PIN/EXAM NO.:                              

1. Place your PIN/Exam Number on this page and on the outside of all blue books.

2. This is an open-book exam. You may bring into the exam room the assigned casebook, class handouts, your class notes, printouts of the class listserv discussions, and your outline, including any outline that may have been prepared jointly with other members of the class.

3. The exam consists of both essay and multiple-choice questions. All answers should be written in the blue books (or typed into your word-processor).

4. The relative worth of each question is indicated by the time suggested for each. Part I consists of 5 essay questions totaling 2.5 hours. Part II consists of true/false and multiple-choice questions; suggested time for this part is 0.5 hours. You may use the extra half-hour as you see fit. I strongly recommend reading the exam all the way through before you start writing.

5. Be explicit about any assumptions, additional facts, and the like that form the basis for your answers.

6. This exam booklet must be returned with your bluebooks at the end of the exam period.

The defendants Center Clinic Association, P.C. ("Center"), Health Alliance Medical Plans, Inc. ("HAMP"), and Center Health Insurance Management Co., Inc. ("CHIMCO"), operate a pre-paid health insurance plan that provides medical and hospital services. Center is a multispecialty group practice that employs all of its physicians. HAMP is a managed care organization that is owned and controlled by Center and Center physicians. CHIMCO is also owned and controlled by Center and Center physicians. It provides marketing and management services to Center, HAMP, and various other entities owned and controlled by Center physicians through Center.

The plaintiff, Carole Herman ("Herman"), was covered under a plan subscription through her husband's employer, Fireman's Fund Insurance Company, an Illinois corporation. In March of 1991, Herman's appendix ruptured as the result of alleged improper medical treatment while she was in the care of defendant Dr. Laura Price ("Price"), a physician who practiced under the plan. 

On March 1, 1991, Dr. Price examined Herman and acknowledged that Herman was experiencing pain in the midline area of her groin. Six days later, March 7, Dr. Price discovered a six-by-eight-centimeter inflamed mass in Herman's abdomen. In spite of the fact that Herman's appendix was noticeably inflamed on March 7, Price required her to wait eight more days before undergoing the necessary diagnostic procedure (ultrasound) at a Center-staffed facility more than fifty miles away in Urbana, Illinois, rather than allowing the procedure to be performed at her local hospital in Bloomington, Illinois. It was during this eight-day waiting period that Herman's appendix ruptured, resulting in peritonitis.

Herman filed a complaint against Laura Price, M.D., and Center Clinic Association. Counts I and II of the plaintiff's complaint were based upon a theory of professional medical negligence in failing to provide her with timely and adequate medical care. Counts III and IV alleged state-law fraud against Center and Health Alliance Medical Plans, Inc. Specifically, in count III Herman asserted that Center Clinic violated the Illinois Consumer Fraud Act by failing to disclose certain material facts regarding the ownership of HAMP, as well as failing to advise her that the compensation of plan physicians was increased to the extent that they did not order diagnostic tests, utilized facilities owned by those physicians, and did not make emergency or consultation referrals. Count IV alleged that HAMP breached its duty of good faith and fair dealing by increasing its profits and the profits of its contracted physicians through minimizing the use of diagnostic tests, emergency consultation referrals, and facilities not owned by such physicians, all to the detriment of plan beneficiaries.

The defendants, in response, contended that the Employee Retirement Income Security Act of 1974 preempted Herman's claims and removed the case to federal court. They subsequently filed a motion for summary judgment as to counts I, II, III, and IV.

How should the district court rule on the defendants' motion for summary judgment?

Regardless of your answer to Part A., assume that Herman has been given leave to amend her complaint to add a new count. In it, she averred that the Center physicians (individually and through Center) breached their duty by depriving plan beneficiaries (such as Herman) of proper medical care and retaining the resulting savings for themselves. Specifically, the new count alleged, in relevant part, as follows:

The defendants thereafter moved to dismiss Herman's new count for failure to state a claim upon which relief could be granted.

(1) How should the district court rule on the defendants' motion to dismiss?

(2) If the new count is not dismissed, what remedies would Herman be entitled to if she prevails on this count?

