PIN NUMBER: ___________________

Health Care Law
Prof. Mayo

FINAL EXAMINATION

December 19, 2000
Three hours

1. Be sure to place your exam number/PIN number on all blue books and on this exam booklet.
2. This is a three-hour, open-book examination. You may consult only the assigned texts (casebook, supplement), class handouts, your class notes, and your own outline (including an outline that you prepared with your study group, if any).
3. The exam consists of one essay question with five parts.. All parts should be answered in a bluebook.
4. If you believe that insufficient facts are provided in order to resolve an issue, identify explicitly those additional facts that would be necessary for your analysis.
5. If you are going to graduate in December 2000, please indicate that on the cover of your first blue book.
6. Please number your blue books "1 of 3", "2 of 3," "3 of 3," e.g.
7. When turning in your exam pamphlet and blue books, please stuff them one inside the other, rather than turning them into the box all loose and messy.
8. At the end of the exam, please:

&turn in all blue books that contain your answers;
&turn in this exam pamphlet; and 
&sign the sign-out sheet at the front of the room.

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Question I
3 hours

Sister Kate, the top administrator at Sisters of Perpetual Responsibility, a local non-profit, tax-exempt hospital in Yertown, Texas, has called you for advice concerning a group of anesthesiologists ("Yertown Anesthesiology Partners, LLP," or "YAP") that has the exclusive contract with Sisters to provide anesthesia services throughout the hospital, including the surgery, labor and delivery, and emergency departments. With respect to the questions that follow, be responsive to the question asked and explain your answers fully.

A. (30 minutes)

The head of YAP has recently informed Sister Kate that, effective January 1, 2001, YAP will no longer provide epidural anesthesia to any woman who comes to the hospital to deliver her baby unless she has previously completed an "anesthesiology consultation" with the group. The reason he gave is that the YAP physicians do not believe a woman in active labor is capable of giving truly voluntary and informed consent to anesthesia. Sister Kate is dubious about the informed-consent issue, but she feels well informed on that subject and does not need your assistance. She has asked you, however, if the proposed policy has any other legal problems that she can raise when she discusses it with the head of the anesthesiology group. (i) What are the legal problems you see and (ii) how serious do you think they are?

B. (30 minutes)

The proposed policy concerning epidurals is not the first "red flag" that has arisen in connection with the YAP anesthesiology group. There have been questions about the quality of care they provide (although the questions have never been proved in any peer review setting), and surgeons and nurses have complained that a couple of the YAP anesthesiologists are rude and inappropriate in their behavior toward members of the medical and nursing staffs. Sister Kate is thinking about canceling YAP's exclusive contract and replacing them with Anesthesiologists of North Texas ("ANT"), another anesthesiology group that has recently contacted her.

The contract between YAP and the hospital provides for termination for cause (without prior notice), as well as termination without cause (on 60 days' notice). "Cause" is defined in the contract as "any reason related to the quality of care provided to patients or to any other practice issues that may affect the health or safety of patients." The contract also provides that termination of the contract will result in concurrent revocation of the medical-staff privileges of all YAP physicians. The hospital's medical-staff bylaws provide for elaborate due-process safeguards in connection with peer review activities that could lead to any limitation or revocation of staff privileges.

The head of YAP has heard about the offer of ANT, the other large anesthesiology group in town, to take over anesthesia services at Sisters of Perpetual Responsibility and has threatened legal action. He believes that termination of YAP's contract and revocation of YAP physicians' staff privileges would be actionable under both state law (breach of contract) and federal law (antitrust and civil rights: most of the physicians in YAP are graduates of foreign medical schools and are members of minority groups defined by race, ethnicity, or national origin). He says he is confident he can get declaratory and injunctive relief from the local courts and adds: "If you don't watch your step, Sister, you'll be paying us monetary damages until the Texas Rangers win the World Series ." Sister Kate says she understands that he means the hospital will be paying damages forever, even with the Rangers' recent signing of Alex Rodriguez ("A-Rod") for $252 million.

Sister Kate has two questions for you:

(i) Are the physician members of the anesthesiology group entitled to due process hearings before their staff privileges are revoked?

(ii) Does the Health Care Quality Improvement Act provide the hospital any immunity if the hospital revokes the physicians' staff privileges and they bring the state and federal claims described in their threat to Sister Kate?

