Chapter 7 Business Prohibitions (& Permitted Activities)
HOSPITALS & HMOs
FORMING A BUSINESS RELATIONSHIP
WORKING FOR, EMPLOYING, OR SUPPORTING UNLICENSED HEALTH CARE PROVIDERS
This chapter touches on a number of prohibited business related activities that may cause a health care corporation, hospital or individual to run afoul of the law. There are literally hundreds of acts and omissions that may result in disciplinary proceedings against a physician, or possibly against any organization providing health services. Many of these have been detailed in other chapters of this book. A limited number of these acts result from the business transaction itself, or some aspect of owning and operating a medical business.
Everything from fee sharing to rental agreements must be handled carefully if the business is to operate within the boundaries of the law. This chapter will be a brief survey of the applicable statutes and case law. Because the consequences of running afoul of the law can be devastating, physicians and other health care professionals should consult legal counsel specializing in corporate/business law to obtain a more detailed understanding of business prohibitions in the medical field.
Corporations providing medical services are incorporated under Chapter 89 of the Nevada Revised Statutes, which concerns the formation of professional corporations. NRS 89.050 states that a professional corporation may be formed to render services related to medicine, homeopathy and osteopathy, and may be composed of persons engaged in the practice of medicine. NRS 89.050(2)(b). Corporations organized under the states general corporation law (NRS Chapter 78) may not engage in the practice of medicine, as it is defined in NRS 630.020. A medical practice corporation must be incorporated under the statutes of NRS 89. HMOs are exempt from the provisions of Chapter 630, as they are deemed not to be engaged in the practice of medicine. See AGO 219 (10-3-77).
Chapter 695B of the Nevada Revised Statutes addresses non-profit corporations for hospital, medical and dental services. Corporations subject to the provisions of this chapter are prohibited from:
- Owning and operating a for-profit hospital. NRS 695B.020 (2).
- Engaging in any business other than establishing, maintaining and operating a non-profit hospital, medical or dental service plan. NRS 695B.020(2).
- Operating a hospital or medical/dental service plan for a profit. NRS 695B.020(1)(b).
A corporation operating under the guidelines of this chapter is not prohibited, necessarily, from engaging in business reasonably and necessarily incidental to the business of operating a non-profit hospital, medical or dental service plan. NRS 695B.020(3). A corporation operating under Chapter 695 is prohibited from having a majority of its board of directors as either representatives of the hospital(s) the corporation contracts with, NRS 695B.060(1) or physicians who have signed participation agreements with the hospital to render services. NRS 695.060(2). Under NRS 695B.140, non-profit corporations operating hospitals must maintain, at all times, a statutorily sufficient reserve fund. The statute provides the formula for calculating the minimum reserves required.
HOSPITALS & HMOs
In an attempt to restrain health care costs, NRS 439B.420 provides a laundry list of prohibited acts for hospitals in general. Some have to do with the relationship between hospitals and resident physicians, some deal with billing practices, and some deal with referrals. Under Nevada law the following are prohibited:
439B.420(1) – a hospital shall not enter into a rental agreement with a physician, or employer of physicians, that requires referral of patients to the hospital;
439B.420(2) – the rent charged a physician or employer of physicians, must not be less than 75% of the rent charged other physicians, either in the same building, or a comparable building owned by the hospital;
439B.420(3) – there are limitations on the amount of rent the hospital may pay for a physician or employer of physicians, for space not owned by the hospital;
439B.420(4) – inducements to refer patients, paid by the health facility, are prohibited (excluding gifts under $100 or reasonable promotional food and entertainment);
439B.420(5) – certain provisions of the statute (1-4) do not apply in counties with a population of less than 35,000;
439B.420(6) – hospitals that provide billing services for practitioners performing services in the hospital may not tack on additional charges above and beyond processing fees;
439B.420(7) – inducements paid to insurers or their agents are prohibited;
439B.420(8) – selling goods or services to a physician at a rate lower than that paid by the hospital is prohibited;
439B.420(8) – referral of a patient to a facility in which the referring party has a financial interest, without first disclosing the interest, is generally prohibited.
There are civil penalties, in the form of fines, for violating the provisions of this statute.
