Leading Wisely, Living Well: Current Legal Hot Topics for Public Hospital Districts

1. AWPHDA Retreat for CEOs and Administrators Only“Leading Wisely, Living Well”Current Legal Hot Topics forPublic Hospital Districts May 22-24, 2011 Richland, WA

2. Introduction • First part of presentation will focus on current state and federal legal issues affecting public hospital districts • Second part of presentation will provide an update on collaborations and affiliations involving public hospital districts

3. State Legislative Changes • SB 5116 authorizes PHDs to engage in fundraising directly or indirectly through separate foundations • SB 5117 revises the definition of “rural public hospital district” to increase the population threshold from 30,000 to 50,000 • EHB 1730 authorizes boards to delegate to management to enter into bond purchase contracts • EHB 1669 exempts flood control districts from property tax limitations in counties with population greater than 750,000

4. State Legislative Changes • SHB 1899 revises the public records act to delete the $5 per day minimum threshold for penalties • A number of bills relating to the open public meetings act and the public records act were introduced and the focus on transparency is likely to continue in the next legislative session • SHB 1315 authorizes nursing homes to employ physicians

5. State Regulatory Issues • New PDC policy interpretation applying the Telford court decision to limitation on use of public resources in election campaigns • Recent B&O tax court decision regarding “pass-through” payments • Eligibility of EMTs to participate in state retirement system (LEOFF) • Court decisions challenging peer review/quality assurance protections • State auditor focus on marketing/promotion expenditures and public bidding and prevailing wage compliance

6. Federal Regulatory Issues • Federal tax treatment of commissioner compensation and benefits • DEA registration fee exemption for PHDs and physicians employed by PHDs • Extension of withholding obligation to certain payments made by governmental entities • Credentialing/privileging of physicians providing telemedicine services

7. Federal Regulatory Issues • Change in physician signature requirement on lab requisitions • Change in physician supervision requirements for hospital outpatient therapeutic services • CAH eligibility for Section 340B drug discount program • PHDs and ACOs

8. Factors Motivating Collaborations • Reductions in payment and changes in payor mix • Reduction in demand • Increase in expenses • Inadequate supply of physicians and other trained personnel • Lack of capital for replacing/upgrading facilities and technology (including electronic medical record systems) • Health care reform encourages integration (Accountable Care Organizations, medical homes, bundled payments, payments for quality outcomes) • Increase in competition

9. Potential Responses • Do nothing • Get out of the health care business entirely • Substantially change or reduce the scope of services • Consider one or more collaboration options

10. Key Evaluation Criteria—does the collaboration: • Maintain the hospital’s mission? • Maintain and expand services? • Improve quality? • Increase revenue and/or reduce costs? • Increase access to capital? • Increase access to specialized technology and personnel? • Reduce competitive threats?

11. Potential Collaborators • Public hospital districts • Other public health care providers • Nonprofit/for profit hospitals • Physicians • Community Health Clinics • Local governments • Payors • Others?

12. Collaboration Options • Contracts for specific services or involving specific service lines • Joint venture agreements • Transfer of assets through lease or sale • Merger/Consolidation • Dissolution

13. Key Variables in Collaboration Models • Who owns the assets? • Who is responsible for funding capital? • Who has the right to receive revenue and who has responsibility for liabilities and expenses? • Who owns the licenses and provider agreements? • Who employs the staff? • Who is responsible for governance and management?

14. Do PHDs Have the Legal Authority to Collaborate? PHD Boards have broad statutory authority to decide • - What services are provided • - How services are provided • - Who services are provided to • - Where services are provided

15. PHD Statute Provides Additional Authority for Rural PHDs • Rural PHD is defined as a PHD whose boundaries do not include a city with a population > 50,000 • Authorizes • Allocation of health services among PHDs • Joint purchasing of equipment and technology • Joint contracting with payors • Other cooperative arrangements

16. Collaboration Examples Involving Public Hospitals • Joint payor contacting • Cooperative agreements such as Rural Health Care Quality Network and Western Washington Rural Healthcare Collaborative • Service line joint ventures and agreements • Hospital management agreements • Physician employment

17. Collaboration Examples Involving PHDs • Snohomish County PHD No. 2 Swedish Health Services: PHD agreed to lease all of its health care facilities to Swedish Health Services. Swedish will operate the hospital under its license. The PHD is exploring other activities beyond operating a hospital.

