August 14, 2025

QUESTION:
We just discovered that we hired a nurse who was listed on the OIG’s List of Excluded Individuals and Entities while she worked for us.  What do we need to do and how does the OIG determine damages for a provider such as a nurse who does not make referrals of federal health care program beneficiaries to the Hospital?

ANSWER FROM HORTYSPRINGER ATTORNEY HENRY CASALE:
Unfortunately, if a hospital or other provider who received federal health care program reimbursement such as Medicare, Medicare and/or Tri-Care employs or contracts with  an individual or entity that is listed on the OIG’s List of Excluded Individuals and Entities (the “LEIE”), once discovered, the health care entity must make a self-disclosure to the Office of Inspector General (“OIG”) using the OIG’s self-disclosure protocol.

There is a section of the OIG’s protocol that specifically addresses self-disclosures involving excluded individuals. That Section of the Protocol states that the self-disclosure must include: the identity of the excluded person and any provider identification number; the job duties performed by that person; the dates of the person’s employment or contractual relationship; a description of any background checks that the disclosing party completed before and/or during the person’s employment or contract; a description of the disclosing party’s screening process (including any policy or procedure that was in place) and any flaw or breakdown in that process that led to the hiring or contracting with the excluded person; a description of how the conduct was discovered; and a description of any corrective action (including a copy of any revised policy or procedure) implemented to prevent future hiring of excluded persons.

One additional requirement that you might not expect is that the OIG also requires that before a self-disclosure involving an excluded individual or entity can be submitted to the OIG, the disclosing party must screen all current employees and contractors against the LEIE.

OK so once you have this information, you need to provide damage information.  Typically, damages for a self-disclosure are based on the items or services furnished, ordered, or prescribed by the excluded person.  However, the OIG understands that when the excluded person provided items or services that are not billed separately to Federal health care programs, such as your self-disclosure that is due to your hiring an excluded nurse, the damages amounts can be difficult to quantify.

In this instance, the OIG requires you to first determine your total costs of employment or contracting during the period of exclusion which includes all salary and benefits and other money or items of value, health insurance, life insurance, disability insurance, and employer taxes paid related to employment of the person such as the employer’s share of FICA and Medicare taxes.

This total amount is then multiplied by the disclosing party’s revenue-based Federal health care program payor mix for the period of time that the excluded individual was employed by the hospital.

If the disclosing party can measure the Federal payor mix for the department or unit in which the excluded person worked, it is appropriate to apply that payor mix. If the departmental payor mix cannot reasonably be measured, the disclosing party must apply the payor mix for the whole hospital. When the disclosing party is using a Federal health care program payor mix, the disclosure must include a separate calculation for each Federal health care program. For example, if the disclosing party’s Federal payor mix is 60 percent, the disclosure should break down how the Federal health care programs make up that 60 percent, such as 40 percent Medicare, 10 percent Medicaid State A, 5 percent Medicaid State B, and 5 percent TRICARE.

The resulting amount will be used as a proxy for the amount paid and the single damages to the Federal health care programs resulting from the employment of the excluded person.   The OIG Self-Disclosure Protocol states “The specific multiplier that we accept may vary depending on the facts of each case. OIG’s general practice in CMP settlements of SDP matters is to require a minimum multiplier of 1.5 times the single damages, although we determine in each individual case whether a higher multiplier may be warranted.”

So prepare yourself − this self-disclosure will not be inexpensive to resolve.  But take solace in knowing that by submitting the self-disclosure, you will put this unfortunate issue behind you, and the corrective actions that must be implemented as a result of the OIG’s Self-Disclosure Protocol should prevent you from ever having to submit another self-disclosure due to your hiring or contracting with an excluded individual or entity.

If you have a quick question about this, e-mail Henry Casale at HCasale@hortyspringer.com.

July 24, 2025

QUESTION:
How far back do we have to go when verifying affiliations for locum tenens physicians during the credentialing process?

ANSWER FROM HORTYSPRINGER ATTORNEY CHARLIE CHULACK:
Unfortunately, there aren’t any hard and fast rules or guidance when it comes to this question.  The Joint Commission acknowledged this in an FAQ that was first published on April 11, 2016, by noting that “[t]here is no standard requirement to verify hospital/other healthcare organization affiliations, clinical affiliations, clinical responsibilities, or work history for an applicant.”  The FAQ can be found here.

