Healthcare Case Study – You have been hired as the first chief

Healthcare Case Study

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Case Study

You have been hired as the first chief compliance officer (CCO) for Mystic Health Systems, a tax-exempt charitable organization located in the Midwest, which operates a 250-bed hospital with $400MM in annual revenue (Mystic Hospital), a 200-member multispecialty physician group (Mystic Medical Group), and a 100-bed skilled nursing facility (Mystic Nursing Home), each of which is separately incorporated. Mystic Hospital is located in an urban (city) setting approximately 5 minutes from the state’s capital; Mystic Nursing Home is located in a developing, previously rural area approximately 45 minutes from the state’s capital; and Mystic Medical Group has multiple offices throughout the five counties that surround and include the state’s capital (mostly in suburban areas).

DAY 1: There is a letter on your desk from the state Department of Public Health (DPH), dated April 22, 2020. In the letter, which was sent to all health plans and hospitals doing business in the state, the Commissioner of Public Health has requested a spreadsheet of all patients who have tested positive for COVID-19 or who, since January 1, 2020, have presented with idiopathic respiratory conditions (pneumonia, bronchitis) and flu-like symptoms but who tested negative for the flu. The letter specifically states that it does not want the names or social security numbers of those patients, but only their dates of birth, dates of treatment, and home ZIP code. The DPH explains in the letter that, by using these identifiers, it can determine with an acceptable degree of statistical certainty if the same individual is being reported by multiple entities (e.g., the same person could be treated by a hospital and also be a member of a health plan, both of which would include the individual in the list). The DPH intends to use this data to generate a fairly accurate count of the number of potential COVID-19 cases in the state so that it can assess whether the state has reached its infection peak and more accurately determine the prevalence rates of COVID-19 in the state. DPH asserts that it will only use the data for this purpose and that the data sent by the plans and hospitals will be destroyed once the statistical report is complete.

DAYS 2–5: You meet with a number of individuals in senior management positions to learn about the organization, compliance issues, and current activities.

Chief Executive Officer

The CEO has recently instituted a program in which Mystic Health Systems waives the copayments for all patients on the first day of every month. The program has been well received by the public and has resulted in positive press coverage, including pictures of packed waiting rooms published in the local newspaper. The CEO is working with a local web development vendor that is designing a new webpage for the hospital that will feature those pictures—she is hoping this campaign will demonstrate Mystic’s commitment to provide high-quality community care.

In addition, Mystic Hospital recently reached an agreement with Mythic Hospital, the other hospital in the community, so that only Mystic Hospital would provide cardiology services and only Mythic Hospital would provide maternity services. As a result of the increased volume of services for each hospital, the CEO believes that the economies of scale will allow both hospitals to reduce the cost of cardiology and maternity services provided in the community, making both services more affordable. She notes that cost savings are important to Mythic because, as a subsidiary of a chain of for-profit hospitals, Mythic is under pressure from stockholders to improve its bottom line. The CEO also mentions that Mystic and Mythic are about to form a partnership to build an outpatient surgery center. Mystic will contribute $5 million dollars, and Mythic $4 million. Mythic will operate the center which, according to the CEO, is a good thing because she just doesn’t have the time now that the hospital is expanding its cardiology services.

As you are leaving, the CEO invites you to dinner at her home on Saturday evening, noting that it will be good opportunity for you to meet some of the pillars of the community. She explains that she entertains frequently as a way to promote the hospital, and is particularly looking forward to the evening because itwill be held outdoors on her newly constructed garden patio and it will be the first party planned by her daughter, a recent graduate of the Culinary Institute of America, who the CEO has just hired to relieve some of the burden of planning these events.

Chief Financial Officer

The CFO is very excited to have you on board to advise on complicated billing and coding issues. For example, she wants to know whether it is appropriate to code transfers of post-acute patients from the hospital to the nursing home as a discharge from the hospital. She could code it as simply a transfer between entities, but because the nursing home and hospital are owned by the same company, she is concerned that doing so may violate the Stark Law. At the same time, because the hospital and nursing home are incorporated as separate entities, she thinks coding it as a discharge not only is appropriate but generates more revenue for the hospital.

She informs you that the department is currently understaffed due to the recent termination of a billing clerk. She says that it is poor timing because, over the last year, insurers have rejected an increasing number of claims. When you ask why the billing clerk was terminated, the CFO explains that she was fired because she routinely used her computer workstation during work hours for booking personal travel and buying on e-Bay. The CFO confides in you that, just prior to her termination, the billing clerk’s sister, who works in the nursing home, told the billing clerk that unlicensed nurses at Mystic Nursing Home were administering medications to residents, and the billing clerk threatened to disclose that to the OIG. The CFO called a friend of hers at the nursing home to see if that was actually true but was told that all the nurses were licensed. The CFO decided not to inform any of the other senior staff about the threatened call to the OIG hotline because she was certain it was a lie.

