Wheel of Mis fortune: Challenges for Healthcare Executives

1. Wheel of Misfortune: Challenges for Healthcare Executives Chicago, IL ~ March 18 & 19, 2010

2. Wheel of Misfortune: Challenges for Healthcare Executives Moderator: Stacy M. Kniffen Paquet, JD, Assistant Vice President, Management Liability Product Manager, OneBeacon Professional Insurance Panelists: R. Dale Grimes, Esq., Member, Leader, Antitrust and Trade Practices Group, Bass, Berry & Sims PLC Kimberly B. Holmes, Esq., RPLU, AVP, Deputy Worldwide Product Manager, Health Care Practice, Chubb Specialty Insurance Paul J. Siegel, Esq., Partner, Jackson Lewis, LLP

3. Session Overview • The Current Healthcare Landscape: From the Underwriting Prospective • Regulatory, HIPAA and Antitrust Issues • Antitrust Exposures & Enforcement Update – Including Compliance Tips • Key Issues in Wage and Hour and Class Action Litigation Update

4. The Health Care Landscape – Key Exposures Facing Executives • Regulatory Exposures • Recent amendments to federal False Claims Act • RAC (Recovery Audit Contractor) Audits • HIPAA/HITECH - Compliance & What’s Next? • Antitrust Exposures • Physician Antitrust Exposure • Market/Competitor Antitrust Exposure

5. Health Care Regulatory Exposure • Recent amendments to federal False Claims Act (FCA) • Overpayments from the government now trigger the recipient’s duty to return the overpayment to avoid violating the FCA • Increased state & federal recovery and enforcement efforts regarding Medicare/Medicaid fraud & abuse • Federal RAC (Recovery Audit Contractor) Audits • Current progress nationwide • Presently a large number of successful appeals

6. New HIPAA Reporting obligations under the HITECH Act • Now there is a reporting requirement under HIPAA – what does that mean? • Breaches of unsecured, protected health information (PHI) affecting > 500 individuals must be reported to HHS • www.hhs.gov/ocr/privacy/hipaa/administrative/breachnotificationrule/postedbreaches.html • Not every breach is a reportable event • Why it’s so important to access the correct guidance immediately on this issue (hint: to save $$$$$$)

7. Physician Antitrust Exposure • Specialty Hospital or Physician Specialty Practice • Organization’s due process protocols with respect to peer review process • Venue matters • Local competitors – the more the better • Significant defense dollars to reach MSJ (Motion for summary judgment) stage • Battle of the Experts

8. Market / Competitor Antitrust Exposure • What is your policy’s definition of “Antitrust Violation?” • Significant defense dollars to reach MSJ (Motion for summary judgment) stage • Competitor Collaborations • Hospital/Physician Joint Ventures • Carrier/Insured partnership is key to best resolution • Class action claim trends

9. Antitrust Overview • There is a heightened enforcement environment • There are numerous antitrust issues facing healthcare providers & entities • There are severe consequences and compliance is important

10. “As president, I will direct my administration to reinvigorate antitrust enforcement. It will step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare . . .” - President Obama, September 27, 2007 Age of Heightened EnforcementNew Environment • “I come to this job not timid about using antitrust authority to ensure markets are open and competitive” • Christine Varney, DOJ Antitrust Div. HeadBloomberg, February 27, 2010 “The FTC, which has already taken significant action, needs to be more aggressive with doctors, hospitals, pharmaceutical manufacturers and medical suppliers who manipulate the market… The Justice Department, which has been far too lax over the last eight years, must re-engage in policing anticompetitive practices by insurance companies...” - Chairman Rockefeller's opening remarks in a committee hearing on competition in the health care marketplace, Official Press Release, July 16, 2009

11. Antitrust IssuesFaced By the Healthcare Industry Hart-Scott-Rodino Act Compliance Merger Clearance – More Scrutiny? Interlocking Directorates Heightened Antitrust Enforcement Full-service vs.Single Specialty Hospitals Bundled Discounts Joint Negotiations with Payers Information Sharing Providers versus Payers Exclusion from Access

12. ConsequencesCivil Liability • Often “bet the company” litigation • Litigation is complex, fact driven, and expensive • Liability may include: • Consent Decrees • Treble Damages • Disgorgement of Profits • Injunction • Attorney’s fees • Insurance coverage is an issue

13. Joint Contracting Situations • Provider Network / IPA • Partially owned / related special facilities • Virtual mergers ofprovider practices

14. Joint Contracting Exposure • Price fixing • Illegal per se means no excuses • “Best case” is consent decree • Worst case is civil / criminal liability

