have a ‘perfect storm’ in health carefraud,’’ he said, a clearly aggressive administration,changes to the False Claims Act that will drive a varietyof new whistleblower cases, and a growing recognitionthat fraud is a significant driver of health care costs.

This will put even more pressure on the governmentto make good on its anti-fraud commitments, Nahrasaid. ‘‘They will be looking for even more extensive andaggressive and creative ways’’ to generate money forgovernment health insurance programs from healthcare providers and others, he said.

Mark Waxman agreed that fraud and abuse issues re-main a challenging reality for providers who may findthemselves far too easily tripped up by the Stark rules,new rules on conflicts of interest in many states, andthe federal Civil Monetary Penalties (CMP) statute.‘‘This means that the threat of enforcement under therecently amended FCA is always lurking and that atruly ‘living’ compliance plan remains an essential ele-ment of daily operations,’’ he said.

Doug Hastings said he sees the tension between thecollaboration needed to attain efficiencies and fraudand abuse concerns as continuing to grow as healthcare reforms are implemented. ‘‘The challenge for theenforcement community will be to determine what is a‘good’ incentive between a hospital and physician to en-courage proper use and what is a kickback disguised asa proper incentive,’’ he said.

Eric Tuckman said the need to facilitate collaborationbetween physicians and health care organizations ‘‘willrequire the enactment of clear safe harbors and guide-lines to induce organizations and their leaders to enterthe vague, poorly defined, and often uncharted watersof physician/hospital economic relationships.’’

The expansion of government-sponsored hot linesand websites encouraging whistleblowers ‘‘will un-doubtedly increase both regulatory activity and crimi-nal prosecutions,’’ Tuckman continued. ‘‘We are alsolikely to see activities that have in the past been recog-

nized as ‘accepted practice’ challenged in governmentproceedings and in qui tam actions.’’

Howard Wall pointed to the Department of Healthand Human Services Office of Inspector General’s Fis-cal Year 2010 Work Plan, calling it ‘‘required reading’’for all health lawyers. The importance of the work plan‘‘is like the college professor who gives you the finalexam with all of the answers ahead of time. All youhave to do is actually study,’’ he said.

‘‘The focus on hospital readmissions, denial of pay-ment for ‘never events,’ and the long-term impact of theRecovery Audit Contractors (RACs) are just a few of thethings that providers will need to worry about in 2010.In addition, the OIG and U.S. attorneys are going to in-crease focus on quality issues while areas such as phy-sician contractual arrangements will continue to re-ceive scrutiny,’’ Wall added.

Katherine Benesch said, ‘‘Government prosecutorshave made gleeful and boastful presentations duringthe past year about their increased activity in the civiland criminal prosecution of health care providers fortreble damages. Much of this is made possible by thelinkage of prosecution under the FCA with violations ofthe Stark law.’’

‘‘Continued amendments to the Stark law and itsregulations have increased confusion in this alreadycomplex area and made it difficult for providers to feelsecure with the organizational changes they must makeevery day. Meanwhile, in the states, new offices of in-surance fraud prosecutors are flexing their muscles andusing state police powers to root out billing ‘fraud,’whether it results from intentional bad activities ornot,’’ Benesch added.

Richard Raskin noted that, with the likely enactmentof more stringent fraud and abuse provisions and doz-ens if not hundreds of cases already in the pipeline, ‘‘ex-pect another busy year in enforcement.’’ The industryalso should expect ‘‘more pharma settlements, moremedical device cases, and more corporate integrityagreements for all types of health care companies,’’ hesaid.

Fred Entin cited new patient care and payment mod-els coming out of reform efforts that will give providersgreater responsibility for coordination of care, creatingincentives to focus on outcomes not just procedures anddemanding greater integration of hospitals and physi-cians.

‘‘In the absence of regulatory reform, the thrust forquality-oriented relationships and incentives will re-quire carefully designed programs to comply with Starkand anti-kickback restrictions and, especially, the CMPproscription against reducing or withholding care,’’ En-tin said. Despite OIG advisory opinions on pay-for-performance programs implicating the CMP, ‘‘theOIG’s literal reading of the statute remains a hurdle ifnot a barrier to programs that include gainsharing ini-tiatives,’’ he said.

Entin also cited FCA amendments that give enforce-ment agencies another serious tool to combat fraud andabuse. ‘‘The most important of the amendments to theFalse Claims Act enacted in the Fraud Enforcement andRecovery Act (FERA) confirmed by statute that therecan be liability for failure to return payments or over-payments the provider knows or should know he is notentitled to,’’ Entin said.

‘‘Another issue worth watching in 2010 is how tohandle the disclosure of Stark violations now that the

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OIG has ‘closed’ its self-disclosure program to the Starklaw. Considering increased liability for reverse falseclaims and the ramp up of RAC, Medicaid IntegrityContractor, and Zone Program Integrity Contractoraudits—which will be in full force for the entire countrythis year and should encourage self-auditing—2010should prove to be interesting for providers who willneed to determine what to do with self-discovered over-payments,’’ Entin said.

Sandy Teplitzky said that, while he did not anticipateany significant regulatory changes in the Stark land-scape during 2010, he did suspect that 2010 would seea number of investigations and enforcement effortsaimed at alleged Stark violations.

‘‘My concerns in this area focus on the fact that gov-ernment investigative priorities are being driven by thefiling of relator actions under the FCA and that the is-sues that will be addressed in the coming year may notbe the most important ones, but will most likely bethose identified by individuals who may seek personalfinancial gain over the public interest,’’ he said.

‘‘With the passage of state false claims statutes, wehave seen, and I expect that we will continue to see, ac-tions brought in multiple states at the same time. Al-though the National Association of Medicaid FraudControl Units has attempted to coordinate state investi-gations and resolutions, I suspect that many states will‘go it alone,’ which will make it extremely difficult forcompanies that operate in more than one state, sincethey will find themselves under attack from multiple di-rections at the same time,’’ Teplitzky said.

‘‘I anticipate that 2010 will be an active one for every-one whose lives are touched by the issues of fraud andabuse, including federal regulators and enforcers, rela-tors, health care providers, and their counsel. I onlyhope that some sense of calm, reasonableness, and ra-tionality will serve to ensure that legitimate efforts byhealth care providers who are operating in good faith toimprove care and reduce costs are not caught up inwhat can be devastating and career ending investiga-tions, often initiated by those simply seeking ‘fortunesat the end of the qui tam rainbow,’ ’’ he concluded.

