Prior to completing the assignment,  review Chapter 4 of your course text.

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You are a manager with five years of experience and need to write a report for senior management on how your firm can avoid the threat of a Federal Trade Commission investigation if you were to merge with other health care organizations. Research on your own to select a health care organization in the United States that has been charged with an antitrust action within the last five years and use this information as the basis for your paper. In your report

  • Summarize the charges and rebuttal or mitigation of charges used by the health care organization you researched.
  • Discuss lessons learned and propose actions that can be taken by your management to avoid similar anti- trust actions in your proposed merger.

Your paper must include an introduction, thesis, and conclusion. Your paper must be four to five double-spaced pages in length (excluding title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center.  Utilize three scholarly and/or peer-reviewed sources (excluding the course text) that were published within the last five years. Cite your sources within the text of your paper and provide complete references for each source used on the reference page.


The purpose of antitrust laws is to promote a competitive, free marketplace; these laws are intended to protect the public from the adverse effects of monopoly power. The federal government and virtually all state governments have antitrust laws, which reflect a public policy principle that a competitive marketplace protects consumers, restrains private economic power, and generally produces the best allocation of quality goods and services at the lowest prices. The three main sources of federal antitrust law are the Sherman Act, the Clayton Act, and the Federal Trade Commission Act. Section 1 of the Sherman Act prohibits all conspiracies or agreements that restrain trade.38 Section 7 of the Clayton Act prohibits all mergers and acquisitions of stock or assets that may substantially lessen competition or that tend to create a monopoly.39 Section 5 of the Federal Trade Commission Act prohibits unfair methods of competition.40 Sherman Act As interpreted by the courts, Section 1 of the Sherman Act applies to agreements that unreasonably restrain trade, which may include agreements or conspiracies to fix prices, divide market territories or groups of customers, boycott other firms, or use coercive tactics with the intent and effect of injuring competition. The Sherman Act applies to virtually all businesses in the country, including healthcare providers. As of this writing, the insurance industry is a significant exception to antitrust law, although the House of Representatives has passed a bill to repeal the exception. The Sherman Act condemns any conduct that causes inefficiencies resulting in higher prices or lower quality of services to the ultimate consumer. Most business practices that are condemned under the Sherman Act are justified from a business standpoint but deemed illegal because they “unreasonably” restrain trade (i.e., the anticompetitive effect of the business practices outweigh their pro-business justifications). An example of such a practice would be a “noncompete” clause prohibiting the seller of a business from ever engaging in a similar business activity. Although such a noncompete clause is justified on business grounds for the buyer, the clause’s provision could unreasonably restrain trade. Noncompete clauses are generally accepted if they are geographically and temporally reasonable. Some practices, however, are condemned because there are no acceptable justifications for the conduct. An example of such a practice is an agreement among competitors to fix prices. Price-fixing concerns arise in the healthcare setting where physician organizations (POs), physician hospital organizations (PHOs), or other networks of otherwise unaffiliated healthcare providers negotiate with payers as a group. Keep in mind, where healthcare providers are all owned by the same parent, sharing price information is always acceptable. However, otherwise independent providers negotiating as a unit without meeting certain requirements is considered price fixing and violates antitrust law. From an antitrust perspective, these providers may be viewed as competitors that are jointly setting the price they will charge for their services. However, there are a number of contexts in which POs and PHOs can legally assist providers with negotiating payer agreements, which are discussed further below. Enforcement of antitrust laws is jointly shared by the Department of Justice and the FTC, and the agencies have largely overlapping jurisdiction. Over the years the agencies have developed expertise in particular industries or markets. For example, the FTC devotes most of its resources to certain segments of the economy, including those where consumer spending is high: health care, pharmaceuticals, professional services, food, energy, and certain high-tech industries