If you are performing delegated credentialing (i.e., payor enrollment), the NCQA standards (which apply to insurers and their delegates) do have a discrete requirement which provides as follows:  “The organization obtains a minimum of the most recent 5 years of work history as a health professional through the practitioner’s application or CV.  If the practitioner has fewer than 5 years of work history, the time frame starts at the initial licensure date.”

That being said, many hospitals go back ten years when verifying affiliations, and this is the recommendation of at least one national credentialing organization.  However, a time frame of ten years can result in a hospital needing to verify an overwhelming number of affiliations for locum tenens who often practice at numerous hospitals each year.  Because of this, a hospital may want to focus on and require affiliation verifications for the ten most recent and/or active affiliations for a locum tenens applicant or ten affiliations where the locum tenens had the most activity/practiced for the longest period within the previous ten years.  This should give you sufficient information to get a good picture of their practice and if it doesn’t, your policy language should permit you to verify additional affiliations.  Finally, remember, if there are any questions or concerns raised about the locums’ practice, you can ask follow-up questions; the burden is on the applicant to provide information to resolve those questions, and their application should be held incomplete until such information is furnished.

If you have a quick question about this, e-mail Charlie Chulack at cchulack@hortyspringer.com

July 17, 2025

QUESTION:
Is our responsibility under EMTALA complete once we conduct an Emergency Screening Exam and determine that since we do not have the ability to treat the patient, the patient will be transferred to another hospital?

ANSWER FROM HORTYSPRINGER ATTORNEY HENRY CASALE:
No.  There are two separate duties under EMTALA – the duty to conduct an Emergency Medical Screening Exam and a duty to stabilize the patient – your obligations under EMTALA are not complete until both duties have been satisfied in a reasonable manner.

A hospital must satisfy EMTALA’s first duty by providing an appropriate Medical Screening Examination (“MSE”) to any individual who comes to the hospital’s Emergency Department requesting examination or treatment.  While an MSE is not required to be conducted by a physician, if a non-physician will conduct the MSE, they must be qualified, and have been approved by the Board, to perform an MSE.

It is important to note that EMTALA does not impose a national standard of care on how to screen patients.  Therefore, a hospital is not required to provide an MSE that is comparable to an MSE offered in other hospitals, nor is a hospital required to provide more than an initial MSE.  However, if the screening is so cursory that it is not designed to identify a patient’s acute and severe symptoms to alert the ED personnel of the need for immediate medical attention to prevent serious bodily injury, the hospital may be found to have failed in its duty to conduct an MSE.

Once the MSE determines that the patient is suffering from an emergency medical condition, the next obligation that EMTALA imposes on the hospital is to provide such further medical examination and treatment as may be required to stabilize the patient’s emergency medical condition, either for admission or to transfer the patient to another medical facility.  (BREAKING NEWS – be sure to read next week’s HLE as a court just found, for what we can determine is the first time, that a court has disagreed with HHS’s long held position that EMTALA’s obligations end once a patient is admitted to a hospital.)

EMTALA imposes strict guidelines on patient transfers.  A patient in an emergency medical condition may be transferred to another medical facility if after being informed of the risks of transfer and of the hospital’s treatment obligations, the individual requests to be transferred (“patient-initiated transfer”), or based on the information available at the time of transfer, the physician determines that the medical benefits to be received at another medical facility outweigh the risk to the patient of being transferred (including, in the case of a woman in labor, the risks to the unborn child) and a certification to this effect is signed by the physician (“physician-initiated transfer”).

Where a transfer is permitted, the hospital’s duty to stabilize the patient prior to transfer requires the hospital’s ED to provide “such medical treatment of the condition as may be necessary to assure, within reasonable medical probability, that no material deterioration of the condition is likely to result from or occur during the transfer of the individual from a facility.”

Therefore, a hospital may not transfer a patient with an emergency medical condition which has not been stabilized.  The hospital’s duty under EMTALA to “stabilize” the patient prior to transfer includes: (i) appropriate treatment of the patient while awaiting transfer: (ii) taking the steps reasonably required to minimize the risks associated with the transfer; and (iii) making sure that the patient is transported in an appropriate manner that takes into account the patient’s emergency medical condition.