Michael Peregrine pointed to governance implica-tions of fraud enforcement, saying he expects a con-tinuation of the trend toward placing more fraud andabuse compliance responsibilities in the hands of cor-porate board members. 2010 will be ‘‘particularly activein terms of regulatory scrutiny of hospital boards’ exer-cise of their compliance plan oversight obligations,’’ hesaid. ‘‘This is particularly the case if other states followNew York’s lead and place an affirmative complianceplan certification obligation on the boards of state Med-icaid providers, with penalties for board members whodo not exercise effective oversight,’’ he said.

‘‘The OIG has been a strong advocate for effectivecompliance plan oversight by boards, and I anticipatethat a particularly bad fact pattern involving directormalfeasance will present itself, offering OIG the oppor-tunity to hold the board accountable in a very publicmanner,’’ he added. At the same time, ‘‘general counselin particular will want to be attentive to any further ex-pansion of the responsible corporate officer doctrine inhealth care, beyond its most recent application in themedical device and pharma areas,’’ he advised.

Elisabeth Belmont agreed. ‘‘DOJ and private whistle-blowers have increasingly used the FCA to addressegregious failures to oversee or provide quality care,

employing creative new legal theories that argue thatbilling for substandard services is either ‘false certifica-tion of compliance’ or tantamount to billing for a‘worthless service,’ ’’ Belmont said.

‘‘The government’s enforcement efforts are also in-creasingly targeting individual officers, directors, andmedical staff leadership who fail to fulfill their fiduciaryand other obligations to effectively oversee the qualityof care rendered in the hospital,’’ she said.

Bob Roth said that, in the end, fraud enforcementwas the only area where there was not ‘‘more talk thanaction’’ in 2009, and ‘‘it is hard to imagine any futureadministration reducing this focus given the trillion-plus dollars spent on federal health care programs.’’

3. Medicare. Based on its sheer size and lead role inregulation, Medicare—including implementation, reim-bursement, funding, and drug benefits—is a focal pointfor health care reform and will continue to be an impor-tant health law practice area in 2010, advisory boardmembers said.

The federal insurance program has become the domi-nant cost and attention driver for the entire health caresystem, Kirk Nahra said, leaving it an open issue howmuch of any new system will be driven by Medicare orcombined with or compared to Medicare. Also an im-portant issue is the effect of Medicare payment cuts,Bob Roth said. Current bills cut nearly $500 billion fromthe program and it is possible that many of these cutswill pass even if other reforms do not, Roth said.

John Blum said Medicare should be cut not only onthe physician and hospital sides but that, like Medicaid,all aspects of the program will need to be rethought andchanges, particularly those that would phase out fee-for-service reimbursement perhaps replacing it withbundled episode-of-care-based payments, will have tobe installed.

Jack Rovner vigorously agreed. He said changes areneeded in physician reimbursement limits set by the‘‘sustainable growth rate,’’ which seeks to stop Medi-care from growing faster than the economy as a wholeand which, according to some economists, would needto be cut today by more than 40 percent to fulfill this ob-jective. Change also is needed in the overall paymentscheme for Medicare Parts A and B. This, Rovner said,has to move away from fee-for-service ‘‘volume reward-ing’’ to an economically sustainable payment mecha-nism that provides incentives for quality and efficiency.Congress, however, ‘‘has shown no fortitude to take theissue on, the Obama Administration no leadership tomeaningfully address the provider community, and thehealth insurance industry no courage to stop followingMedicare as the way to pay’’ and instead innovate withbetter provider payment processes.

‘‘We will soon reach a tipping point

on the road from volume to value.’’

DOUGLAS A. HASTINGS,EPSTEIN BECKER & GREEN PC, WASHINGTON

T.J. Sullivan of Drinker Biddle & Reath LLP in Wash-ington, however, said he believes provider rate cuts‘‘may actually have a chance of being implemented this

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time, but not before the last round of physician paymentcuts is wiped off the books, with or without an offset. Ifseniors are lucky, they may see relief from paying retailfor drugs in the ‘doughnut hole.’ ’’ Lawyers, doctors,and other highly paid individuals, he said, all will seehigher Medicare taxes withheld from their paychecks tohelp pay for reform. ‘‘Over the next several years,’’ Sul-livan added, ‘‘I see higher taxes trumping benefit cuts.’’

Rovner said he sees the likely congressional fix toMedicare Advantage (MA) being the elimination of pay-ment benchmarks above Medicare fee-for-service andthe fix to the access problem being a public plan optionthat is ‘‘likely to shake up the health insurance and em-ployer benefits markets. There will be lots of losers asthese market changes eclipse the ability of many in-cumbent insurers and third-party administrators to re-structure their business models. But for the few with vi-sion, courage, speed, and agility to adjust, the businessopportunities in changes to MA, the Medicare Part Dprescription drug program and, yes, even the publicplan, are likely to be profound.’’

Fred Entin expressed concern about Medicare cost-shifting. ‘‘Everyone concerned about affordable cover-age needs to be concerned about this,’’ he said. SinceMedicare and Medicaid significantly underpay hospi-tals and physicians, it adds about $1,500 annually to thepremiums for an average family of four, he said.

Stephanie Kanwit said she sees problems withchanges proposed for Medicare Part D in the name oftransparency. Some harm competition by prescribingspecific terms for what should be arms-length commer-cial dealing between insurers and service providers,chilling negotiations that otherwise would be a win-winfor both parties, she said. ‘‘It makes no sense to createinflexibility on both price and non-price contractterms,’’ Kanwit said. ‘‘Nor does it benefit consumers toallow identification of protected formulary classes inPart D, which only makes affordability harder toachieve.’’

Vickie Yates Brown, of Frost Brown Todd LLC inLouisville, Ky., summed up the Medicare picture thisway: whatever the mechanism chosen, the bottom lineis that Medicare costs ‘‘must be brought under controlas costs continue to increase and more baby boomersqualify for coverage.’’

4. Quality of Care. Few topics garnered more boardmember comment than improving the quality of care inAmerican hospitals. Advisory board members cited thegrowing recognition that, as Bob Roth said, the ‘‘ ‘pay-mentization’ and ‘compliancization’ of quality has madeit a vehicle that can deliver savings, particularly toMedicare.’’

