- Potential Risks of Healthcare Joint Ventures Between Insurance Companies and Hospitals
- May 23, 2014 | Authors: Charles L. Kreindler; Barbara E. Taylor
- Law Firm: Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office
Healthcare joint ventures are nothing new. Since the mid-2000’s, physician-hospital ventures have been resurgent, notwithstanding the Office of Inspector General’s skepticism regarding the risk of fraud and abuse when investors are sources of referrals and the filing of numerous whistleblower actions under the False Claims Act (e.g., the nine cases filed against Health Management Associates, Inc., which have been transferred to the District of District of Columbia for consolidated and coordinated proceedings). More recently, a new kind of joint venture has come on the scene: partnerships between insurance companies and healthcare systems. Partly in response to healthcare reform, these ventures seek to “align incentives” between these traditional adversaries. Since 2010, a number of health systems have either acquired or decided to form their own insurance companies. Partnering with insurance companies, however, may be the more practical approach, since health systems can take advantage of insurance companies’ information technology and expertise, while avoiding the cost, time and regulatory approvals required to build an insurance plan from scratch. In 2013, Florida Hospital was among the first to go down this path, announcing a joint venture with Health First Health Plans. More recently, in April 2014 Independence Blue Cross and DaVita HealthCare Partners announced the creation of Tandigm Health, touted as a “unique joint venture” using a coordinated care model to deliver higher quality care at lower cost.
To date, these joint ventures have not generated significant litigation arising under fraud and abuse laws. But as this trend accelerates, care should be taken to appreciate the potential risks under applicable laws, including antitrust (Sherman Act §1), Ethics in Patient Referral Act (Stark law), Civil Monetary Penalties Law (42 U.S.C. §1320a-7a), Anti-kickback Act (41 U.S.C. §51, et seq.), civil False Claims Act (31 U.S.C. §3729, et seq.), state corporate practice of medicine (e.g., Cal. Bus. & Prof. Code §§2052 & 2400), state insurance regulations, and medical tort liability. For example, the press release announcing Tandigm Health’s creation states that it “will partner with primary care physicians... to provide enhanced resources to help them deliver more personalized, high-quality care” and “will reward doctors for the quality of care they provide, not the quantity of care.” But as the Stark law presently stands, arrangements to improve patient care may be banned where payments tied to achievements in quality and efficiency vary based on services ordered instead of only hours worked. (See American Hospital Association TrendWatch Report, The Value of Provider Integration (March 2014).
More generally, members of joint ventures are treated like partners for purposes of tort liability, i.e., they are liable for torts of one member committed in furtherance of the enterprise. Thus, the form of entity chosen can have significant consequences. For example, in U.S. ex rel. DeKort v. Integrated Coast Guard Systems, 705 F.Supp.2d 519, 544, 557 (N.D. Tex. 2010), the district court dismissed joint venture allegations and claims based on joint and several liability under the False Claims Act, notwithstanding defendants having described themselves as “partners” in a “joint venture,” because the entity under contract with the Coast Guard was a limited liability company. Of course, even if technical joint venture liability is not imposed, a defendant can still be potentially liable for its own conduct and under other theories such as alter ego.
In sum, joint ventures between insurance companies and hospitals herald a new era in the provision of health care. Whether a new wave of litigation results remains to be seen.