A patient will have a claim against the hospital for a breach of EMTALA’s duty to stabilize pending transfer where the patient is able to show that the hospital did not satisfy this duty.

If you have a quick question about this question, please e-mail Henry Casale at hcasale@hortyspringer.com.

January 16, 2025

QUESTION:
How should we handle distributing peer review materials prior to a meeting?

ANSWER FROM HORTYSPRINGER ATTORNEY NICHOLAS CALABRESE:
In general, we recommend that documents not be distributed before meetings.  You always take a risk when you distribute peer review materials prior to a meeting, because if the materials are lost, misplaced, or treated carelessly, peer review protections could be lost.  Confidential materials should not end up in the hands of someone who is not part of a legally protected peer review committee.

But, we also realize that sometimes confidential materials have to be reviewed prior to a meeting, because it may be a huge pile of documents.  So, here are a couple ideas:

You could keep all of the peer review materials in a central location, like the medical staff office.  Committee members can have access to the materials, but won’t be able to take them out of the office.  Also, here, don’t allow any copies to be made, unless the VPMA, CMO or CEO allows it.

Another idea is to put the committee member’s name and phone number on the materials, along with a number, like 1 of 12.  The committee members should be told that no copies may be made, and that the documents should be returned after the meeting.  Then, after the meeting, the materials should be collected, all of the numbers accounted for, and the copies destroyed – only keep the originals as official records.

One final idea that can be used with the first two ideas is to stamp all of the confidential materials with a stamp that states “Protected and Confidential Pursuant to the State Peer Review Statute.”  Again, a red flag goes up if the stamp is seen outside the meeting room.

During the pandemic, everything became virtual, which raised a whole host of issues.  Everyone is now more comfortable sharing peer review documents electronically through protected portals and the like, but there is still a need to be cautious.  So, sit down and think everything through on how to tackle this.  For example, think about:

  • How do you control access? (passwords, secure email, etc.)
  • Do you send emails to gmail accounts or only to hospital accounts?
  • Are you going to blind the records? Prohibit copies?

We advise pulling in your facility’s tech experts to work with you as a part of this process.  Which videoconferencing platform is secure for HIPAA and other privacy laws?  Create a list of approved software programs.

We’ve developed a policy on virtual meetings.  The highlights of the policy are:

  • Virtual participants should be required to maintain compliance with all policies relating to confidentiality, data privacy, electronic communications and security. We recommend that all meetings begin with a reminder about confidentiality, privacy and security, and that this be reflected in the minutes.  Quorum and voting requirements apply as if at an in‑person meeting.
  • The best practice is to prepare for calls by testing new cameras and microphones before the meeting. Also, minimize outside distractions, such as the dog coming in and out of the picture, hearing the neighbors fighting, or the kid next door testing out the new exhaust on his Dodge Challenger.  You can’t soundproof the walls, but do try to find a secluded, quiet space.

Some practical tips for virtual meetings…

  • Remember that you’re in a professional setting. During the pandemic, there were stories about people making dinner, brushing their teeth, etc., while on Zoom.  Avoid that and give the meeting the attention it deserves.
  • Remember that mute is your friend. Keep microphones on mute unless speaking, and always assume that the mic is hot.  Pre‑pandemic, there’s the famous story about President Ronald Reagan forgetting that he had a hot mic, and saying “My fellow Americans, I’m pleased to tell you today that I’ve signed legislation that will outlaw Russia forever. We begin bombing in five minutes.”  Then there are the pandemic stories – all members of a San Francisco area school board resigned after they were heard making disparaging comments about parents at a virtual board meeting.  Always assume the mic is hot and the camera is on.

If you have a quick question about this, e‑mail Nick at ncalabrese@hortyspringer.com.

October 17, 2024

QUESTION:
Our leadership team is getting a lot of conflicting information as to what we can and cannot do regarding political campaigns.  Where can we go to find the rules?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY NICK CALABRESE:
A 501(c)(3) organization cannot participate in or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.  The word “any” is emphasized because no de minimis amount of political intervention is permitted and the penalties can be harsh – penalties range from a warning, to an injunction, to a tax on prohibited political expenditures, to revocation of tax‑exempt status.