Jack Rovner said he sees this vehicle virtuallystopped this year. The reforms enacted by Congress—not, he said, health care reform but health insurancereform—will prove ‘‘utterly ineffective at bending thehealth care cost curve, promoting quality, or even solv-ing access because insurance reforms fail to make whatthe expanded insurance pays for affordable.’’ Thismeans that another Congress ‘‘will be forced to con-front the real issue—that changes addressing cost andquality problems are the only effective way to improveaccess,’’ Rovner said.

But Tom Mayo said that, with reimbursement in-creasingly tied to quality care, hospitals themselves are‘‘finally starting to compete in a serious way over qual-

ity issues.’’ Howard A. Burde with Howard BurdeHealth Law LLC, Wayne, Pa., said a study comparingcost and patient outcomes in the Texas cities ofMcAllen and El Paso grabbed the attention of both theWhite House and the public by showing that spendingtwice as much per Medicare beneficiary did not resultin better outcomes. This and similar findings supportgiving quality a central role in reforming the paymentsystem, he said. Howard Wall added that the expansionof public reporting measures by CMS, and some states,and the promotion of CMS’s ‘‘Hospital Compare’’ web-site are further evidence of the increased focus on pa-tient care quality.

Burde also observed that the OIG, Joint Commission,Department of Justice, and CMS ‘‘all have gotten on thequality bandwagon, once the turf of state regulators.’’Despite the ‘‘ill-timed report’’ on the effectiveness ofmammogram screening in late 2009, evidence-basedmedicine based on comparative effectiveness research(CER) is likely to become the basis for payment, at leastunder government programs, he said.

Doug Hastings said evidence-based medicine can sci-entifically define ‘‘overuse, under-use, misuse, and,through broadly adopted measures, proper use.’’ Asboth public and private payment mechanisms adapt tousing such measures in a comprehensive way, and de-livery systems organize to deliver care in a clinically in-tegrated and coordinated manner, ‘‘we will soon reacha tipping point on the road from volume to value,’’ hesaid.

Mayo, however, cited ‘‘the hue and cry over thebreast cancer-screening recommendations as a goodexample of how a large number of us view CER and thetrade-off of dollars and statistical lives when that trade-off affects our own care and health.’’ And John Blum—who asked, ‘‘Whatever happened to patient safety, as afocal point in the quality area?’’—called CER a ‘‘re-cycled concept that needs to be proven.’’ Also, he said,while ‘‘novel quality structures like ACOs that tie intovalue purchasing are still too new, they raise interestingreimbursement, antitrust, and licensing questions.’’

Elisabeth Belmont and Stephanie Kanwit both saidpayment systems should reward better clinical out-comes, improved patient experience, and lower totalcosts of care. But both also see impediments to quality-based reimbursement. Belmont said current proposalslargely fail to address the limited base of evidence toimprove care and the limited infrastructure to spreadbest practices once they are identified. Kanwit said re-formers will have to discover how to ‘‘close the gap be-tween what scientific evidence shows and what is actu-ally practiced,’’ and create incentives for a more effec-tive and coordinated delivery of services.

Belmont sees incentive programs, both public andprivate, gaining increasing traction as payers seek to le-verage their premium dollars to produce better, moreefficient care. ‘‘On the incentive side, financial pressureis being exerted through the increasing use of quality-based ‘pay for performance’ initiatives,’’ she said. Thepenalty side of pay-for-performance is exemplified byCMS’s ‘‘never events’’ payment policy and its state ana-logues, which withhold payment for ‘‘allegedly substan-dard care.’’ Mark Kadzielski cited a recent developmentin Rhode Island, where a hospital with frequent wrong-site surgeries was required to put cameras in its operat-ing rooms. It is ‘‘punishment’’ and ‘‘more Draconian

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than monetary fines,’’ he said, but will have an evengreater effect on quality.

Mark Waxman said efforts to deliver quality are‘‘driving an emphasis on systems, including an IT infra-structure necessary to measure and educate about qual-ity,’’ a development that may have collateral effects inthe regulatory and antitrust arenas as providers striveto deliver quality across entity boundaries, he said. Allof this is likely to come together in health plan regula-tion and also lead to reconsideration of the Stark andanti-kickback rules, he said.

According to Eric Tuckman, in the relatively non-consolidated hospital market segment, attaining signifi-cant quality improvement and cost efficiencies may beachievable only through the type of operational integra-tion normally associated with mergers and affiliations.‘‘Redesigning clinical and administrative processes re-quires sophisticated organizations and operationaltechniques and policies often better accomplished bywell-developed regional and national health care sys-tems,’’ he said.

Changes also will affect the responsibilities of hospi-tal boards of trustees. Katherine Benesch said she seescorporate governance taking on new importance forhospitals as ‘‘federal and state governments push thislever in their attempt to improve oversight of the qual-ity of care’’ rendered by hospital staff. ‘‘A few years ago,it would have been unheard of for hospital administra-tors and board members to be prosecuted by the DOJ orthe OIG for failure to exercise oversight of care ren-dered by physicians practicing at the hospital. But suchprosecutions are increasing.’’

Last year, Benesch said, an advisory board memberwondered if patient safety and quality of care would be‘‘sacrificed on the altar of economic recovery efforts.’’This past year, she continued, ‘‘we have learned that re-sourceful federal bureaucrats and regulators will levyheavy fines under the FCA amounting to billions of dol-lars for lack of compliance with quality of care and bill-ing standards.’’

‘‘One could argue that this may increase quality. Onthe other hand, extracting this many resources fromhealth care delivery could decrease the quality of ser-vices a provider or institution is able to render,’’ Ben-esch added.

Several board members commented on increasedboard responsibility, with Waxman saying that boards‘‘must take more time than ever before to direct overallstrategy management.’’ But Blum said realistic expecta-tions of voluntary boards have not yet been clearly de-termined and ‘‘increasing board responsibilities forquality remains an illusive, and, in some cases, unreal-istic focal point.’’

Kanwit looked at another aspect of better patientcare. What is needed, she said, is a way to ‘‘stop theflow of dollars wasted on defensive medicine and in amedical liability system that doesn’t accomplish goalsfor either patients or physicians.’’ Suggestions includemoving medical malpractice cases into health carecourts or before medical review panels that will screenout frivolous suits, employ early-offer programs, andcreate safe harbors for reporting errors if providershave acted in accordance with evidence-based guide-lines. Wall said funding for state pilot projects to usehealth courts and other innovative ways to resolve li-ability claims may indicate ‘‘the grip of the trial lawyers

to block any changes to the current tort system may beslipping a bit.’’