C. (60 minutes)

Sister Kate also wants guidance in dealing with ANT, the rival anesthesiology group that has contacted her with a proposal to replace YAP, also on an exclusive basis. She does not feel she is in a great negotiating position in dealing with ANT, because they include most of the non-YAP anesthesiologists in town and all of the non-YAP obstetrical anesthesiologists and because she might need their services on very short notice. ANT's proposal is as follows:

1. The group would provide all coverage for anesthesia services within the hospital around the clock and every day of the year. It would schedule the work, vacations, etc. for all nurse-anesthetists and other technicians, all of whom are hospital employees. The group would also establish all anesthesia policies and protocols, supervise and evaluate them on an on-going basis, conduct quality-assurance and utilization-review activities for the anesthesiology department, and provide a department chair and assistant chair who would report to the medical staff and the administration of the hospital.
2. The hospital would provide hospital-based office accommodations and clerical-staff support to ANT physicians, who in turn would agree not to rent their own private office space off-campus and not to see private patients other than those who come into the hospital for procedures requiring anesthesia or for out-patient pain-management treatments. The ANT physicians would be charged for the office space and the clerical staff on a cost-plus basis. ANT's negotiator has indicated that ANT is willing to be "very generous" in the amount of office space covered by the lease and "more than generous" in the amount of lease payments for the premises. Sister Kate thinks this represents a good opportunity to turn a lot of underutilized office space into an income-generating asset.
3. The hospital would provide private-practice income guarantees for all physicians in the ANT group for five years, at a guaranteed level that is higher than any of the YAP physicians currently earn. Any funds advanced by the hospital as part of the income guarantee would be in the form of interest-free loans that do not have to be repaid unless and until, during the five-year period, the individual physician makes his or her guaranteed level of private-practice income for twelve consecutive months.
4. ANT proposes to run the hospital's pain-management clinic, as well. It claims that it can reduce the operating expenses of the clinic by 20% the first year of operation without any reduction in operating revenues. If it achieves these benchmarks and certain other quality assurance benchmarks as well, ANT proposes to split the increased profits of the clinic with the hospital on a 50-50 basis.

(i) Advise Sister Kate as to the legal implications of the proposal from the ANT group and, (ii) if possible, propose changes to the contract that would lessen the legal risk to the hospital.

D. (30 minutes)

Sister Kate has also asked for your advice on another YAP matter. One of the YAP physicians has been sued for a patient death during surgery, allegedly caused by the anesthesiologist's negligence. The hospital has also been named as a defendant, although the complaint alleges no breach of duty by the hospital or by one of its employees.

As alleged in the complaint, the anesthesiologist is hospital-based and has no outside medical office. Anesthesiologists are selected by the hospital (i.e., pursuant to the exclusive contract with YAP), although individual anesthesiologists are selected by each surgeon for each surgical case. There are no signs in the operating room stating that anesthesiologists are independent contractors, nor was that fact disclosed by the informed consent form for anesthesia, which the patient signed before surgery. The financial responsibility form, which the patient also signed, indicated that she would be billed separately for the hospital's services, the surgeon's services, and the anesthesiologist's services, but the form did not state explicitly that the anesthesiologist was an independent contractor, that the anesthesiologist was not the employee of the hospital, or that the anesthesiologist was an employee of YAP.

(i) Sister Kate asks whether it would be worth the hospital's time and money to move for summary judgment on the vicarious liability claim. (You immediately recall from first-year civil procedure that, for purposes of deciding a defendant's summary judgment motion, the judge is required to assume that all allegations in the complaint are true.) (ii) She also wants to know whether ERISA provides any protection from the claim, because the decedent received health benefits through his employer's self-insured employee benefit plan.

E. (30 minutes)

Finally, Sister Kate tells you that Sisters of Perpetual Responsibility has been sued by its former chief financial officer pursuant to the civil False Claims Act, 31 U.S.C.A. § 3730 (partially set out in the casebook at pp. 586-87). The CFO alleges that, pursuant to his instructions, the hospital's billing office routinely upcoded Medicare DRGs in connection with its neurosurgery patients. He also alleges that for many years the hospital has made payments to a local group of cardiologists in order to induce referrals of Medicare patients (and he acknowledges that he set up the payment system and personally falsified the financial records to cover up the payments). Sister Kate believes the allegations may be true, but she denies that inappropriate or unnecessary care was ever provided to a patient in her hospital. She also observes that the allegations as to upcoding do not apply to the services provided to patients admitted to the hospital by the cardiologists.

Sister Kate wants to know (i) if the perpetrator of these illegal schemes really has the right to turn around and blow the whistle on the hospital, (ii) if the hospital can be liable under the statute for providing good, quality care to its cardiology patients at no additional charge to the Medicare program, and (iii) whether the CFO can pursue his claims on behalf of the government even if the Justice Department declines to join the case (as she recently heard had occurred).

Examination ends here