Health Law Basics for Business Lawyers

• Jurisdiction: United States,Federal,California
• Author: Charles B. Oppenheim
• Citation: Vol. 2015 No. 2
• Publication year: 2015

Health Law Basics for Business Lawyers

Charles B. Oppenheim

Charles B. Oppenheim is a principal in Hooper, Lundy & Bookman, P.C. and has been practicing health law for more than 20 years. His practice includes transactional, operational, and regulatory healthcare law, and he is the immediate past Chair of the Health Law Committee of the Business Law Section of the State Bar of California. He can be reached at coppenheim@health-law. com or (310) 551-8110.

Every business lawyer needs to know health law basics to avoid trouble when representing healthcare clients or handling business transactions relating to healthcare. This article aims to serve as the equivalent of a basic "checklist" for general business lawyers in these situations.

Business lawyers should be aware that everything involving healthcare is highly regulated—often in unexpected ways—under both federal and California law. If you review a contract or advise on a transaction for a physician, or represent a high-tech start-up in the health field, there may be significant health law issues. Likewise, health law issues can arise when clinics or other healthcare providers buy, sell, or market items or services, or provide or accept discounts, or engage in a variety of other transactions, or anytime a patient's medical information is shared or conveyed, and these are just a few examples.

Licenses, Permits, and Certifications . . . Oh My!

Generally, any physical site in California where healthcare services are provided to the public must be licensed (or specifically exempt from licensure) under California law. In addition, healthcare providers are often required to be permitted, accredited, and/or certified by various governmental or private organizations, and are likely to be enrolled to participate in the Medicare and Medicaid (Medi-Cal in California) programs.

Common mistakes made by business lawyers who are not deeply immersed in healthcare regulations include overlooking applicable licensure requirements and mistakenly believing that the sale of a healthcare business or a physician's practice can permissibly include a sale, transfer, or assignment of one or more licenses, permits, accreditations, or certifications, or a Medicare or Medi-Cal provider number. For the sake of convenience, or to avoid disruption in revenue, the acquiror or transferee may continue billing Medicare, Medi-Cal, and/or commercial health plans and insurers, using the seller's old license, permit, or provider number, or even using the seller's name, after the closing date. However, licenses and permits generally are not transferable, and neither are Medicare and Medi-Cal billing numbers.¹ Attempting to sell them, or having a buyer use the seller's provider numbers, can lead to a host of problems, including regulatory violations, potential exposure of the buyer to claims of insurance fraud, or federal or state false claims act violations, and even criminal charges in extreme cases.

To avoid these pitfalls, it is essential to have a thorough understanding of the applicable regulatory scheme. Depending on the structure of a transaction and the type of healthcare provider involved, advance approval may be required from one or more regulatory agencies or organizations, which may entail submission of a detailed application. Great care must be taken in these situations to follow the regulatory requirements precisely, and to ensure that all materials submitted to the regulators are accurate. In fact, the submission of inaccurate information (even if the information might seem relatively unimportant or merely ministerial) when securing a license, permit, or Medicare/Medi-Cal enrollment can effectively "build in" compliance problems that then taint all subsequent claims for payment submitted by the applicant.

In other cases involving the change of ownership or control of a healthcare provider or practice, a simple notice (usually before, but sometimes after, the effective date of the changeover) may be sufficient.

The regulatory "change of ownership" process can be complex and time-consuming, and thus can have a significant impact on the way transactions are structured and the timing of closing a deal. In fact, many healthcare transactions are structured (or restructured) in an effort to limit the complexity of the change-of-ownership process.

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Anti-Kickback and Fee-Splitting Laws

Subject to certain exceptions, both federal and California law prohibit any type of payments to or from physicians, and others, that are intended to induce or reward referrals, and prohibit fee-splitting by physicians and others (i.e., sharing part of their fees in exchange for referrals).² Those prohibitions might not seem surprising. However, these statutes are broadly written and have been broadly interpreted. The California statutory prohibition on physicians and other licensees paying or receiving kickbacks is not limited to referrals of patients or healthcare business.³ Read literally, this law prohibits a restaurant from paying a physician to refer prospective diners to the same extent it prohibits hospitals from paying physicians to refer patients for surgeries. Likewise, these statutes have been interpreted to prohibit healthcare providers and physicians from paying commissions or other success fees to independent contractors for marketing services.

These laws also come into play...