5. Antitrust. Antitrust law concerns come to the foreagain this year, board members said, because of theconfluence of the heightened scrutiny and more vigor-ous enforcement agendas of federal agencies and be-cause of consolidation and integration pressures stokedby continuing economic uncertainty and the quality en-hancement and cost-containment mandates underlyinghealth reform proposals.

Activities implicating competition and antitrustlaws—and their enforcement—also will spill over asnew provider collaboration, practice, and reimburse-ment models are implemented and industrywide initia-tives, such as health information technology (HIT)adoption, mature, they added.

According to Toby G. Singer, with Jones Day inWashington, federal enforcement will be heightenedbecause of a resurgence of merger activity and newFTC and Department of Justice appointees look ‘‘for anopportunity to make their mark and distinguish them-selves from the Bush administration.’’ Singer said sheexpected the FTC to continue its emphasis on reviewingconsummated health care mergers and that DOJ, for itspart, ‘‘will be looking for the right health plan transac-tion to challenge given the (probably unfair) criticismthey have gotten for failing to challenge more transac-tions than they have.’’

Doug Ross said he, too, expects more antitrust en-forcement and more private antitrust litigation as a re-sult of a combination of payment reform efforts, an in-crease in physician demand for employment-type ar-rangements, physician shortages, and pressure onsingle community hospitals to affiliate with systems.

Richard Raskin agreed, saying he expects ‘‘a busyyear in health care antitrust because new leadership atthe FTC is clearly committed to pursuing enforcementactions against pharmaceutical and medical devicemanufacturers while providers, too, are likely to faceenforcement pressures as they attempt to restructuretheir businesses to respond to reimbursement pressuresand health care reform.’’

Raskin added that, ‘‘with a new chair and two newcommissioners on board, the agency may pursue newtheories of liability, including theories that extend Sec-tion Five of the FTC Act beyond the limits of SectionsOne and Two of the Sherman Act.’’

Jack Rovner said quality improvement and cost con-tainment pressures will lead a push for more collabora-tive endeavors, such as ‘‘medical homes’’ and ACOs totest coordinated and integrated care models and globalpayment processes, which will in turn lead to more en-forcement and calls for more guidance.

‘‘There will also likely be provider pressure on anti-trust agencies to issue bright-line guidance on the kindof clinical integration that is not vulnerable to antitrustattack and increasing pressure on Congress for anti-trust exceptions to permit collaboration among inde-pendent, competing providers,’’ Rovner said.

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‘‘Cooperation between physicians and hospitals

will be risky and out of the reach of providers

who are not financially integrated.’’

FREDRIC J. ENTIN, POLSINELLI SHUGHART PC, CHICAGO

According to Doug Hastings, antitrust will remain asignificant compliance concern because the enforce-ment community is likely to struggle as it learns how tovigorously prosecute improper actions without discour-aging activities needed to adapt to health care systemchanges.

‘‘Given that the goal of reform is better coordinationand cooperation among providers, regulators will haveto be able to distinguish the ‘good’ from the ‘bad,’ ’’ hesaid. ‘‘Which hospital mergers promote sufficient clini-cal quality, even if they reduce competition, to be al-lowed to proceed? Which do not?’’

‘‘The government, as purchaser, wants more cost ef-fective health care delivered for those patients it coversand wants providers to collaborate to bring that resultabout. But as regulator, the government wants to makesure that such collaboration does not involves agree-ments to restrain trade,’’ Hastings said.

‘‘Enforcing against monopolistic activity by an indi-vidual or entity is broadly supported and raises few con-cerns as a general concept. Getting the balance rightwhen judging ‘good’ collaborative behavior from ‘bad’as between independent parties in this era of healthcare reform will, however, be tough,’’ he added.

Eric Tuckman said 2010 will be ‘‘a defining moment’’for hospital antitrust enforcement, but said that the re-cent increase in governmental scrutiny and adverseregulatory decisions in high profile merger cases onlymarks the implementation of what has long been antici-pated as an expected fundamental change in govern-ment antitrust enforcement policy.

Now, he said, ‘‘the government’s challenge in adopt-ing its revised policy will be to reconcile traditional an-titrust analysis with current health reform policy objec-tives to allow and facilitate the major objectives ofhealth care reform: cost reduction and quality improve-ment.’’ Enforcement policy will have to be flexibleenough to allow efficiencies even if they come with ad-ditional market concentration, he concluded.

Fred Entin said he expects pressure for change inhospital physician relationships to have significant anti-trust ramifications in the coming year.

‘‘Physicians may be more willing to be employed byhospitals than they have in many years, but in 2010 andfor the foreseeable future, most physicians will remainin private independent practice or as members of grouppractices. While employment creates the financial inte-gration necessary to collaborate on many of theincentive-based arrangements, cooperation betweenphysicians and hospitals will be risky and out of thereach of providers who are not financially integrated,’’Entin said.

‘‘Clinical integration in the absence of financial inte-gration has been gaining acceptance by the FTC andmany consider it critical to the adoption and use of HITas the monitoring and measuring of the efficiency of the

clinically integrated practices is heavily dependent onthe power of computing technology,’’ Entin continued.

‘‘Although clinical integration may not have beenconsidered years ago as a platform for pay-for-performance and other quality improving and incentivebased programs, it does create a platform ideally suitedfor these programs. More organizations, particularlywhere there are strong relationships already betweenproviders in the community will likely be exploringthese opportunities,’’ he said.

Stephanie Kanwit said she was concerned about ef-forts to repeal portions of the McCarran-Ferguson Actthat ‘‘seem to be based on a misperception that some-how health and medical malpractice insurers have been‘immune’ from the federal antitrust laws when, in fact,all insurers are and have always been subject to stateantitrust laws.’’

She also questioned why Congress would want to re-peal those portions of McCarran-Ferguson and createregulatory uncertainty ‘‘that may be counterproductive,in that it may chill efforts that are already underway—such as those proposed to aggregate data across healthinsurers so that physicians aren’t evaluated onlythrough the lens of an individual health plan’s patientpopulation—to benefit providers and consumers.’’

6. Health Information. Board members cited health in-formation as a key Top 10 issue because of the prom-ises it holds to improve quality and achieve cost-containment goals and because of the legal challengesit poses for lawyers throughout the health care deliverysystem. ‘‘No area offers more upside to improved popu-lation health nor is fraught with more thorny legal is-sues’’ than health information, Doug Hastings said.

