Health Law Checkup
June 26, 2009


In this issue…

OIG Advisory Opinion – On-Call Services Provided to Hospital’s Uninsured Patients

Ninth Circuit Upholds California Ban on Business Relationships Between Opticians and Optometrists Against Dormant Commerce Clause Challenge



OIG Advisory Opinion – On-Call Services
Provided to Hospital’s Uninsured Patients

On May 14, 2009, the Office of Inspector General (“OIG”) issued Advisory Opinion 09-05 regarding a hospital's proposal to compensate physicians for on-call services provided to the hospital's uninsured patients. The OIG determined such arrangement (i) would not constitute grounds for the imposition of civil monetary penalties (“CMP”); and (ii) could implicate the anti-kickback statute if the requisite intent were present, but would not result in civil monetary penalties or administrative sanctions.

The advisory opinion was requested by a nonprofit hospital that receives funding from its state agency as part of the disproportionate share program for uncompensated services to the indigent and uninsured (“DSH”). The OIG noted that physicians do not receive any funding similar to DSH for physician services rendered to the indigent.

Although the hospital's medical staff bylaws require its active medical staff to provide call coverage, the hospital often has a shortage of on-call physician specialists. In response to the shortage, the hospital developed a new call coverage program that includes the following components:

  1. The program will only cover patients without insurance coverage (including Medicare or Medicaid) and who eventually qualify for the DSH program (“Eligible Patients”);
  2. Eligible physicians must be on the hospital's active medical staff;
  3. Physicians must sign a letter agreement in which they agree: (i) to comply with the hospital's policies; (ii) to respond timely to requests for call when scheduled; (iii) to evaluate patients in person; (iv) to provide requisite follow-up care; (v) to provide call coverage pursuant to the medical staff's organized call schedule, which includes a rotation system applicable to all physicians; (vi) and not to bill or collect from the Eligible Patient or any other third party or payor;
  4. After a physician has treated an Eligible Patient, the physician submits a claim form to the hospital detailing the services provided;
  5. If the hospital identifies any payor source (including where the Eligible Patient ultimately qualifies for Medicaid), the physician's claim form is returned, and the physician must seek reimbursement from the payor source; and
  6. If the Eligible Patient qualifies and the claim form is otherwise approved, the hospital will pay the physician a fair-market-value flat fee based on a schedule allocating set amounts for four defined service categories (e.g., ER consultation, inpatient care, surgical procedure, and endoscopy procedure).

The OIG noted the arrangement did not fall within the safe harbor for personal services and management contracts as the aggregate amount of compensation was not set in advance. However, ultimately the OIG determined the risk of fraud and abuse to be low for the following reasons:

  • The payments are for services rendered without regard to referrals. The hospital certified that the payments were consistent with fair market value. The claim forms and verification system ensure that payments will only be made for in-person services actually rendered to uninsured patients. In addition, the fee schedule helps ensure that the payment is consistent with the level of service provided.
  • There is a need. The hospital was having a difficult time providing certain services due to the physicians' unwillingness to provide uncompensated call coverage.
  • The program includes additional protections. The program is offered uniformly to the entire medical staff (except for provider-based physicians). Physicians must respond in a timely manner, and the scheduling includes an equitable rotation system. Furthermore, the claim form system promotes transparency.
  • The program promotes a public benefit. As the program allows the hospital to provide services necessary for it to remain eligible for DSH funding, the program promotes a public benefit by facilitating better care for uninsured and indigent patients.


Ninth Circuit Upholds California Ban on Business Relationships Between Opticians and Optometrists Against Dormant Commerce Clause Challenge

On May 28, 2009, the Ninth Circuit Court of Appeals reversed a lower court's ruling and held that California laws that prohibit retail opticians from entering into certain business relationships with optometrists and ophthalmologists did not violate the dormant Commerce Clause.  The Ninth Circuit remanded the case for the lower court to determine whether the burden on interstate commerce outweighs the benefits under the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

In this case, the National Association of Optometrists and Opticians, LensCrafters, Inc. and Eye Care Centers of America, Inc. challenged California law that prohibited opticians from offering "one-stop shopping" -- that is, offering prescription eyewear at the same location in which eye examinations are provided, and advertising that eyewear and eye examinations are available in the same location.   Under California law, opticians and optometrists cannot have certain ownership, landlord-tenant or profit-sharing relationships, and opticians cannot, directly or indirectly, advertise, employ, or furnish services of an optometrist or ophthalmologist.

The plaintiffs in this case asserted that opticians are largely out-of-state businesses, whereas optometrists and ophthalmologists are largely in-state businesses.  Thus, the plaintiffs alleged that California law had a discriminatory effect on out-of-state businesses, thereby violating the dormant Commerce Clause, because California law prevented out-of-state opticians from offering one-stop shopping while allowing in-state optometrists and ophthalmologists to do so.  After determining that the dormant Commerce Clause applied, the Ninth Circuit held that the California statute did not have a discriminatory purpose, finding that the statutes' objective was to protect California's optometric profession from being taken over by large business interests.  In addition, the Ninth Circuit held that California law did not have a discriminatory effect because California treated out-of-state and in-state opticians the same.  The court ruled that California could treat opticians differently from optometrists and ophthalmologists because they are not similarly situated.  The Court reasoned that optometrists and ophthalmologists have special responsibilities that opticians do not, such as significant educational requirements and specialized ethical and professional responsibilities, and opticians, as commercial concerns, have business structures that are not available to optometrists and ophthalmologists.  Therefore, the court concluded that California can permissibly protect optometrists and ophthalmologists, as health care professionals, from being affected by subtle pressures from commercial interests.

This case is the second case in which a federal court of appeals has rejected a dormant Commerce Clause challenge to state bans on business relationships between opticians and optometrists.  In 2005, the Sixth Circuit Court of Appeals in LensCrafters v. Robinson, 403 F.3d 798 (6th Circ. 2005), upheld Tennessee's ban on certain business relationships between opticians and optometrists under similar facts.  In addition, the Ninth Circuit's ruling to uphold California's ban on certain business relationships between opticians and optometrists appears to have reaffirmed California's long-standing prohibition against the "corporate practice of medicine."

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