Question II (1 hour)

Redlands Health Systems (RHS) is a § 501(c)(3) corporation that has three corporate subsidiaries: Redlands Community Hospital (Hospital) and Redlands Community Hospital Foundation (Foundation) (both tax-exempt corporations), a for-profit subsidiary (Redlands Health Services), and Redlands Surgical Services (RSS). Part A of Question II concerns Hospital and Foundation, while Part B concerns RSS.

Redlands Community Hospital (Hospital) is located in the city of Redlands, a medium to large size metropolitan area. Hospital requires a minimum of four oncologists (physicians who specialize in the treatment of cancer) to ensure adequate coverage and a high quality of care for its medical oncology department. Two of the four oncologists currently providing coverage for Hospital are relocating to other areas. Hospital initiates a search for oncologists and determines that one of the two most qualified candidates is Dr. Robert P. Warren.

Dr. Warren is currently practicing in Redlands as a member of the medical staff of Mothers of Invention Hospital (MIH), which is located in Redlands. Dr. Warren is not on Hospital's medical staff. Hospital recruits Dr. Warren to join its medical staff and to serve as assistant medical director of the medical oncology department. Hospital proposes to offer Dr. Warren a recruitment incentive package pursuant to a written agreement, negotiated at arm's-length and approved by the Hospital board of directors. Hospital would not provide any recruiting incentives to Dr. Warren other than those set forth in the written agreement.

Pursuant to the agreement, Hospital would guarantee Dr. Warren's private practice income for the first three years that Dr. Warren is a member of its medical staff and provides coverage for its medical oncology department. The net income amount guaranteed falls within the range reflected in regional or national surveys regarding income earned by physicians in the same specialty. In connection with the assistant directorship, Hospital would pay Dr. Warren on a quarterly basis, with the amount paid determined by the number of hours Dr. Warren has put into the job, which varies depending upon patient census, the availability of the director of the department, and the incidence and intensity of controversies that require resolution by the assistant director.

You are the hospital's general counsel. Evaluate the recruitment package and the terms of the assistant director's position in light of relevant federal law.

In 1990 RHS became cogeneral partner with a for-profit corporation, Redlands-SCA Surgery Centers Inc. (SCA Centers), in a partnership formed to acquire a 61 percent general partnership interest in an outpatient surgical center. SCA Centers is a subsidiary of Surgical Care Affiliates Inc. (SCA). SCA Management, a for-profit affiliate of SCA Centers, managed the center's day-to-day operations. RHS contributed $1.12 million to the general partnership and received a 46 percent interest in profits, losses, and cash-flows of the general partnership; SCA Centers contributed $1.95 million to the general partnership and received a 54 percent interest in profits, losses and cash flows. The general partnership then paid almost $3 million to acquire its 61 percent interest in the limited partnership that owned the outpatient surgical center. RHS formed RSS to succeed to its partnership interest as cogeneral partner.

RSS filed a Form 1023, Application for Recognition of Exemption, with the IRS in August 1990. The application included the following disclosures:

• the general partnership agreement between RSS and SCA Center expressly obligated SCA Centers (and its successors and assigns) to put charitable objectives, which are specified and identified in the partnership agreement, ahead of noncharitable ones;

• after the general partnership acquired its 61 percent interest in the surgical center, the surgical center's partnership agreement was amended to reflect that it would be operated for charitable purposes (after years of being successfully operated as a for-profit enterprise that never held itself out as a charity);

• RSS appointed two representatives to serve as managing directors of the general partnership, and SCA Center appointed three; thus, RSS lacked formal voting control over the general partnership;

• as to "major matters" that affect the ability of the partnerships to operate the surgical center for charitable purposes, RSS' managing directors were given effective veto power in the form of an 80 percent voting requirement;

• the operating partnership entered into a 15-year management contract with SCA Management, renewable at the sole discretion of SCA Management for two five-year periods on the same terms; pursuant to the contract, SCA Management was to be paid fees totaling 6 percent of the surgery center's gross revenues each month, plus direct expenses; and

• the operating partnership agreement calls for the creation of a six-member Medical Advisory Group to make all decisions about care and treatment of patients and other medical matters, including the implementation of a quality assurance program; four members of the Medical Advisory Group are to be appointed by RSS, and two members are to be limited partners chosen by majority vote of the limited partners themselves.

How should the IRS rule on RSS' application for tax-exempt status?