Chief Medical Officer

The CMO explains to you that he has similar goals as you—to reduce waste and increase operational efficiency at Mystic. As you tour the hospital, the CMO proudly comments that he established a new arrangement to allow private orthopedic physicians who hold hospital privileges to use emergency department space for free on Monday and Wednesday mornings to make casts for private patients. He explains that this arrangement reduces waste by permitting use of the ED when it is not particularly busy and that the arrangement generates goodwill from the physicians on staff without costing the hospital a dime. He also expresses some relief that this is a better use of the space than its previous use as a free weekly clinic for the uninsured, which, as he explains, caused uninsured and other vulnerable patients to “flock” to Mystic. He tells you that he’d prefer to see more attention paid to serving insured patients and those who can afford elective surgeries instead of just preventive and acute care.

The CMO also gives you a tour of Mystic Medical Group’s facilities. As he does, he emphasizes his belief in the ability of preventive health services to reduce costs and improve quality. For example, on the day you tour, the Medical Group is holding its monthly health fair providing free blood pressure screening and stress tests to patients. Patients who complete a health risk assessment survey receive a free day pass to a gym (worth $25) and are entered into a drawing for a free 1-year gym membership (worth $750). As you can see from the signs, balloons, and advertisements extolling the virtues of its newly released product, HyperSlim, a prescription weight loss medication, the health fair is sponsored by Mega Drugs, a national pharmaceutical company. You also observe one of Mega’s representatives giving free drug samples and $100 gift certificates to Medical Group physicians. On your way out, you hear a medical assistant call a Propecia prescription (for treatment of hair loss) into a pharmacy for an acquaintance of yours.

The CMO also excitedly tells you of a new plan for Mystic to provide limited primary care services in pharmacy chain stores.1 The plans are for Mystic to lease space for its clinic operations within the premises of retail pharmacies (Walgreens, Rite-Aid, CVS).2 The CMO hopes to eventually expand clinic operations to lease space to other retail locations, such as Target, Home Depot, and Dick’s Sporting Goods. Mystic will staff its retail store-based clinics with licensed nurse practitioners but wants to have a physician available to consult with the nurse practitioner as needed. Mystic will pay one or more local physicians a fixed fee for each telephone consultation with a nurse practitioner. Consultation fees will be negotiated individually with each physician before they sign on to provide the consultative services.

Finally, the CMO gives you a tour of Mystic’s nursing home, financed in part by tax-exempt bonds. The CMO informs you that, for a period of about 6 months two years ago, the nursing home had a shortage of nurses, but he did not let the shortage interrupt the flow of services to residents. He asked a number of highly experienced nursing aides to act as nurses until he found replacements. You notice that the nursing home has a state-of-the-art performance hall for entertaining its wealthy residents. The CMO explains that the nursing home often rents the space to local concert promoter Larry Fanilow and that the hall has been an important source of revenue for the nursing home because reimbursements have not kept pace with costs.

WEEK 2: You review some of the business contracts in the files of Mystic Health Systems.

Laboratory Service

Mystic Medical Group contracts with Iffy Labs for clinical laboratory services ordered by the medical group’s physicians. The contract includes a disclosure that states that the CMO of Mystic Health System has a 51% stake in Iffy Labs and that, in order to comply with medical ethics, the CMO did not take any part in negotiating the terms of the agreement. The terms of the agreement provide that if laboratory services ordered by Mystic Medical Group physicians are not reimbursed by a third-party payer, then Iffy Labs will bill Mystic Medical Group at the lowest rate it accepts as full reimbursement from any other payer, further reduced by 25%. Iffy Labs agrees to pick up and dispose of all biohazardous waste products (such as sharps) at Mystic Medical Group, in addition to those related to the collection of specimens for analysis. After the first 5,000 laboratory services ordered, Mystic Medical Group will receive a rebate of $2 for each additional laboratory service ordered.

Cardiology Service

In order to increase patient revenue to support its new cardiology wing, Mystic Health Systems has signed a 5-year relocation agreement with a prominent cardiologist whose practice currently is located on the other side of town. Under the terms of the agreement, the cardiologist agreed to relocate his practice to the Medical Group and Mystic agreed to pay the cardiology 25% of revenue generated by the cardiac catheterizations. Mystic Medical Group has also agreed to pay the relocated physician a starting bonus of $25,000.

1 You should assume that all the patients that will be seen in Mystic’s retail clinics are covered under a federal health care program. You can also assume that Mystic’s retail clinics will operate in a similar manner to the arrangements described here: and here: (you can access the latter story in full through the GW library database, using your GWId).

2 You may assume for the purposes of this exercise that retail pharmacy clinics do not yet exist in these entities—no Minute Clinics, etc.