Since the penalties can be so serious, the IRS has provided a number of guides to help hospitals recognize and to avoid these penalties:

Rev. Rul. 2007‑41 provides 21 examples of Political Campaign Dos and Don’ts

April 12, 2024, Congressional Research Service Guide

August 19, 2024, IRS FAQ about the ban on Political Intervention

2024 IRS Mini Course on the ban on Political Intervention

We also recommend this short podcast by HortySpringer partners Dan Mulholland and Henry Casale in which they review the rules and also discuss the guidance from the IRS in terms of what a hospital can and cannot do this election season.

If you have a quick question about this, e‑mail Nick Calabrese at ncalabrese@hortyspringer.com.

October 10, 2024

QUESTION:
We are amending our medical staff governance documents and considering giving Advanced Practice Professionals (“APPs”) a larger role in medical staff affairs.  Do you have any recommendations based on your experience working with other hospitals?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY CHARLES CHULACK:
With the ever-increasing role that APPs, such as physician assistants and nurse practitioners, play in the delivery of health care in hospitals, we are seeing many hospitals across the country wrestle with this question.  Unfortunately, there is not a “one-size-fits-all” answer and the appropriate solution needs to take into consideration federal and state regulations and the culture of your medical staff and hospital, among other things.

Let’s start with the regulations.  The Centers for Medicare & Medicaid Services Conditions of Participation (“CoPs”) defer to state law when it comes to appointing APPs to the medical staff:  “The medical staff must be composed of doctors of medicine or osteopathy.  In accordance with State law, including scope-of-practice laws, the medical staff may also include…non-physician practitioners who are determined to be eligible for appointment by the governing body.”  42 C.F.R. §482.22(a) (emphasis added).  However, you want to be sure to check your state’s laws and regulations to determine if those sources are more restrictive.  By way of example, Pennsylvania limits medical staff membership to physicians and dentists.  28 Pa. Code § 107.2.  Even though Pennsylvania has a “structured exception” allowing hospitals to admit podiatrists to the medical staff, there is no corresponding exception for APPs.  Compare Pennsylvania’s restrictive approach with the approach taken by Colorado, which allows both physicians and non-physician practitioners to be on the medical staff.

Even in the states that permit APPs to be on the medical staff, we are seeing a variety of approaches.  Some hospitals make APPs eligible for medical staff membership, including appointment to the Active Staff.  That being said, these hospitals impose appropriate limitations on their prerogatives when compared to physician members of the Active Staff such as not being able to serve as the President of the Medical Staff (the Interpretive Guidelines to the CoPs say that the President of the Medical Staff “must be a doctor of medicine or osteopathy, or, if permitted by state law where the hospital is located, a doctor of dental surgery, dental medicine, or podiatric medicine”).  While we don’t see this approach taken frequently, it is more common with Critical Access Hospitals or smaller hospitals where the majority of clinical services are provided by APPs.

A more common approach is gradual integration of APPs into medical staff functions.  For example, the medical staff may begin by creating an APP Credentials Committee which reviews applications of APPs and reports to the regular Credentials Committee, or appoint APPs to the Credentials Committee to tap into their expertise when it comes to state scope of practice laws for APPs, how they practice, and what they are permitted to do in similarly-situated hospitals.  Some hospitals are also appointing an APP to the Medical Executive Committee and Multi-Specialty Peer Review Committee.  It varies with respect to whether they are given voting rights since we have seen some physician members of the medical staff express discomfort with an APP, who may have a supervising agreement while practicing in the hospital, evaluating the care they provide as a part of one of these committees.

In conclusion, APPs are increasing in number and have a growing role in providing clinical services in hospitals.  If your medical staff has not yet addressed this issue, the odds are that it will need to in the future.  Nevertheless, these are interesting and exciting issues whose solutions can result in a more vibrant and robust medical staff and hospital.

If you have a quick question about this, e-mail Charles Chulack at CChulack@hortyspringer.com.