A number of those issues, according to board mem-bers, will be raised by the Health Information Technol-ogy for Economic and Clinical Health Act (the HITECHAct), enacted as part of ARRA.

The HITECH Act contains several provisions that willaffect providers in 2010. First, the act authorizes a $36billion investment in health information technology(HIT) and health information exchange (HIE). This, ac-cording to Elisabeth Belmont, ‘‘has the potential to fa-cilitate significant change in the health care industrythrough new incentives to adopt HIT and establish HIEto improve the quality and efficiency of health carewhile decreasing its cost.’’

HIT issues ‘‘will rise to the forefront’’ due to the law’sfunding provisions, Toby Singer said. Fred Entin ob-served that ‘‘ARRA certainly has thrown massiveamounts of government support behind the acquisitionand adoption of HIT by physicians and hospitals alike.’’

But Katherine Benesch questioned whether this willbe enough to cover the costs of the ‘‘huge endeavor’’needed to convert physician office record-keeping sys-tems from paper to electronic form.

Jack Rovner seemed to agree. ‘‘ARRA and other gov-ernment financial incentives don’t seem to have yet litmuch of a fire in providers who remain vexed by thecost (regarding technology acquisition, installation, andpractice process disruption), complexity, and generalineffectiveness of the electronic health record ‘solu-tions’ in the market.’’

And, while Kirk Nahra said he sees real possibilitiesin a ‘‘dramatically broadened increase in HIT use andthe exchange of health information,’’ he cautioned that‘‘these efforts are very complicated and very expensive

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and the connection between their cost and any measur-able savings are imprecise at best.’’

Howard Burde said he believes the distribution ofARRA funds to states and providers in itself to raisemany legal issues while Doug Ross said simply thatHIT, ‘‘the supposed ‘glue’ and ‘grease’ that would makepayment reform and delivery system reform possible,will continue as a sinkhole for taxpayer dollars.’’

The HITECH Act also significantly expands HIPAAprivacy and security rules and increases the penaltiesfor HIPAA violations, Belmont said. According to Rich-ard Raskin, health care providers will be busy in thecoming year developing new systems and protocols toensure HITECH compliance.

Mark Kadzielski agreed that HIPAA and HITECH is-sues will become more visible in 2010. And bothStephanie Kanwit and Bob Roth predicted that HIPAAenforcement will become more intense. In particular,focused audits and other enhanced enforcement activi-ties, including criminal investigations, are likely to in-crease in 2010, Raskin said.

One change in the law that caught the attention of al-most all the commentators was the adoption of a newbreach notification rule and its application to ‘‘businessassociates.’’

Belmont explained that the HITECH Act, for the firsttime, imposes mandatory breach notification obliga-tions on HIPAA-covered entities. Under the rule, an en-tity that suspects a privacy breach must notify each in-dividual ‘‘whose unsecured PHI [personal health infor-mation] has been, or is reasonably believed . . . to havebeen, accessed, acquired, or disclosed’’ as a result ofthe breach.

A similar requirement applies to a ‘‘business associ-ate,’’ an entity that ‘‘accesses, maintains, retains, modi-fies, records, stores, destroys, or otherwise holds, uses,or discloses unsecured’’ PHI, Belmont said. Businessassociates now must provide notice to the covered en-tity, including ‘‘the identification of each individualwhose unsecured PHI has been, or is reasonably be-lieved by the business associate to have been accessed,acquired, or disclosed during such breach,’’ she added.

The new act allows providers and other HIPAA-covered entities to ‘‘flex their muscle in their businessassociate agreements’’ because business associatesnow may use or disclose PHI only in compliance witheach applicable requirement of 45 C.F.R. Section164.504(e) and now will be directly responsible for fullycomplying with the relevant requirements of the pri-vacy standards and subject to civil and criminal penal-ties if they fail to do so, Belmont said.

W. Reece Hirsch, with Morgan Lewis & Bockius LLP,San Francisco, predicted that, in the early months of2010, ‘‘there will be an industrywide fire drill to amendthousands of HIPAA business associate agreements tocomply with the HITECH Act requirements.’’ Also, hesaid, ‘‘HIPAA business associates will find it a formi-dable task in 2010 to develop and implement the neces-sary data security compliance programs, obligationscomplicated by a lack of guidance from the relevantagencies.’’

Jack Rovner said he has seen ‘‘few signs that the in-dustry . . . [is] sufficiently prepared or preparing’’ forthe Feb. 17 effective date of the breach notification andbusiness associate rules. However, Stephanie Kanwitsaid she has noted ‘‘efforts by health plans, providers,and clearing houses to implement the updated HIPAA

electronic health care transaction standards, whichhave a Jan. 1, 2012, deadline.’’

Belmont questioned whether these privacy laws gofar enough. She cited a study in which researchers wereable to identify individuals from electronic data thathad been stripped of personally identifying details,‘‘raising questions about whether the newly strength-ened laws governing electronic health records offer in-complete privacy protection.’’

Kadzielski finds the self-reporting provisions trou-bling. ‘‘The self-reporting of privacy breaches man-dated by these new laws does not deter, but rather en-courages governmental investigations and fines,’’ hesaid. ‘‘Health care providers are also caught betweenthe proverbial rock and a very hard place in making dis-closures to patients of their privacy breaches, since pa-tients are less understanding about such errors thanthey are about clinical mishaps.’’

Nahra speculated that pressures on health care pri-vacy could ensure that efforts to implement HIT are‘‘less successful than they could be.’’

In addition to technology and privacy concerns,health care providers should be aware of new restric-tions on the use of health information imposed by thestates. Belmont noted, for example, ‘‘more stringentstate limits on the ability of pharmaceutical companiesand others to use prescription data for marketing pur-poses.’’

Howard Burde added that it ‘‘will be fascinating towatch’’ state creation of health information exchanges.‘‘Every state is busy doing something,’’ he said.

7. Taxation. Board members said they will remain fo-cused on tax issues during 2010 as Congress and stateand federal regulators continue their search for ways todefine, if not quantify, community benefit and charitycare in the exempt hospital context and as the InternalRevenue Service continues to build on initiatives de-signed to obtain and utilize data—on executive compen-sation, excess benefit, governance, and other areas ofconcern—provided through Form 990 filings and IRSinvestigations.