Question III (1 hour)

Question III consists of a series of multiple-choice questions. Choose the best option offered and WRITE YOUR CHOICE INTO THE BLUE BOOK, followed by a brief (100 words max.) explanation. Correct choices receive 3 points, and explanations will receive up to 7 points, for a total of 10 points (max).

1. Consider the following three statements:

A.  States may not force employers to purchase health insurance.
B.  States may not require self-insured employers to cover mental health services.
C.  States may not regulate the rates that hospitals charge self-insured employers.  

Choose the most correct option:

a. Only A is correct.

b. Only A and B are correct.

c. Only A and C are correct.

d. Only B and C are correct.

e. A, B, and C are correct.

Explain (in 100 words or less).

2. Bruce is undergoing chemotherapy following cancer surgery. He has been covered under his group health plan for sixteen years. He is about to change employment from Oldco to begin work with Newco. Newco's group health policy has a six-month waiting period and a 12-month exclusion for pre-existing conditions. If there were no breaks in coverage under Bruce's old plan, and if he enrolls in Newco's plan as soon as he is eligible, Newco's plan may refuse to pay for Bruce's cancer treatments for how long?

Choose the most correct option:

a. 6 months

b. 12 months

c. 18 months

d. Newco's plan cannot exclude coverage for Bruce's cancer treatments.

e. None of the above.

Explain (in 100 words or less).

3. Same facts as Question 2, except Bruce wants leave Oldco on June 30 and take a two-month break between jobs to get his strength back before starting his employment with Newco on September 1. His new supervisor at Newco suggests that Bruce start work after Labor Day, which falls on September 6 this year. Bruce accepts the supervisor's suggestion.

Choose the most correct statement:

a. Bruce's decision will have no effect on his ability to obtain payment from Newco's plan for his ongoing cancer treatments.

b. If Bruce elects COBRA continuation coverage from Oldco for the period July 1 to September, Newco's plan will not be able to deny payments for Bruce's cancer-related treatments after September 6.

c. Bruce is not eligible for COBRA continuation coverage after September 6.

d. If Bruce makes a timely election of COBRA continuation coverage for the maximum period allowed by law, there will still be a gap in coverage between Oldco's plan and Newco's plan.

e. If Bruce wants to avoid any gap in coverage (taking into account exclusions and limitations available to Newco's plan), he will need to elect COBRA coverage from July 1 to March 6 of the following year.

f. None of the above statements are correct.

Explain (in 100 words or less).

4. John Jones severely lacerates his hand and arm while cutting wood on a circular saw for his daughter's science fair project. He wraps his hand and arm in a towel and drives himself to the PrimaCare office nearest his home. PrimaCare is a stand-alone, "doc-in-a-box" primary-care medical office owned and operated by Angels of Mercy Hospital, which is located ten miles away from this PrimaCare office. Dr. Green, who moonlights at the clinic to help pay her law-school tuition bills, sees Jones immediately and determines that his blood loss is so severe that Jones is at substantial risk of losing his arm unless surgery to revascularize his arm is performed immediately. She also knows that she is not qualified and the PrimaCare office is not equipped to perform the surgery. Dr. Green calls Angels of Mercy for an ambulance, which the hospital immediate dispatches to the clinic. While the ambulance is in transit to PrimaCare, the dispatcher learns that Jones has no health insurance and radios the driver with instructions to take Jones to the local county hospital for his surgery.

Choose the most correct answer:

a. As long as Jones is not a Medicare beneficiary, the hospital has not violated EMTALA.

b. The hospital's EMTALA obligations began the moment Jones arrived at PrimaCare and requested treatment.

c. If all of the hospital's ambulances were on other calls and the hospital dispatcher requested a commercial ambulance from Blue Moon Ambulance Co. to pick up Mr. Jones, the dispatcher's instruction to take Jones to the public hospital would not constitute a violation of EMTALA.

d. Even if the hospital sends one of its own ambulances to take Jones from the PrimaCare office to the public hospital, there is no EMTALA violation on these facts.

e. More than one statement is correct.

f. None of the statements is correct.

Explain (in 100 words or less).