October 3, 2024

QUESTION:
We have a patient scheduled for surgery who is deaf and we want to make sure that we are providing reasonable accommodations in accordance with the Americans with Disabilities Act. With that said, do we have to hire an in-person sign language interpreter, or can we rely upon video remote interpreting services to communicate with the patient?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY MARY PATERNI:
It’s great that you’re planning ahead to ensure that you can communicate effectively with your patient, especially in situations like these where communication is critical to quality care.  Under Title III of the Americans with Disabilities Act (“ADA”), hospitals and other places of public accommodation are required to provide “auxiliary aids and services” to individuals with disabilities to ensure effective communication.  “Auxiliary aids and services” include qualified interpreters who are either on site or available through video remote interpreting (“VRI”) services.

If your hospital is considering VRI services in lieu of in-person interpreters, please note that, in accordance with the ADA, these services must provide:

  • real time, full motion video and audio over a dedicated, high-speed, wide-bandwidth video connection or wireless connection that delivers high-quality video images that do not produce lags, choppy, blurry, or grainy images, or irregular pauses in communication;
  • a sharply delineated image that is large enough to display the interpreter’s face, arms, hands, and fingers, and the participating individual’s face, arms, hands, and fingers, regardless of his or her body position;
  • a clear, audible transmission of voices; and
  • adequate training to users of the technology and other involved individuals so that they may quickly and efficiently set up and operate the VRI. 28 CFR § 36.303.

The type of auxiliary aid or service will vary depending on the complexity of the communication involved and the context in which the communication is taking place.  While the ADA encourages consulting with the individual to determine the type of aid needed, it is the ultimate decision of the hospital or public accommodation so long as the chosen method of communication results in effective communication.  Therefore, as long as the VRI services provided meet the requirements listed above, and it is determined that VRI is an appropriate method of communication under the circumstances, then it is likely sufficient for a hospital to offer a patient such services as a reasonable accommodation rather than provide and pay for an in-person interpreter.

If you have a quick question about this, or any other hospital-related ADA issue, e‑mail Mary Paterni at mpaterni@hortyspringer.com.

September 26, 2024

QUESTION:
Since election season is upon us, what are the rules regarding 501(c)(3) tax‑exempt organizations participating in political activity?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY NICHOLAS CALABRESE:
This is directly from the IRS website:

Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity.  Violating this prohibition may result in denial or revocation of tax‑exempt status and the imposition of certain excise taxes.

Certain activities or expenditures may not be prohibited depending on the facts and circumstances.  For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non‑partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get‑out‑the‑vote drives, would not be prohibited political campaign activity if conducted in a non‑partisan manner.

On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates, will constitute prohibited participation or intervention.

If you have a quick question about this, e‑mail Nick Calabrese at ncalabrese@hortyspringer.com.

September 19, 2024

QUESTION:
We recently learned that one of our internists lost three fingers in an alligator attack while on a fishing retreat in Florida. He hasn’t been in the hospital for about seven weeks. Do we need to place him on a leave of absence or send him a request for information/records/medical clearance?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY RACHEL REMALEY:
What a traumatic and unfortunate thing to have happen!  When new concerns about practitioner impairment are raised, the hospital and medical staff have a responsibility to take steps to assure patient safety.  The right approach often depends on the circumstances.

In your scenario, the physician is an internist.  As a first step in evaluating whether the new health information raises concerns about the physician’s safety might be to evaluate his privilege delineation.  Does it include privileges that require manual dexterity?  The ability to grasp with a fist?  The use of both hands?  Also consider other Medical Staff obligations.  Would losing full use of one hand affect the physician’s ability to utilize the electronic medical record or other hospital equipment?

If the answer to any of the above is “yes,” then the matter should probably be referred to the committee within your hospital that handles matters of practitioner health (e.g., your Medical Staff Leadership Council or Practitioner Health Committee or Wellness Committee).  That committee can then decide next steps (in accordance with your Practitioner Health Policy, of course!), which might include some or all of the following:

  • Reaching out to the physician to inquire about his well-being, express peer to peer concern, ask about his practice plans, and offer support to the physician as he navigates how this new injury will affect his practice long-term. This initial communication might be a good time to ask the physician if he is planning to request a leave of absence in light of this extended time away from his hospital practice.
  • If the physician does not intend to request a leave of absence, the leadership may consider implementing one unilaterally – if the Medical Staff Bylaws (or other policies) authorize it. We recommend Bylaws language authorizing leaders to place a practitioner on a leave of absence in situations where the practitioner has been absent for a specified period of time (for example, 30 days) and the reason is believed to be related to a health issue.  This allows the leadership to not only plan adequately for the practitioner’s absence (e.g., reconfiguring the ED call schedule without the LOA practitioner on it), but also to ensure a meaningful reinstatement process when the practitioner is ready to return to practice.