Chief Medical Officer

As part of his employment contract, the CMO receives $500,000 for his duties as CMO. He also receives $100,000 per year for administrative services provided to the hospital, which consist of chairing one medical staff meeting a month. He is permitted to maintain his practice of cardiology at the Medical Group. You separately learn that the CMO is the principal investigator (PI) for the conduct of a clinical trial on Sketchy Medical Devices’ (SMD) latest drug-eluding coronary stent, for which Mystic Hospital holds the research grant.

You also review some papers that were in a pile at the bottom of your desk drawer. These include:

• An estimate for work to repair the front steps to Mystic Hospital—in the description section at the bottom, the firm wrote “steps uneven; large hole in middle step concealed by rubber tacking; handrail missing 3 of 4 screws where secured to top of stairs. Repairs needed immediately.” The estimate was dated 6 months ago and signed by the CEO, but when you call Facilities, they have no record of ever ordering the work.

• A glowing letter of recommendation about a physician, written to a hospital in California by the CMO. The physician’s name sounds familiar and then you remember that this morning’s newspaper mentioned a physician with the same name arrested in California for operating while intoxicated. You hope that’s a new habit he picked up after he left Mystic.

• The hospital’s patient restraint policy, written 3 months ago and updated a few weeks before you arrived. It applies only to psychiatric patients, so you make a mental note to follow up with the psych floor about compliance with the new policy.

• A list of patient names, addresses, dates of birth, diagnosis codes, and treating Mystic physicians— someone wrote across the top, “Sent 04/2019.” You look up the diagnosis codes and realize they’re all related to cardiovascular disease. You find an attached letter paperclipped—it’s a notice of receipt from Okay Pharma. You make a note to check in with the CMO about what this might be.

WEEK 3: You receive several notes in the comment box outside your door: “Check the EMR access log. You’ll see that Dr. Payne—whose wife is finally divorcing him (what took

her so long?)—accessed his wife’s mental health records last week.”

“A homeless man came into the ER with a blood clot in his leg and after the vascular surgeon on call learned that the man was homeless, he refused to come and treat the patient.”

“Last week, I saw Mystic Hospital transfer some non-English-speaking ER patients to Mythic Hospital prior to being stabilized even though the medical chart says otherwise.”

“I watched a 60 Minutes segment about how little oversight there is of SMD labs, and I know that the CMO in particular uses almost nothing but SMD devices here at Mystic. Are we sure these are safe for patients??”

“Our patient restraints badly need to be replaced—we’re using them on every floor and there just aren’t enough! I swear I’ve been putting these on our patients since I first started working here 15 years ago!”

“My mom received a free sample of some new blood pressure medication from Okay Pharma 6 months ago—not sure how they knew she had high blood pressure, but she can’t really afford her current prescription, so that was a real blessing. She’s out of it now though and Dr. Ego in cardiology isn’t returning any calls—can’t he just have Okay send her some more?”




Final Group Assignment

In general, this course considered areas of law separately, using examples to demonstrate how a legal issue might arise. The reality of health care, of course, is that issues do not arise discretely. Very often, conduct can raise legal concerns under more than one statute or regulation. Further complicating the situation, legal matters may be influenced by nonlegal issues related to human resources, management, organizational turf battles, and personality conflicts.

The purpose of this group final exercise is to animate the challenge of identifying issues and developing, implementing, and maintaining an effective compliance program under real-world conditions. Working with your colleagues, you will identify and recognize legal, ethical, and compliance issues, considering whether (and, if so, which) require remedial action.


Read the hypothetical case study carefully. What are the legal and/or compliance issues raised by the hypothetical.

1. What law, regulation, or governance requirement/policy MAY have been violated? Consider among the following and explain why a potential violation may have occurred. (Choose and explain which ones apply to the case)

• Federal False Claims Act • Physician Self-Referral “Stark” Law • Federal Anti-Kickback Statute • Federal Tax-Exempt Law • Emergency Medical Treatment and Labor Act (EMTALA) • Health Insurance Portability and Accountability Act (HIPAA) • Antitrust Law • Good governance (e.g., Sarbanes-Oxley) • Organizational bylaws • Standards of conduct/conflicts of interest policy • Scope of practice laws, licensure, certification • Employment law, corporate liability

2. Which issues merit highest priority? Why?

3. Which issues would you recommend for further investigation? Why?

4. What, if any, further steps would you suggest (e.g., referral to inside/outside counsel, involvement of additional departments or individuals, revision of policies/procedures, termination of employment or contractual relationships, self-reporting to the government, internal audit, etc.)?

5. To the extent you believe there to be a legal or compliance-related issue, please recommend alternatives to the problematic program, policy, programmatic element/component, departmental or corporate structure, and/or relationship that you believe would not violate any laws. These alternative proposals do not require detail; however, and particularly where the offending program/policy is designed to increase access, improve quality, or reduce costs, the CEO and board will want to know that these ultimate goals can still be achieved if you are recommending. elimination or modification of existing activities.

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