18. Collaboration Examples Involving PHDs • University of Washington/King County PHD No. 1 (Valley Medical Center) The agreement creates a new board composed of the district commissioners, representatives of UW and community members to oversee the operation of Valley Medical Center.

19. Collaboration Examples Involving PHDs • San Juan County PHD No. 1/Peace Health: PHD closing its ambulatory care clinic and contracting with PeaceHealth to construct a new critical care hospital which will be owned, licensed and operated by PeaceHealth, and a new EMS facility which will be owned and operated by the District

20. Collaboration Examples Involving PHDs • Point Roberts PHD/Interfaith Community Health Center • Mason County PHD No. 2/ Harrison Medical Center • Grant County PHD No. 7/Wenatchee Valley Clinic • Grant County PHD No. 5/Mattawa Community Medical Clinic • Skagit PHD No. 1/Skagit Valley Medical Center • Skagit PHD No. 1/Snohomish PHD No. 3 Smokey Point Clinic • King County PHD No. 4/PeaceHealth • Skagit PHD No. 1/Skagit PHD No. 304

21. Collaboration Examples Involving PHDs • Clallam County PHD No. 1, Clallam County PHD No. 2 and Jefferson County PHD No. 2: The districts distributed a request for information to tertiary medical centers and systems in September 2010 requesting proposals to provide support services to the three districts including EMR and tertiary services. The districts have selected Swedish Health Services.

22. Collaboration Examples Involving PHDs • Snohomish County PHD No. 1: The district distributed a request for proposals to the major health care systems in Washington in February 2011 requesting proposals to enter into a strategic partnership with the district.

23. Collaboration Examples Involving Public Hospitals • University of Washington/Northwest Hospital • University of Washington/Harborview Medical Center • Pacific Hospital and Preservation Development Authority/Pacific Medical Centers

24. Public Hospital District Issues 1. Constitutional limitations -- prohibition against gift of public funds or property-- prohibition against lending public funds or public credit-- prohibition against owning stock in any private company-- requirement that public funds be used for public purposes

25. Public Hospital District Issues 2. Statutory limitations Relating to: -- Appointment of a superintendent -- Sale of real and personal property -- Lease of real property -- Open public meetings -- Public records -- Public bid -- Prevailing wages -- Conflicts of interest

26. Restrictions Relating to Outstanding Bonds • Bond Covenants -- Restrictions on transfers of property • Unlimited tax general obligation bonds • Limited tax general obligation bonds • Revenue bonds -- Restrictions on issuance of additional debt

27. Restrictions Relating to Outstanding Bonds 2. Federal Tax Law Limitations -- Restrictions on change in use of property financed with theproceeds of tax-exempt bonds -- Restrictions on management agreements or servicesagreements relating to the use of property financed with the proceeds of tax-exempt bonds

28. Government Approvals • Certificate of Need • Special Approval for sales to for profit entities • Licensing • State Auditor • CMS • Antitrust

29. Other Legal Issues • Labor Issues -- Multiple unions-- Jurisdiction of National Labor Relations Board versus Public Employees Relations Commission-- Compensation and benefits structures-- Reductions in work force-- Other?

30. Other Legal Issues • Medicare Reimbursement -- Billing under a single provider-- Other? • State Tax Issues -- Business and occupation tax and requirements for social welfare organizations-- Property tax exemptions

31. Other Legal Issues 4. Restrictions on assignment of existing contracts including significant payers 5. Other?

32. Questions?

33. Contact Information Brad BergTelephone: 206-447-8970Email: BergB@Foster.com Foster Pepper PLLC1111 Third Avenue, Suite 3400Seattle, WA 98101www.foster.com 33