In your case, a leave of absence would be a perfectly appropriate option.  Any decision to place the practitioner on leave should, of course, be communicated to the practitioner and memorialized in writing.  Further, it is generally helpful to take this opportunity to inform the practitioner about the reinstatement process, so that as he contemplates his return to hospital practice, he can plan accordingly (including making his reinstatement request well in advance of his planned return and, as appropriate submitting information and medical clearances along with the request).

  • In many cases, you may find that the practitioner with a new impairment is not ghosting the hospital in order to avoid detection or scrutiny but, rather, because he is still actively managing/recovering from the injury or illness and simply needs more time – or because he has insight into his changed circumstances and is stepping away from some of his hospital duties temporarily or permanently while he evaluates the impact the impairment will have on his ability to continue aspects of his practice. If you talk to the practitioner and find that he is thoughtfully managing his recovery, has taken steps to protect patients in the meantime (e.g., made plans to cover his practice, modified his practice while he recovers), then the leadership might decide that no leave of absence is required.  This does not mean you need to forego oversight altogether.  But, depending on the situation, the leadership might decide to simply send the practitioner a letter memorializing their conversation – and then ask the physician to let the health committee know in advance (e.g., 10 days or 30 days – whatever is reasonable) that he intends to return to practice so that the situation can be revisited at that time.  Again, this can be a good time to give the physician a “heads up” that additional information about his condition or a health evaluation could be requested in the future, depending on how things go.
  • Finally, if the physician’s condition clearly implicates his safety for some of his privileges (those requiring full use of the hands), the health committee may need to eventually go through the interactive process of discussing with the physician his intentions with respect to his hospital practice (e.g., does he intend to voluntarily relinquish those that require the use of both hands?) and/or whether any reasonable accommodations would be appropriate to assist him in fulfilling the essential functions of Medical Staff membership and/or his clinical privileges (e.g., will special equipment be required to support one-handed typing or voice transcription? Scribe services?).  You may need to request additional information from the physician at that time.  But, it’s possible that once he has fully recovered, your internist will come to you with ample information about his condition and a reasonable plan for practice.  Unless there is a pressing need to request additional information right now (for example, the physician tells you that he will not be requesting a LOA because he intends get back to practice as soon as possible), it may be best to wait to have these conversations after the physician has recovered enough to be thinking about his return.

In the end, it is important that Medical Staff Bylaws and related documents (e.g., Credentials Policy, Rules and Regulations, Practitioner Health Policy) give physician leaders the tools they need to effectively and efficiently address concerns about practitioner health and impairment (like procedures for implementing LOAs and processing reinstatement requests).  Sometimes you need to take advantage of those tools.  But sometimes, depending on the practitioner and the circumstances, those tools end up being unnecessary (leaving the leadership in the enviable position of simply exercising oversight, without having to invoke more formal intervention strategies).

September 12, 2024

QUESTION:
I saw in the August 22, 2024, edition of the HLE that the FTC regulations effectively outlawing restrictive covenants were invalidated by a district court in Texas.  Does that ruling apply in the entire country and did it have anything to do with the Supreme Court’s decision overruling the Chevron Doctrine?

OUR ANSWER FROM HORTYSPRINGER ATTORNEY HENRY CASALE:
The Federal Trade Commission issued final rules that were to go into effect on September 5, 2024 that would: (i) ban restrictive covenants in new employment agreements; (ii) permit a restrictive covenant in an acquisition; (iii) require employers to rescind covenants currently in effect; and (iv) not directly prohibit non-solicitation covenants, but a non-solicitation covenant would have been difficult to enforce under the final rules.