Board members said they also remain concernedabout the effect that economic pressure on stategovernments—whether stemming from Medicaid fund-ing shortfalls or general economic dysfunction—couldhave on the treatment of exempt hospitals under stateproperty tax assessment schemes. Several suggestedthat, depending on the outcome of the Provena Cov-enant case in Illinois, other states could decide to followthe lead of Texas and Pennsylvania in demanding thatexempt hospitals use a set percentage of their revenueto provide charity care.

Mark Waxman said he expects continued scrutiny ofhospital exemption and nonprofit hospital operationsfueled in part by the ongoing interest of Sen. CharlesGrassley (R-Iowa)—and parallel interests at the statelevel—asking, ‘‘What is it that makes an entity tax-exempt?’’

‘‘As state taxation cases and the congressional effortto answer that question proceed, there will continue tobe an interest in charity care and what it means, howmuch must be provided, and how it is counted,’’ headded.

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‘‘If reform passes, it will bring the first

federal tax law change to the

community benefit standard since 1969.’’

T.J. SULLIVAN, DRINKER BIDDLE & REATH LLP,WASHINGTON

Tom Mayo cited the pressure on state and local gov-ernments caused by an increased demand for Medicaidand reduced tax revenues because of the recession.‘‘With or without health reform at the national level,tax-exempt hospitals and health systems will be atempting target for cash-strapped jurisdictions, whichthese days is just about everyone,’’ Mayo said. ‘‘I expectto see continued work on a charity-care requirement atthe federal level. The new Form 990 and Schedule Hthis year are only the beginning of a strong federal pushon governance issues.’’

Gerry Griffith predicted increased IRS scrutiny ofcommunity benefit with whistleblower activity increas-ing significantly in the tax area, focused on excess ben-efit, exemption, and unrelated business income issues.

‘‘State and local tax collectors will increase the pres-sure on hospital tax exemption, including more chal-lenges to ancillary operations and even to core hospitalfunctions based on levels of quantifiable communitybenefit provided, while the IRS, using additional com-pliance checks and audits, will probe further into healthcare executive compensation,’’ Griffith said.

Eric Tuckman said changes in uncompensated carewill require ‘‘community benefit’’ to be redefined. ‘‘Newmetrics will be developed by regulators and public ad-vocacy groups to determine whether nonprofit organi-zations are fulfilling their public purpose while accessto care and the scope of services and programs offeredwill be evaluated to determine if public charitable pur-poses are being met,’’ he said.

T.J. Sullivan said that, while developments on the na-tional stage both in Congress and at the IRS will keeptax law compliance front and center, exemption understate law also will command significant attention fromhealth lawyers.

‘‘It took Nixon to open China. It took a Republicansenator to tighten the standards for hospital tax exemp-tion. If reform passes, it will bring the first federal taxlaw change to the community benefit standard since1969. The proposed changes are basic, but I know acamel’s nose when I see one,’’ Sullivan said.

‘‘The real fear arises when one ponders how the Illi-nois high court, or else the Legislature, will resolve thestate tax exemption issue raised by the Provena Cov-enant litigation. Exemption will be preserved, but I fore-see a third state joining Texas and Pennsylvania withcommunity benefit expenditure standards,’’ Sullivansaid.

‘‘IRS emphasis on executive compensation will con-tinue unabated, and the compensation and communitybenefit worlds will continue to evolve as the data fromthe new Form 990s starts to be analyzed,’’ Sullivan con-tinued. ‘‘From an enforcement standpoint, I have neverseen the IRS as aggressive on nonprofit executive com-

pensation as they are right now, another response toSenator Grassley’s efforts.’’

Michael Peregrine agreed. ‘‘The combination of con-tinued pressure on the rebuttable presumption of rea-sonableness under Section 4958 and the carry over ofthe executive compensation examination matters refer-enced in the 2009 IRS Hospitals Report will combine toproduce a noticeably more aggressive IRS posture interms of intermediate sanctions on excess compensa-tion payments,’’ Peregrine said.

‘‘Simply because Grassley’s amendment on the re-buttable presumption did not find its way into thehealth reform package (to date) doesn’t mean that thethought behind it—that there have been unintendedconsequences to its application—is going away,’’ Per-egrine continued. ‘‘For that and similar reasons, I fore-see state charity officials being particularly aggressivepursuing instances of perceived excess executive com-pensation, particularly in situations where the IRS isconstrained to act because the organization has estab-lished the rebuttable presumption.’’

Elisabeth Belmont said she, too, expects 2010 to be ayear in which health care providers will see develop-ments in the standards and operations for tax-exempthospitals, particularly in the area of community benefit.

‘‘Regardless of the ultimate content and fate of com-munity benefit legislation and ongoing litigation in thestates, one can see a rapid evolution at work, beginningwith the Catholic Health Association’s voluntary guide-lines for informational uniform community benefit re-porting to the mandatory disclosures on Schedule Hwith mixed information and enforcement goals and,likely soon, some form of quantitative rules for commu-nity benefit that will alter the substantive standard un-der Section 501(c)(3) for health care organizations,’’Belmont said.

Peregrine said governance issues also would be a sig-nificant focus of the IRS in 2010. ‘‘My expectation isthat the agency will become more vocal in identifyingproblematic governance practices that are identified inthe course of the examination process,’’ he said.

‘‘I don’t think they’re training their examinationagents on corporate governance issues just to broadentheir minds. While IRS is highly unlikely to raise poorgovernance practices to exemption-level concern, myexpectation is that any particularly problematic prac-tices they identify will be brought to the sector’s atten-tion,’’ he said.

Griffith agreed that good governance will become amore direct tax issue as IRS audits step up scrutiny ofgovernance practices and the agency begins miningdata from the new and expanded Form 990 to design fu-ture audit and compliance initiatives.

Sullivan also agreed. ‘‘Who would have thought theIRS would join the SEC and state attorneys general incracking the whip for good governance? Nonprofithealth care organizations may wince, but I think whathas happened—in contrast to what was threatened bythe Senate Finance Committee—has been measuredand good for nonprofits, including both boards and ex-ecutives,’’ Sullivan said.

‘‘This trend is not going to peter out. Increased re-porting and disclosure requirements will continue toimprove governance, and as best practices evolve andare adopted broadly, the whole sector benefits. We allshould keep a keen eye on 2010, Senator Grassley’s lastyear as ranking member on the Finance Committee, as

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improved nonprofit governance may be his most cher-ished legacy,’’ Sullivan concluded.

8. Health Plan Regulation. Most advisory board mem-bers agreed that health care reform is the driving forcebehind changes in health plan regulation that are likelyto surface in the coming year. In fact, Kirk Nahra saidthat ‘‘to the extent that ‘health care reform’ turns out tomean ‘insurance reform,’ this may end up being the big-gest issue over the next few years.’’