like computer technology and Internet services. When issuing guidance the agencies have historically come to an agreement on how to enforce a certain area of antitrust law. A merger or joint venture between two or more hospitals may be investigated by either the Department of Justice or FTC under the Clayton Act. These agencies have established a procedure for deciding, on the basis of staff expertise, prior dealings with the parties involved, and caseload, which agency investigates a particular merger or joint venture. Although either agency may investigate a merger or joint venture for civil violations, once criminal conduct is suspected, the case is referred to the Department of Justice. Private parties and state attorney generals may also sue to block mergers or joint ventures under either the Sherman or Clayton Act. Some actions by providers, such as agreements among firms to fix prices or divide markets, are on their face antitrust violations and are called “per se” violations. Actions not considered per se violations are evaluated under the “rule of reason.” The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires that parties notify both FTC and Department of Justice of certain mergers, acquisitions, joint ventures, or tender offers before consummation of the agreements.41 This filing requirement applies to all parties engaged in such activities, including hospitals, and covers agreements in which the acquiring entity has net sales or total assets of at least $100 million and the entity being acquired has assets of at least $10 million. Based on information provided in these filings, the Department of Justice and FTC decide whether to allow the proposed merger to proceed or to open a preliminary investigation. If the preliminary investigation indicates that a potential violation exists, FTC or Department of Justice may issue a second request for additional information to review before deciding whether to challenge the proposed merger or collaboration as a potential violation of antitrust laws. Reviews of mergers might include interviews of competitors and analysis of the marketplace. When weak competitors are interviewed by the Department of Justice, however, they are often cowed by the specter of the larger competitor that could be either their future partner or a monolith ready to put the weaker sister out of business. Other providers might be inclined to give unwarranted opposition because they do not want the increased competition. In August 1996 the Department of Justice and FTC issued their current guidelines, Statements of Antitrust Enforcement Policy in Health Care, outlining general enforcement policies regarding certain types of practices of healthcare providers. The 1996 Statements specify how agencies will apply the antitrust laws to nine types of conduct of hospitals, physicians, nursing homes, and other providers, such as joint purchasing, information exchange, and formation of PHOs. The ninth policy statement applies to any organization composed of various types of providers that combine to jointly offer healthcare services, including POs and PHOs. According to the statement, if members of the network offer only complementary or unrelated services, they do not compete and there are no antitrust concerns. If the network is formed by a group composed of competing providers, however, the antitrust agencies are concerned that the network may interfere with competition and with the market efficiencies that competition protects. To address these concerns, the antitrust agencies identified ways in which PHOs and others may be structured to create incentives for providers to operate efficiently even in the absence of competition. One way in which sharing competitive information within a network is acceptable under antitrust principles is when participating providers share “substantial” financial risk, referred to as “financial integration.” The antitrust agencies regard these providers as risk sharing if the compensation each receives through the network depends on the overall performance of the network as a whole. For example, a network may negotiate capitated payer agreements with HMOs because the network is provided a flat amount per beneficiary and as a result bears the financial risk when providing services. Alternatively, a PHO could receive a fixed amount for a “package” of complex or extended services delivered by its participating providers, even though services may require numerous providers and the aggregate cost of furnishing services might vary significantly from patient to patient. For example, a system consisting of a hospital, obstetricians/gynecologists, pediatricians, and anesthesiologists could collectively agree to furnish all necessary prenatal, delivery, and postdelivery services to enrollees for a fixed fee. As an alternative, the antitrust agencies suggest that a network may be able to adopt and strictly enforce clinical standards that guarantee the efficient delivery of care even in the absence of risk sharing or competition, referred to as “clinical integration.” The FTC has approved a number