The FTC toiled mightily on these rules.  It was reported that the FTC received nearly 27,000 comments on the proposed rules.  According to a letter from the FTC that was sent to House Judiciary Committee Chairman Jim Jordan (R-Ohio), that was obtained by Bloomberg Law under the federal Freedom of Information Act, it was also reported that by late February 2024, the FTC had spent about $500,000 on this rulemaking effort and at that point, 47 agency employees, contractors, advisers and consultants had spent more than 6,000 hours on the rulemaking.

It is also interesting to note that the FTC was not alone in its opposition to restrictive covenants and that the Attorneys General from 18 states wrote a letter in support of the FTC’s proposed rules.

But all of that work was for naught, because after the rule was promulgated in final form, but before it could go into effect on September 5, 2024, as we reported on August 22, those rules were invalidated nationwide by U.S. District Court for the Northern District of Texas In Ryan LLC v. Federal Trade Comm’n, No. 3:24-CV-00986-E (N.D. Tex. Aug. 20, 2024).

Interestingly, the court did not discuss the demise of the Chevron Doctrine directly.  However, the district court cited the U.S. Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, No. 22-1219 (U.S. June 28, 2024), the decision that overruled the Chevron Doctrine, several times throughout its opinion.

The district court concluded that the text and the structure of the FTC Act did not confer substantive rulemaking authority on the agency with respect to unfair methods of competition and so the FTC exceeded its statutory authority in promulgating the non-compete rule.

In addition, the district court found the FTC’s “lack of evidence” as to why they chose to impose such a sweeping prohibition instead of targeting specific, harmful noncompete covenants, rendered the rule arbitrary and capricious and beyond the scope of the FTC’s statutory authority.

Yes, the district court had the authority to invalidate the rule nationwide.  However, this decision does not affect the FTC’s ability to challenge a restrictive covenant on a case-by-case basis, nor does it affect state law on restrictive covenants.  But since FTC actions are likely to be few and far apart, that leaves the issue of the enforceability of a restrictive covenant to be a matter of state law.

However, the state law on restrictive covenants varies from state to state.  You also need to be aware that many states are currently looking at this issue and reconsidering whether they want restrictive covenants to be enforceable in that state.

Case in point, Pennsylvania just passed a law called “The Fair Contracting for Health Care Practitioners Act” (also known as Act 74) which will go into effect on January 1, 2025.  This new law significantly changes the law in Pennsylvania with regard to the ability of an employer to enforce a restrictive covenant with a physician, CRNA, CRNP or PA.

For example, under this new law, an employer may enforce a noncompete covenant if the length of the noncompete is no more than a year, provided that the health care practitioner was not dismissed by the employer.  So, if the employer ends the employment relationship, the otherwise permitted one-year restrictive covenant is rendered unenforceable.

The new law does include an exception that permits a restrictive covenant in an acquisition.  The law also permits an employer to include a term in its employment agreements that will allow the employer to recover reasonable expenses that are directly attributable to the employee and are accrued within three years prior to separation UNLESS the employee’s separation from employment is due to dismissal by the Employer – apparently even if the dismissal is for cause.  The employer can also recoup costs that are related to relocation, training and establishment of a patient base, regardless of how the employment relationship ends.  But these costs must be amortized over a period of up to five years from the date of separation.  There is also a patient notice requirement that will prohibit a patient non-solicitation term.

As with any law the devil is in the details.  But, since January 1, 2025, will be here before you know it, employers in Pennsylvania need to change past practices in their new employment agreements in order to comply with this new law.  Employers in other states must constantly monitor this issue, as the current trend does not favor the enforcement of a restrictive covenant even if such a covenant may have been enforceable in the past.

If you have a quick question about this issue, please e-mail Henry Casale at hcasale@hortyspringer.com.

If you want to find more information on the demise of the Chevron Doctrine and its effect on Healthcare Compliance, please join Dan Mulholland, Henry Casale and Jerry Safran, Founder and CEO of YouCompli, for our September 30, 2024, webinar that is co-sponsored by HortySpringer, YouCompli and the Health Care Compliance Association, entitled: “What Does the Reversal of the Chevron Doctrine Mean for Healthcare Compliance?” To register, click here

 Also be sure to join Dan and Henry in Las Vegas at our Hospital-Physician Contracts and Compliance Clinic, November 14-16, where the FTC rule, Chevron and a whole lot more will be covered. For more information or to register, click here