Nahra said a key question is whether health care re-form will ‘‘leave a viable health insurance system.’’ Ifreform eliminates limitations on coverage for pre-existing conditions or health care underwriting, butdoes not expand the pool of potential insurers, ‘‘howwill health insurers (and the employers who foot muchof the bill) possibly control their costs?’’ he asked. Mak-ing insurers ‘‘the bad guy’’ in the health reform debate‘‘will undercut one of the key pillars of our currenthealth care system,’’ he added.

Vickie Yates Brown called health plan regulation‘‘one of the most significant issues contained within anyof the health care reform legislation,’’ and Toby Singeragreed that ‘‘more attempts to regulate health plans’’will grow out of health reform measures.

T.J. Sullivan said health plan regulation will followany health reform legislation, bringing ‘‘many newly in-sured patients to providers, who will be nearly as grate-

ful for an expanded market as will the drug compa-nies.’’

But whether increased federal regulation of healthplans will stimulate competition among plans ‘‘remainsto be seen,’’ he said. Further consolidation of the mar-ket is possible, but Sullivan said he does not foreseemore conversions by nonprofits to for-profit insurers.‘‘Today’s remaining nonprofit plans are true believers,’’he said, ‘‘and, depending on the public option compro-mise chosen, their ranks might even increase.’’

Mark Waxman said changes in plan regulation madeas part of health care reform are leading toward pro-vider integration that will bring about an evolution inboth plan-provider relationships and provider-providerrelationships. ‘‘The current view,’’ he said, ‘‘is that thesystem is headed back to a capitated, or modified capi-tation, approach to plan-provider contracts.’’

Doug Hastings said health plan regulation will be amajor issue for 2010 regardless of the passage of reformlegislation. ‘‘The challenge will be to match state or fed-eral mandates to expand access with the ability to de-liver more cost-effective care. Systems of integratedcare that coordinate the payment function with the de-livery function . . . appear to have advantages as com-pared to payers and providers who negotiate in an ad-versarial manner,’’ he said.

The Health Law Reporter Editorial Advisory Board Looks Beyond 2010

Many board members said uncertainties surrounding health care reform left their crystal balls hazy oreven opaque this year, though many doubted reform would address, much less solve, the myriad challengesfacing the U.S. health care system.

Kirk Nahra and Vickie Yates Brown said issues left unresolved and necessary adjustments to those ad-dressed in rules and legislation will be a recurring focus. Bob Roth agreed. ‘‘If broad reform is not enacted,the debate about it will dominate. If, however, broad reform is enacted, there will be a plethora of spin-offquestions, not the least of which will be how the system will provide access to millions of new insureds, whowill almost certainly consume more health care services than they did when they were uninsured,’’ Roth said.

Those board members able to see through the haze suggested the following areas could come into play inthe next three to five years:

Biologics and Genomics. Doug Hastings said that over the next five years potential breakthrough develop-ments in biologics and genomics could create great new treatments but also very complex legal issues re-lated to FDA approvals; patent protection; coding, coverage, and payment; and privacy and security.

HIT Implementation. Hastings also cited ‘‘connected health,’’ in which traditionally non-health care focusedIT and consumer electronics companies seek to develop health care products for consumers, triggeringhealth regulatory, government contracts, and FDA issues. Brown cited issues stemming from enactment ofthe HITECH Act that, along with the ensuing regulations and guidelines, will significantly expand the pri-vacy and security portion of HIPAA for years to come.

Globalization. Fred Entin pointed to the increasing globalization of health care. ‘‘Millions of patients acrossour borders are a market too lucrative to ignore so U.S. providers will continue the trend of the last few yearsof investing in, affiliating, managing, and establishing operations abroad,’’ he said. ‘‘At the same time medi-cal tourism, or the treatment of U.S. patients in settings outside of the United States may accelerate and willcertainly be widespread within five years. The next step in the evolution of ‘medical tourism’ will be the in-clusion of an option in health benefit plans to travel abroad for care,’’ he predicted.

ERISA Reform. John Blum predicted that health reform will require a re-examination of ERISA and the con-tinued application of the preemption doctrine both for purposes of determining liability for costs of patientcare and with respect to initiatives to launch health insurance coverage reforms similar to those undertakenin Massachusetts and San Francisco.

Medicare Enforcement. Roth said the Obama administration’s regulatory and enforcement priorities forMedicare and other government health insurance programs also will be important to watch over the nextthree to five years. Sweeping changes to the Medicare program in the health reform bill, coupled with FERAon the federal level and the continued enactment and growing use of state false claims statutes, will causeenforcement to expand significantly in the years ahead, he said.

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9. Medical Staff. Advisory board members said thehottest trend of 2010 in the medical staff arena will bethe growing use of hospital-employed physicians. Ac-cording to Gerry Griffith, the expected growth willcome, at least in part, because of hospital acquisitionsof physician practices and the formation of integratednetworks.

T.J. Sullivan agreed. ‘‘Hospital-physician alignmentand employment arrangements will continue to grow ina difficult economic and regulatory environment, andwhile most of the ideas are recycled, hospitals and phy-sicians will try to work together again to protect theirincomes,’’ he said.

Howard Wall said that the ‘‘surge in hospital employ-ment of physicians and an abandonment of the inde-pendent practice model’’ by new doctors may increasethe odds of success for ideas like clinical integration. Hepraised the ‘‘opportunities for cooperation and collabo-ration’’ that are coming out of the health reform move-ment.

Vickie Yates Brown echoed Wall’s comments, andadded that implementation of changes required by thehealth reform movement could lead to the formation ofaccountable care organizations to measure qualityand/or productivity.

But Doug Ross sounded a cautionary note, sayingthat an increase in employed physician arrangementscould lead to an increase in litigation against hospitalsfor violating the corporate practice of medicine doc-trine. ‘‘As hospitals and physicians align more, andgiven the unsettled nature of this doctrine in manystates, expect more attention here,’’ he said.

Mark Waxman said another area in which hospitalsneed to tread cautiously is physician discipline. ‘‘Behindevery attempt to address quality in the medical staffarena lurks a potential whistleblower defense,’’ he said.‘‘Hospitals and large groups that attempt to push pro-viders to improve their quality and responsiveness faceincreasing ‘counter-threats’ from physicians who mayfeel they were subjected to quality challenges becausethey were concerned about patient quality or allegedlywere unaware of inappropriate inducements for refer-rals.’’