of existing clinically integrated networks through a series of advisory opinions, which have provided guidance as to what exactly is required to jointly negotiate with payers. The lessons learned from these opinions include the importance of evidence-based clinical practice guidelines, including data collection mechanisms for measuring performance; participation and buy-in from all physicians, including primary care and specialists; and that the network not be exclusive and not have market power in the community. With the increased incentives for adopting electronic health records, some PHOs and POs have used the opportunity to begin adopting the data collection systems to implement the required systems for analyzing network participant performance against clinical standards toward implementing a fully clinically integrated panel. Where there is neither financial integration nor clinical integration, a network may not jointly contract for its providers, for example, for a general fee-for-service payer agreement. However, the “messenger model” is a means of allowing networks to assist their providers in contracting without joint negotiation. An acceptable messenger model exists where there are significant safeguards against providers sharing rate information with one another. When the network and payer want to enter into an agreement for provider services, the payer suggests a certain compensation level, which the network “messengers” to its providers. Each provider then either accepts the offer or counters with its own offer. In this way the network assists providers with payer contracting, but rate information is not shared in violation of antitrust law. Clayton Act Section 7 of the Clayton Act prohibits mergers and acquisitions that may substantially lessen competition “in any line of commerce… in any section of the country.”42 Enacted in 1914 the Clayton Act made price discrimination, tying and exclusive dealing contracts, mergers of competing companies, and interlocking directorates illegal but not criminal. In 1950 Congress modified Section 7 of the Clayton Act with the Celler-Kefauver Act, proscribing one company from acquiring part or all assets of a competitor where such an action could result in substantially lessening competition or creating a monopoly. In 1980 Congress further modified Section 7 of the Clayton Act, extending its reach to any person subject to FTC jurisdiction, thus adding partnerships and sole proprietorships. In the 1992 Department of Justice/FTC Horizontal Merger Guidelines, the agencies described their enforcement policy relative to the Sherman, Clayton, and FTC Acts and emphasized the need to apply the guidelines to the specific facts of each case. The agencies applied a five-step methodology outlined in the guidelines for analyzing the specific facts of each merger. The guidelines provide a general analytical methodology used by the agencies in deciding if the agencies will challenge a merger. First, the agencies determine whether the merger will increase concentration in a market already concentrated. If not, then the analysis generally will not proceed any further. However, if so, then the agencies will assess if increased concentration raises anticompetitive concerns. Next, the agencies will consider whether another competitor can make a timely market entry to deter or counteract the competitive concern. Then, the agencies will assess any efficiencies gained, not possible through any other means other than the merger. Finally, the agencies will ask if either merging party probably will fail or absent the merger, resulting in the failing party’s assets exiting the market. The 1996 Statements of Antitrust Enforcement Policy in Health Care: Statement 1 provides specific guidelines in the healthcare area to prevent antitrust concerns from deterring activities potentially resulting in lower healthcare costs, increased competition, and increased consumer choice by addressing the issue of mergers among hospitals. The agencies have suggested that many potential hospital mergers pose little competitive concerns and require less analysis. In fact, some providers argue that the increase in enforcement has been concurrent with the federal governments desire to bring down costs in the healthcare environment. The providers desire to get better payments caused them to band together. Thus, increased enforcement leads to the balance of power being shifted to the payers. To further facilitate competitive analysis, the agencies have created so-called antitrust safety zones in which the agencies will not challenge mergers if the hospitals meet certain requirements. The agencies have stressed that if the merging hospitals fall outside the safety zone, they may still not challenge the proposed merger and they will apply the five-step analytical process described earlier in the 1992 Horizontal Merger Guidelines. After applying this rule of reason analysis, the agencies have not challenged mergers in the following situations: where the merger did not increase market power because of the postmerger presence of strong