15. Joint Contracting Caution Required • Agency Healthcare Enforcement Statements 8 & 9 • Control / Full Merger • Don’t try to circumvent consent order

16. Information SharingSituations • Competitor communications about price, cost, other sensitive information • Trade association activities • Due diligence review

17. Information SharingExposure • Potential liability for price fixing • Exchange can be illegal by itself • Class action litigation

18. Information SharingCaution Required • Avoid in most cases • Safe harbors: Agency Healthcare Enforcement Statements 4, 5, 6 • Carefully structure due diligence

19. Acquisition ReviewSituations • Deals subject to HSR • Non-reportable deals • Post-closing review

20. Acquisition ReviewExposure • Gun-jumping • Review kills deal • “Look back”

21. Acquisition ReviewCaution Required • Reduction in competition (3  2; 2  1) • Significant price increases • Pre-closing planning

22. Conclusion • The likelihood of antitrust enforcement is greater now than in the past • Antitrust risks in healthcare are real • Antitrust compliance throughout the entire healthcare organization is critical

23. Why Wage And Hour Issues Matter • Attractive cases for plaintiffs’ attorneys • Relatively easy to get a class or collective action certified • Employer bears many of the burdens of proof • Intent is not at issue • Many employers have not focused sufficiently on compliance • Claims Spread: Pay practices are often relatively similar throughout an industry

24. Wage And Hour Basics • The FLSA imposes individual liability on corporate officers or agents for wage violations where they exercised control over the company’s wage practices • A corporate officer with operational control can be an “employer” and this is jointly and severally liable under the FLSA for unpaid wages • Decisions interpreting the breadth of the definition of “employer” under the FLSA have held that a plaintiff is not required to pierce the corporate veil to hold an officer personally liable

25. Class And Collective Action Litigation • “[T]he Court finds it appropriate to conditionally certify an FLSA collective action for all present and former hourly registered nurses, staff nurses, licensed practical nurses, nurses aides, and respiratory therapists employed at Kaleida hospitals and skilled nursing /long-term care facilities . . .” • Gordon v. Kaleida Health, et al., Case No. 08-CV-378S (W.D.N.Y. Oct. 13, 2009)

26. Class And Collective Action Litigation • “[C]ertification of this matter as a collective action is GRANTED with respect to the following putative plaintiff class: • All present and former hourly employees of Faxton-St. Luke’s Healthcare and St. Luke’s Home, including but not limited to registered nurses, licensed practical nurses, and certified nurses’ assistants . . . who have been subject to automatic meal break deductions . . .” • Hamelin v. Faxton-St. Luke’s Healthcare, et al., Case No. 6:08-CV-1219 (N.D.N.Y. Jan. 26, 2009)

27. Compensable Working Time • Compensable working time includes: • Time spent in primary work activities; • Idle or stand-by time controlled or requested by employer; • Time spent by an employee outside normal hours that is suffered or permitted by employer

28. Unauthorized Working Time • An employer must compensate employees for unauthorized work whenever it “suffers or permits” an employee to work. • An employer suffers or permits an employee to work where the employer knew or had reason to believe the employee was performing work and permitted him or her to do so. • Subject to past practice and collective bargaining agreement rules, employers are free to discipline employees for unauthorized work.

29. Claims: Unpaid Off-The-Clock Work • Preparatory activities generally are not compensable unless they are an integral and indispensable part of an employee’s principal duties or required by the employer’s rules, collective bargaining agreements, industry custom, or laws. • Donning and doffing gear or uniforms is compensable only if it is “specialized protective gear.”

30. Claims: On Call Time • Employees “on call” must be compensated if the employer’s control over the employee is such that the employee cannot use the time effectively for his or her own purposes. • Relevant Factors: • Excessive restrictions (is the employee free to pursue personal agenda?); • Frequency of interrupting calls is unduly restrictive; • Short response time is unduly restrictive; and, • Does employee have the ability to trade on-call responsibilities with another employee

31. Claims: Unpaid Training Time • Lectures, meetings, and training programs are compensable work time unless four conditions are met: • Attendance is outside employee’s regular work hours; • Attendance is voluntary; • The event is not directly related to employee’s job; and, • The employee performs no productive work.

32. Calculating Overtime • The Regular Rate of Pay Includes: • Shift differential payments • Commissions • Nondiscretionary bonuses • Awards or prizes won for quality, quantity or efficiency • Most profit sharing payments • On-call pay • “Combat” pay (extra pay for undesirable assignments)

33. Questions? Stacy Kniffen Paquet spaquet@onebeacon.com Kimberly Holmes holmesk@chubb.com Dale Grimes dgrimes@bassberry.com Paul Siegel siegelp@jacksonlewis.com