Regulatory Landmines in Health Care Litigation: PHI, Kickback, and Corporate Structure Risks

Well, let's talk a little further about how the unique structures or, or business structures of healthcare entities, uh, intersect with laws and regulations surrounding the corporate practice of medicine, and in turn, how those constraints on business structures play out in the course of litigation.

Charles, I don't know if you can give us an example of where that regulation of business structure in particular crops up or plays out in the course of litigation involving healthcare.

This question goes to really the, the bigger point of, of this, this podcast, that there's, you know, that healthcare has a number of dynamics between the players in the industry that are unique.

If I am selling widgets and I have a deal with my widget supplier, I have a deal with my widget supplier and I wanna, you know, change that deal or I wanna tell the widget supplier to m- make the parts I need in a different way, there's no w- th- there's usually not gonna be any issue with that.

You just do it.

And the business, their business reasons drives that.

In, in healthcare it's, it, it often is very different.

Um, you, you cannot, uh, i- in most states, as you mentioned, uh, Jonathan, there's a prohibition on the corporate practice of medicine.

What does that mean? That means that corporations or hospitals can't tell doctors how they should be practicing or how they should be treating their patients.

And y- you know, the, the rules are a little bit different in every state, but it's a, it creates a different dynamic that you have to deal with in the litigation.

Uh, and, and you need to be aware of that because it impacts positions you can take in the litigation.

And I have seen, as far as a mistake goes in that kind of misunderstanding tho- those relationships, I've seen it most often, often come up in damage models, where you'll have a, you'll have a plaintiff who will construct a damage model that is reliant upon certain relationships existing or certain contracts existing or certain obligations existing that lead to either referrals or business for a particular healthcare entity.

And then you look at it and you go, "Well, wait a minute.

If, if that's true, then you've created all these regulatory problems for yourself because you're, you know, violating corporate practice and medicine rules," or, or other, other structural issues that, uh, that may exist in, you know, under different state laws.

So y- you know, it is a, [chuckles] it is an area that really if you don't understand the relationship of the key players and how all the parties fit together, you can, you can really make some mistakes, not only in the litigation and your damage model blows up, but- You know, create some unintended consequences if you're putting in public filings that you're [laughs] that, that certain relationship exists as to support a damage model that would actually, you know, be, be illegal at the end of the day.

Megan, what's been your experience with the, the effect that these business structure arrangements in, in the healthcare industry have on both litigation and, and settlement?

Yeah.

I deal with this in my practice all the time.

Um, we had a conversation about it prior to this podcast.

So y- you know, one of the areas where I see this happen, and I, I will say I'm, I'm a bit of a self-professed nerd when it comes to adherence to corporate form, and I think Charles would probably join me in that club.

A- and, and there's a reason, because, you know, I've been involved in cases where I've come in much later after the case has gone through discovery, it's gone through dispositive motion practice, it's maybe getting ready for trial, and you had counsel who are sophisticated litigators, but they don't understand the healthcare organizational structure.

They don't understand how the corporate form might work.

And now maybe I represent a client who's purchased or engaged in an acquisition with some of the entities that have been involved in this litigation for months or years.

And it, it, you know, it turns out that certain mistakes were made.

For example, not understanding the point that Charles made earlier, that in many, if not most states, w- you can't bind physician owners, as one example.