competitors, where the merged hospitals could achieve cost savings not otherwise possible, and where the merger includes a failing hospital likely to exit the market otherwise. Hospitals falling outside the safety zone can seek agency review by the Department of Justice or the FTC before the merger, for a preliminary determination of the agencies’ probability of challenging the mergers. EMERGENCY MEDICAL TRANSFER AND ACTIVE LABOR ACT The Emergency Medical Treatment and Active Labor Act (EMTALA) requires all Medicare- or Medicaid-participating hospitals with an emergency department to provide appropriate medical screening to each patient requesting emergency care to determine whehter the patient requires such care.43 Originally passed by Congress in 1985 as part of the Consolidated Omnibus Budget Reconciliation Act of 1985, EMTALA often is referred to as the “antidumping law” because it prohibits hospitals from transferring an emergency patient to another hospital simply because of the patient’s inability to pay. If emergency care is needed, the statute requires the hospital to medically stabilize the patient (assuming the hospital has the medical capabilities to do so), irrespective of the patient’s ability to pay. Hospitals are prohibited from posting payment information in their emergency rooms. Patients who have medical conditions that the hospital is incapable of stabilizing (as certified by a physician) or who ask to be transferred to another facility before the hospital can stabilize their condition must be transferred to another facility in accordance with specific requirements of EMTALA. If after evaluation the patient is found not to have a medical emergency, the hospital’s obligation to the patient under EMTALA ends. EMTALA also requires that a Medicare- or Medicaid-participating hospital ensures that emergency department staff do not engage the patient in discussion regarding his or her financial or insurance information before conducting the medical screening examination and stabilization of the emergency condition. Hospitals may, however, commence normal registration procedures, which may include asking whether the patient carries insurance, as long as such procedures do not delay screening and stabilization. To avoid EMTALA violations, hospitals should perform the following: • Require all clinical, administrative, and contract staff to review and understand the EMTALA requirements. • Ensure that all patients who decide to leave the hospital without receiving treatment or withdraw their request for emergency treatment are offered a medical examination and treatment within the hospital facilities before they leave, and that staff who can identify and stabilize a patient’s medical condition always are available in the hospital to provide these services within the limits of the hospital staff’s medical capabilities. • Ensure that all reasonable steps are taken to obtain the patient’s written informed consent to refuse any examination or treatment services, and that the patient’s medical record contains a description of the examination, treatment, or both as well as documentation of the patient’s refusal to receive emergency care. • Ensure that emergency department staff have reviewed and understand all statutory requirements regarding transfer of patients to another facility. • Instruct hospital staff to refrain from asking patients to complete financial forms or inquiring about patients’ financial or insurance status, even if the patient engages the staff in conversation, until the medical screening examination has been conducted and the patient’s emergency medical condition has been stabilized. SUMMARY This chapter has provided a general overview of the laws and regulations that govern the healthcare industry. A financial manager can expect to be confronted by such legal issues and should plan to address them on a regular basis. The Health Care Reform Act of 2010 will usher in a period of even greater regulatory oversight as access to health care is expanded and payment methods are dramatically altered. The failure to understand the importance of these legal requirements can put an organization at significant financial risk and expose individuals to personal liability. Corporate compliance should be considered an essential element of every healthcare organization’s culture and the foundation of its financial security. ACKNOWLEDGMENTS Peter A. Pavarini, Esq. is a partner in the Columbus, Ohio, office of Squire, Sanders & Dempsey L.L.P. ( and has focused his practice on the representation of healthcare providers in transactional and regulatory matters for over 25 years. He wishes to express his sincere appreciation for the capable assistance of Kristin J. Harlow, Esq. and John E. Wyand, Esq., both associates in the health law practice of Squire, Sanders & Dempsey, in the preparation of this chapter. ASSIGNMENTS 1. Identify at least three federal statutes that may be implicated by the proposed restructuring of SSRH’s cardiovascular service line. 2. How much reliance should a CFO place upon a CEO’s assertion that a novel physician-hospital relationship has been approved by DHHS-OIG? How can a CFO be sure that a particular proposal is legally acceptable? 