Health Maintenance Organizations, or HMOs, are regulated under Chapter 695C. NRS 695C.300 outlines prohibited practices for HMOs, most of which deal with advertising and have been addressed in the chapter regarding advertising. However, some prohibitions that concern the business entity itself, not the advertising of the same, are worthy of note. Under NRS 695C.300(4), an HMO is prohibited from using in its name, contracts, or literature the terms insurance, casualty, surety, mutual, or any other words or terms deceptively similar to the insurance, casualty or surety business unless the HMO is licensed as an insurer in Nevada. Similarly, persons or entities not certified under Chapter 695C may not use the term health maintenance organization or HMO in their name, contracts or literature. The obvious goal is to prevent confusion on the part of the public at large, and to prevent overt, or subtle, misrepresentation.
As with large corporations, hospitals, and HMOs, prohibitions also exist for individual physicians or small groups of individual physicians. Most of the prohibited acts are designed to prevent the practice of medicine without a license, or to minimize the appearance of collusion or fraud. Many of the prohibitions discussed in this section are specific to a certain field of medicine. Presumably, all disciplines within the medical field would be held to the same standards of conduct.
Fee sharing is permissible under certain circumstances, following certain guidelines. Failure to follow the specified procedures serves as grounds for disciplinary action against the physician. Under NRS 630.305, fee splitting between licensees is prohibited unless the patient is informed, and the division of fees is proportional to the services rendered by each physician. NRS 630.305(1)(b). On the other hand, for those practitioners of osteopathic medicine, pooling, sharing and dividing fees amongst members of a partnership or other lawfully formed organization is permissible. NRS 633.131(2)(a). If two or more osteopathic physicians render concurrent care, without the benefit of a partnership, corporation or other entity, dividing the fees is still permissible if the patient is informed and the division is proportional.
Fee splitting as a reward for referral is specifically prohibited, is considered unethical, and can base a Medical Board action to revoke the offending physicians license to practice medicine.
FORMING A BUSINESS RELATIONSHIP
There is no prohibition against physicians working in different fields to establish a business relationship with one another. Under NRS 633.131, an osteopathic physician may form a business relationship with an optometrist. NRS 636.373 provides for the same arrangement, in this instance from the perspective of the optometrist. NRS 636.373 provides details as to what business relationships are specifically authorized but specifically prohibits the optometrist from becoming an employee of a physician.
WORKING FOR, EMPLOYING, OR SUPPORTING UNLICENCED HEALTH CARE PROVIDERS
Working with, hiring, or helping to place in employment persons not duly licensed by the state to practice medicine is strictly prohibited. NRS 630.305 clearly makes such efforts grounds for disciplinary action, to include denying of licensure. NRS 630.305(1)(e). The same is true for concerning the practice of osteopathic medicine. NRS633.131(1)(d). The optometry statute, NRS 636.300, calls such actions by an optometrist unethical and unprofessional. In a 1986 case, the Supreme Court of Nevada held that an ophthalmologist was within the definition of a person not licensed to practice optometry. Natchez v. State, 102 Nev. 247, 721 P.2d 361 (1986). Thus, aiding, abetting or working for persons not licensed by the state is prohibited, and constitutes a threat to a physicians license.
NRS 636.300 prohibits the practice of optometry in a facility or on premises not dedicated to optometry and the healing arts, where merchandise and materials not necessary for the rendering of medical care are displayed and dispensed to the public. NRS 636.300(4).
Under a 1979 Nevada Supreme Court decision, the not-to-compete clause in a contract of an orthopedic specialist was deemed unreasonable given the relative lack of available, competent specialists, and the inconvenience the clause placed on the public at large. Generally, contractual prohibitions on opening a competing business in the same area as a former employer will be enforced. There are, however, limitations on what constitutes a legitimate protectible business interest of the former employer. See Ellis, M.D. v. McDaniel, 95 Nev. 455, 596 P.2d 222 (1979).
Finally, in an area that actually covers corporate interests, as well as those of individual physicians, the use of a medical practitioners or medical facilitys name or the usurping of the name for business gain, is prohibited. In Sobol v. Capital Management Consultants, Inc., 102 Nev. 444, 726 P.2d 335 (1986), the Supreme Court of Nevada determined that usurping the name of a medical facility interferes with the legitimate business interests of the facility by causing confusion, infringing on goodwill, and potentially damaging the reputation of the legitimate namesake. The unauthorized use of anothers business name is thus prohibited
The business of medicine brings with it a complete set of business prohibitions, separate from the limitations on professional conduct imposed on practitioners. All aspects of business regulation, from naming the company to dividing the fruits of the collective labor, must be carefully assessed. When working through these business related issues, the physician or health care organization or corporation must focus on the business operations and what is regulated in the business world, not just the world of medical practice.