‘‘This challenge makes the medical staff disciplinaryeffort harder than ever,’’ Waxman said. ‘‘Yet, its effec-tiveness is critical to the improved functioning of themedical staff and the hospital.’’

Mark Kadzielski agreed with Waxman that ‘‘peer re-view issues will be fought harder as physicians and oth-ers struggle to keep their livelihood.’’

10. Labor and Employment. Advisory board membersalso predicted that labor and employment law issueswill re-emerge as a hot topic in the coming year. MarkWaxman described this area as ‘‘undergoing a rebirthof interest,’’ while Toby Singer said that, given the newadministration, she expects these issues to get evenmore attention.

Doug Hastings said that traditional labor law issues—such as union-management relations—‘‘will be very im-portant and visible in 2010.’’ Add in the implications forhealth care workers in the health reform bills, the highunemployment rate, the trend toward employed physi-cians, and continued staffing shortages ‘‘and you havethe elements of a very robust year in health care laborand employment,’’ he said.

Legal problems brought on by labor shortages in thehealth care arena are on the minds of several boardmembers. T.J. Sullivan said localized shortages maygrow worse as health reform passes, while Doug Rosspredicted that shortages could lead to conflicts betweennurses and other paraprofessionals.

Two board members, Fred Entin and Howard Wall,commented on the proposed Employee Fair Choice Act(EFCA). Wall said the health reform debate has ‘‘movedthe card check legislation to the back burner’’ and thatmany doubt there are enough votes in the Senate tobring the proposal to the floor.

But Entin said that a number of unions that recentlyhave made inroads into the health care professions ‘‘ap-pear to be waiting for the passage of the act before theykick into serious action.’’ These organizations, alongwith the nurses’ unions, ‘‘are likely to become more ac-tive once the details of the EFCA are known,’’ he said.

Mark Kadzielski added that the ‘‘recent consolidationof nursing unions and the aggressive activities of otherhealth workers’ unions will cause further stresses onthe health care system in 2010.’’ He predicted that moreissues, like union challenges to mandatory H1N1 vacci-nations, will be hard fought.

Waxman said he foresees a rise in wages and hourslitigation, as well as in traditional union activities. Pro-viders should review their policies and state and federalrules on joint employment, independent contractors,and related issues, he said.

Elisabeth Belmont added another potentially hot la-bor and employment issue to the list for 2010: employerliability for postings made by employees on social me-dia sites, such as Facebook, Twitter, and YouTube.

‘‘Although social networking sites can be powerfulbusiness tools, they also carry risks, including inadvert-ently disclosing corporate trade secrets or engaging inbehavior that can harm a company’s reputation,’’ shewrote. ‘‘Health care providers need to consider how em-ployee social networking affects their corporate policieson confidentiality, trade secrets, proprietary informa-tion, product or service introductions, discrimination,harassment, and other issues.’’

Belmont suggested that health care employers warnemployees that workplace conduct rules apply online,determine what online activities they should permit orprohibit in the workplace, and consider the extent towhich they can impose controls on non-workplace so-cial networking.

Honorable Mention: Public Health. Several board mem-bers pointed to the H1N1 flu pandemic and its implica-tions for health lawyers, hospitals, and communities asillustrating the increasing importance of public healthissues and as a reason to rank this topic in the Top 10.

Elisabeth Belmont said concern over public healthpreparedness remains high despite some signs that in-fluenza activity may not reach the level some havefeared. ‘‘Nevertheless, most H1N1 indicators remainhigher than normal for this time of year and there is acontinuing concern about virus re-assortment thatmakes emergency preparedness a continuing focus forhealth care providers in 2010,’’ Belmont said.

‘‘Researchers in Vietnam have reported a cluster ofseven cases of pandemic H1N1 flu that were resistant tothe antiviral drug oseltamivir (Tamiflu). This shows thatresistant 2009 H1N1 viruses are transmissible and can

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replicate and cause illness in healthy people in the ab-sence of selective drug pressure,’’ she noted.

‘‘Providers in 2010 will continue to wrestle with is-sues such as protection of employees and maintainingoperations, implementation of altered clinical path-ways, and public health and provider coordination thatneed to be addressed at the present time to ensure anadequate level of preparedness,’’ Belmont continued.

‘‘Because major disasters occur infrequently, healthcare organizations may be ill-equipped to evaluate ma-jor strengths and weaknesses of their programs andshould, therefore, implement quality metrics to developperformance measures in emergency management,’’she said.

‘‘Hospitals should also be encouraged to study thetimes when their emergency departments experienceextreme volume and demand for services, which arecommonly ignored as outlier periods,’’ she added.

According to Belmont, the Trust for America’s Healthand the Robert Wood Johnson Foundation have said theeconomic crisis is jeopardizing the nation’s ability tohandle public-health emergencies and possible bioter-rorist attacks. ‘‘In addition, federal and state govern-ments that are under financial duress are cutting pro-grams that help communities respond to disease out-breaks, natural disasters, and bioterrorism incidents,which could negatively affect future preparedness mea-sures.’’

‘‘There is a significant risk that health care providerswho fail to take adequate preparedness steps, even inthe midst of the current economic crisis may be held li-able,’’ she said, adding, ‘‘As Judge Learned Hand notedin The T.J. Hooper, 60 F.2d 737 (2d Cir. 1932), ‘Thereare precautions so imperative that even their universaldisregard will not excuse their omission.’ ’’

Howard Wall, agreed, noting that the Institute ofMedicine ‘‘has declared that the nation’s system ofemergency care is in crisis and is less able to withstanda major natural—Hurricane Katrina—or manmade—911—disaster than it was in 2001.’’ In addition, the Cen-ter for Studying Health System Change has reportedthat the shortage of specialists to provide call coveragein the nation’s emergency departments threatens notonly patients’ access to high quality emergency care inlocal communities, but also adverse patient outcomes,he said.

Doug Ross said public health could be a health law‘‘wild card’’ in 2010. ‘‘I foresee the possibility of investi-gations, litigation, and legislative response to a varietyof issues arising from HHS missteps concerning theH1N1 vaccine, Ross said. ‘‘However, if the flu never be-comes the calamity some fear (Y2K anyone?) then weall may skate on this one,’’ he added.

BY SUSAN CARHART, MARY ANNE PAZANOWSKI,AND PEYTON M. STURGES

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