3. How is the Patient Protection and Affordable Care Act of 2010 (the “Health Care Reform Act”) likely to reshape financial arrangements between hospitals, physicians, and other providers if Medicare makes a single payment for all care received by a beneficiary from 72 hours before admission to 30 days after discharge from an inpatient facility? 4. If Bravo wanted to see for himself whether SSRH’s cardiovascular program was in fact at risk of being found out of compliance with Medicare’s conditions of participation, how should he go about getting relevant patient documentation without violating the privacy requirements of HIPAA? 5. Based on his legal concerns about the proposed restructuring, Bravo believes that SSRH would be on firmer legal ground if the relationship with CCI was limited to private pay patients only and if HMO, Inc., a major managed care payor in the market, was also involved in the quality improvement program. Is he right, and why? 6. What suggestions would you have to improve SSRH’s corporate compliance program given that Devine’s proposal may never have been reviewed by legal counsel before going to the SSRH board? 7. If SSRH implemented a policy that heart failure patients could not be received by the hospital’s emergency department unless the patient had first contacted a CCI cardiologist, would EMTALA be implicated? How would you confirm that the hospital is not at risk of an EMTALA violation? 8. What business risk does the Red Flags Rule protect against? Who is covered by the Red Flags Rule? How does a subject entity demonstrate compliance with the Red Flags Rule? 9. Describe “internal control” as it relates to a corporate compliance program. What are the five interrelated components of internal control? 10. Compare and contrast Medicare and Medicaid. 11. Discuss the various types of third-party payors. 12. What are the four operational requirements for a § 501(c)(3) tax-exempt organization? SOLUTIONS AND ANSWERS 1. A number of federal statutes may be implicated by the proposed restructuring of SSRH’s cardiovascular service line, including (1) the Anti-Kickback Statute, (2) the Stark Law, (3) the False Claims Act, (4) the Internal Revenue Code, and (5) Patient Protection and Affordable Care Act. 2. The CFO should have a novel physician-hospital relationship reviewed by counsel. It is likely that the CEO is referring to an Advisory Opinion in which the OIG has reviewed a specific arrangement and indicated that the arrangement has a low risk for violating the Anti-Kickback Statute based on a certain set of facts. To ensure that SSRH’s proposed arrangement has the same low risk as the arrangement approved by the OIG, the SSRH proposed arrangement must meet all of the requirements and have all of the safeguards indicated in the Advisory Opinion. All such arrangements should be reviewed by counsel to minimize risk of the significant civil and criminal penalties possible for any such violation. 3. Under the current Medicare reimbursement system, hospitals are reimbursed one amount for each inpatient admission at a given rate based on the characteristics and diagnosis of the patient. Once the patient is discharged, Medicare reimburses outpatient providers for services to the patient directly per procedure or office visit. Therefore, hospitals and out-patient providers will need to determine how to divide one payment for all services provided throughout the 33 day period, for services provided regardless of provider or location. It is likely that as the Health Care Reform Act is implemented, hospitals and out-patient providers will merge for ease of distribution of reimbursement, but also to more efficiently negotiate how a bundled payment is divided. Finally, post–acute care providers, such as nursing homes and home health providers, will have to work with hospitals and other outpatient providers to negotiate how they will be reimbursed for services provided within the 33 day period for which a bundled payment is provided. 4. Bravo is the CFO of a hospital, which is a covered entity under HIPAA. A covered entity is permitted to use protected health information for healthcare operations. Ensuring that a healthcare service line is in compliance with Medicare’s conditions of participation is a part of the healthcare operations of the hospital. If Bravo requires outside assistance of a consultant or attorney to determine whether the Medicare conditions of participation are being met, such consultant or attorney would be a business associate under HIPAA. Therefore, before any patient information could be transferred, the consultant and SSRH must execute a business associate agreement ensuring that the protected health information is properly secured in compliance with HIPAA requirements. 