5. Dr. Richard Wilbur has been a member of the medical staff of Springfield Medical Center, a nonprofit, tax-exempt hospital, for 15 years. The hospital has long been critical of Wilbur's extravagant practice style, which the hospital assets exceeds the average costs for care of all other physicians on their staff. Recently the hospital recruited a young physician right out of his residency program and has high hopes that the young physician will be a cooperative and profitable participant in managed care contracts that will be negotiated by the hospital PHO. 

Meanwhile, the hospital has given Dr. Wilbur notice that it is initiating proceedings in accordance with the medical staff bylaws to terminate his staff privileges, citing Wilbur's refusal to serve on medical staff committees, certain unflattering remarks about the hospital's management that were attributed to him in the local newspaper, and his generally disagreeable manner with administrators, nurses, and other members of the medical staff. Wilbur believes the true motivation for his loss of privileges is economic. 

By the end of the year, after all procedures required by the medical staff bylaws have been completed, the hospital board approves the recommendation of the Review Panel of the medical staff and votes to revoke Wilbur's privileges. Wilbur sues the hospital, the medical staff, the members of the medical staff Executive Committee and Review Panel, and the board of directors in federal court, alleging violations of the antitrust laws, as well as violations of numerous state unfair competition laws and defamation, and seeks monetary damages and reinstatement of his medical staff privileges.

Choose the most correct statement:

a. The hospital's immunity under federal law will shield it from some, but not all, of Wilbur's claims.

b. The hospital will not enjoy any immunity under federal law with respect to Wilbur's claims.

c. The hospital will be completely immune under federal law with respect to Wilbur's claims.

d. If the hospital failed to provide Wilbur with a list of witnesses expected to testify at the hearing, it will lose whatever immunity it might have had under federal law.

e. More than one of the statements is correct.

f. None of the statements is correct.

Explain (in 100 words or less).

6. Dr. Smith treats Medicare patients, of whom Elizabeth Bishop is one. Ms. Bishop wants to make an appointment with Dr. Smith, who says he is very busy but he would be willing to fit her into his schedule if she would be willing to pay the entire bill herself - i.e., if she will privately contract with him for his services.

Choose the most correct statement:

a. Federal law does not prohibit this arrangement, as long as he agrees not to bill Medicare for any services he provides Medicare beneficiaries for a period of two years.

b. Statement (a) is correct, but the two-year banishment would not be necessary if Ms. Bishop merely wanted a routine checkup.

c. Federal law prohibits any private contracting between physicians and Medicare beneficiaries.

d. Dr. Smith may privately contract, unless he is a "participating" physician.

e. If Dr. Smith submits a bill to Medicare during the two-year period, he will be prohibited from submitting bills to both Medicare and private payers with respect to services provided Medicare beneficiaries for an additional two-year period.

f. More than one statement is correct.

g. None of the statements is correct.

Explain (in 100 words or less).

7. Longview Memorial Hospital, in Longview, Texas, is a tax-exempt entity. Which of the following would count as charity care, government-sponsored indigent health care, or community benefit in satisfaction of its state obligations?

a. Joe Willy Loman owes the hospital for his stay earlier this year in connection with surgery. The original bill was for $11,000, of which Medicaid has paid $2,000. The $9,000 balance can be counted toward Longview's state obligation.

b. Edward Earl Cummings owes the hospital for his stay earlier this year in connection with surgery. The original bill was $11,000, of which none has been paid, owing to the insolvency of Cummings' managed care company and Cummings' steadfast refusal to pay despite repeated attempts to collect. All $11,000 can be counted.

c. Many patients are noncompliant because they have difficulty reading prescription labels, appointment notices, hospital signs, etc. Longview has donated $10,000 to a nonprofit corporation's adult literacy program in the county in which most Longview patients live. All $10,000 can be counted.

d. Longview decides to run its own adult literacy program and dedicates the half-time services of one social worker to run the program and teach the classes. The social worker's salary and benefits total $38,000 a year. $19,000 can be counted toward the state obligation.

e. Last year, Longview had "excess" charity care (i.e., over the 4 percent minimum) of $100,000. Longview's total of charity care and community benefit during that year was exactly 5 percent of net patient revenues. None of the $100,000 may be credited toward this year's state obligation.

f. More than one of the above statements is true.

g. None of the above statements is true.

Explain (in 100 words or less).

EXAMINATION ENDS HERE