5. Although Bravo is technically correct that the Anti-Kickback Statute and the Stark Law apply only where Medicare or another federal healthcare program is paying for healthcare services or items, such a plan is difficult and risky in practice. If CCI is truely limited to private pay patients, the arrangement need not meet the requirements of the Stark Law. The Anti-Kickback Statute need only be considered in the context of whether the arrangement could be used as remuneration in exchange for other referrals of Medicare or Medicaid beneficiaries. However, there is always a risk that patients may have Medicare as a secondary payor and the hospital would mistakenly bill Medicare or other government payor for services provided under the CCI arrangement. In addition, if the relationship with CCI includes HMO, Inc. as a third-party payor, it is very likely that HMO, Inc. includes a Medicare Advantage plan, and/or a Medicaid managed care plan, both of which would implicate Stark and the Anti-Kickback Statute. Therefore, limiting a service line to private payors in order to avoid the requirements of the Stark Law and the Anti-Kickback Statute is not the safest way to try to comply with the laws. 6. SSRH’s corporate compliance program should require all new arrangements or affiliations with independent physicians or physician groups to be reviewed by counsel, especially when the relationship or affiliation is novel, and when the physicians are in a position to refer to the hospital. 7. EMTALA requires that if emergency care is needed, a hospital with an emergency department must medically stabilize the patient. Therefore, to limit the hospital’s risk of an EMTALA violation, the emergency department should ensure that a patient is stable before inquiring whether the patient contacted a CCI cardiologist. SSRH is free to transfer the patient once the patient’s condition has been stabilized. 8. The Red Flags Rule protects against the use of stolen identification for the purchase of goods and services. “Financial institutions” and “creditors” are subject to the Red Flags Rule. A healthcare entity is likely a creditor if it permits deferred payment of debt. To demonstrate compliance, an entity subject to the Red Flags Rule must (1) periodically conduct a risk assessment to determine whether it offers or maintains covered accounts; (2) establish a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with the opening of a covered account or any existing covered account (the “Program”); and (3) administer the Program. The regulations require that a Program be appropriate to the size and complexity of the creditor and the nature and scope of its activities and include reasonable policies and procedures to (1) identify relevant red flags for the covered accounts, (2) detect red flags that have been incorporated into the Program, (3) respond appropriately to any red flags that are detected to prevent and mitigate identity theft, and (4) ensure the Program is updated periodically to reflect changes in risks to customers and to the safety and soundness of the creditor from identity theft. 9. “Internal control” is a process undertaken by an entity’s board of directors, management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories: reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. The five interrelated components of internal control are (1) establishing a control environment that sets the tone of an organization; (2) assessment of relevant risks to determine how the risks should be managed; (3) policies and procedures that help ensure management directives are carried out; (4) identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities; (5) monitoring the quality of internal control performance over time. 10. Medicare is a social insurance program that provides health insurance coverage for individuals aged 65 and over and individuals with permanent disabilities. Benefits include hospital insurance, doctor’s services, and prescription drug coverage. Medicaid is a safety net insurance program that provides health insurance coverage to poor and very sick individuals. The single largest expenditure under Medicaid is for nursing home care. While Medicare is funded and administered through the federal government, Medicaid is funded by the federal and state governments and is administered by state government. 11. Generally, third-party payors are either public or private. Public payors include Medicare, Medicaid, the Federal Employees Health Benefit Program, and the State Children’s Health Insurance Program. There are specific eligibility requirements for each program and some degree of cost sharing between the government and the individual beneficiary. Private payors are non-governmental entities, regulated by state law, that offer packages of health insurance benefits to businesses and individuals. The types of plans include traditional indemnity fee-for-service plans, managed care plans, health maintenance organizations, and self-insured plans. 12. The four operational requirements for a § 501(c)(3) tax-exempt organization are (1) the organization must engage “primarily” in activities that accomplish one or more exempt purposes, and no more than an insubstantial part of its activities can be toward a nonexempt purpose; (2) the net earnings of an organization may not “inure” to the benefit of private shareholders or individuals; (3) the organization must serve a public rather than a private interest and may not be operated for the benefit of private interests, such as individuals, the creator, shareholders, or other persons controlled by such private interests; and (4) no substantial part of an organization’s activities may constitute the carrying on of propaganda or attempting to influence legislation or participate in a political campaign on behalf of any candidate for public office. 1 Patient Protection and Affordable Care Act, Pub. Law No. 111-148 (2010). 2 Thomas A. Ratcliffe, & Charles E. Landes, Understanding Internal Control and Internal Control Services 2, (American Institute of Certified Public Accountants, Inc.) (2009). 3 Patient Protection and Affordable Care Act, Pub. Law No. 111-148 § 2704 (2010). 4 42 U.S.C. § 1396(a)(30)(A). 5 42 U.S.C. § 1396b. 6 42 U.S.C. § 1320a-7b. 7 18 U.S.C. §§ 1341 & 1343. 8 18 U.S.C. §§ 1961 et seq. 9 18 U.S.C. §§ 1956-1957. 10 18 U.S.C. § 1035. 11 31 U.S.C. §§ 3729 et seq. 12 42 U.S.C. § 1320a-7b(b). 13 United States v. Picciotti, 40 F. Supp. 2d 242, 248 (D.N.J. 1999). 14 United States v. Greber, 760 F.2d 68 (3d Cir. 1985) 15 United States v. Kats, 871 F.2d 105 (9th Cir. 1989). 16 U.S. ex rel. Pogue v. Diabetes Treatment Centers, 565 F. Supp.2d 153, 162 (D.D.C. 2008). 17 42 C.F.R. § 1001.952. 18 42 U.S.C. § 1395nn. 19 42 C.F.R. §§ 411.350 et seq. 20 Pub. Law No. 104-191, 110 Stat. 1936 (1996). 21 Pub. Law No. 111-5, 123 Stat. 115 §§13400 et seq. (2009). 22 45 C.F.R. Parts 160 and 162. 23 45 C.F.R. Parts 160 and 164, Subparts A and E. 24 45 C.F.R. Parts 160 and 164, Subpart C. 25 45 C.F.R. Parts 160 and 164, Subpart D. 26 The State of HIPAA Privacy and Security Compliance 3 (Am. Health Info. Mgmt. Ass’n ed., 2006). 27 29 U.S.C. § 1001 et seq. 28 26 U.S.C. § 501(c)(3). 29 Rev. Rul. 69-545, 1969-2 C.B. 117. 30 26 U.S.C. § 509. 31 Treas. Reg. § 1.170A-9(c)(1). 32 Rev. Rul. 69-545, 1969-2 C.B. 117. 33 Patient Protection and Affordable Care Act, Pub. Law No. 111-148 § 9007 (2010). 34 26 U.S.C. §§ 511-14. 35 26 U.S.C. §§ 6033 & 6104. 36 26 U.S.C. § 6652. 37 16 C.F.R. § 681.1 et seq. 38 15 U.S.C. § 1. 39 15 U.S.C. § 18. 40 15 U.S.C. § 45. 41 15 U.S.C. § 18a. 42 15 U.S.C. § 18. 43 42 U.S.C. 1395dd.


Essentials of Health Care Finance Seventh Edition William O. Cleverley, PhD President Cleverley & Associates Professor Emeritus The Ohio State University Columbus, Ohio Paula H. Song, PhD Assistant Professor Division of Health Services Management and Policy The Ohio State University Columbus, Ohio James O. Cleverley, MHA Principal Cleverley & Associates Columbus, Ohio 9781449621988 World Headquarters Jones & Bartlett Learning 40 Tall Pine Drive Sudbury, MA 01776 978-443-5000 Jones & Bartlett Learning Canada 6339 Ormindale Way Mississauga, Ontario L5V 1J2 Canada Jones & Bartlett Learning International Barb House, Barb Mews London W6 7PA United Kingdom Jones & Bartlett Learning books and products are available through most bookstores and online booksellers. To contact Jones & Bartlett Learning directly, call 800-832-0034, fax 978-443-8000, or visit our website, Substantial discounts on bulk quantities of Jones & Bartlett Learning publications are available to corporations, professional associations, and other qualified organizations. For details and specific discount information, contact the special sales department at Jones & Bartlett Learning via the above contact information or send an email to Copyright © 2011 by Jones & Bartlett Learning, LLC All rights reserved. No part of the material protected by this copyright may be reproduced or utilized in any form, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the copyright owner. This publication is designed to provide accurate and authoritative information in regard to the Subject Matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the service of a competent professional person should be sought. Production Credits Publisher: Michael Brown Associate Editor: Catie Heverling Editorial Assistant: Teresa Reilly Associate Production Editor: Lisa Lamenzo Senior Marketing Manager: Sophie Fleck Manufacturing and Inventory Control Supervisor: Amy Bacus Composition: Glyph International Cover Design: Kristin E. Parker Cover Image: © Mclek/ShutterStock, Inc. Printing and Binding: Malloy, Inc. Cover Printing: Malloy, Inc. Library of Congress Cataloging-in-Publication Data Cleverley, William O.  Essentials of health care finance / William O. Cleverley, James O. Cleverley, Paula H. Song.—7th ed.    p.; cm.  Includes bibliographical references and index.  ISBN 978-0-7637-8929-9 (pbk.) 1. Hospitals—Finance. 2. Hospitals—Accounting. 3. Health facilities—Finance. 4. Health facilities—Accounting. I. Cleverley, James O. II. Song, Paula H. III. Title.  [DNLM: 1. Costs and Cost Analysis. 2. Financial Management. 3. Health Services—economics. W 74]  RA971.3.C528 2011  362.11068’1—dc22 2010028477 6048 Printed in the United States of America 14 13 12 11 10  10 9 8 7 6 5 4 3 2 1


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