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Kentucky Primary Care Association October 17, 2011. Exercising Legal Roles and Responsibilities to Maintain an Effective Board and Compliant Organization. Marcie H. Zakheim, Esq Partner. Today’s presentation ….
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Kentucky Primary Care AssociationOctober 17, 2011 Exercising Legal Roles and Responsibilities to Maintain an Effective Board and Compliant Organization Marcie H. Zakheim, Esq Partner
Today’s presentation … • Today’s presentation will help health center board members answer the following questions • What is the board’s “traditional” role in overseeing and monitoring the health center? • What are the Section 330-related requirements that impact governance? • What are the latest developments in corporate responsibility & accountability? • What are “high risk” areas for health centers and their board? • What is the board’s role in corporate responsibility and compliance?
Fiduciary Duties • Duty of Care • That level of care that an ordinary prudent person would exercise in a like position under like circumstances • With certain exceptions, if a board member acts in accordance with his or her “Duty of Care,” he or she should be protected from personal liability with respect to decision-making
Fiduciary Duties • Examples of how to comply with the “Duty of Care” • Attend meetings – at a minimum, if you cannot attend in-person, you can attend “electronically” provided that • All persons involved can hear each other (clear connection) and can participate in discussion (interaction) on an equal basis • Should be used as an “exception” not the rule – electronic attendance should not be a regular substitute for in-person meetings and discussion • Review minutes from previous meeting, approve and, as necessary, revise • Stay informed and come prepared • Receive and read reports before the meeting • Develop questions in advance • Ask questions – but stick to agendas and timelines and respect others • Do not personalize discussion and decision-making
Fiduciary Duties • Duty of Loyalty • Undivided allegiance to the organization when making decisions affecting the organization • Conflicts of Interest: should not use, or appear to use, board membership for purposes of private gain for themselves or family/business partners • Confidentiality: should not inappropriately disclose (formally or informally) confidential information about the health center to other persons, without board approval
Fiduciary Duties • Safeguarding the Duty of Loyalty • Bylaws or other written board-approved policy: prohibit actual or the appearance of conflicts of interest by board members, employees, consultants and those who furnish goods or services to the health center • Written “Code of Conduct” • Prohibits all board members, officers, employees, contractors, and agents from violating conflict of interest policies and confidentiality duties • Requires board members to act consistent with the interests of the health center and the decisions of the board • Defines how and when board members can represent the health center, as well as which actions are inappropriate
Fiduciary Duties • Duty of Obedience • Observance of, and faithfulness to, the organizational mission • Understand the mission and how it is achieved by the health center program • Advance the mission when representing the health center within the community (as authorized) • Amend the mission when necessary • Always act in a manner consistent with the health center’s mission, goals, and objectives, as well as the decisions of the full board (even if you disagree)
Fiscal Responsibilities • Steward of public (federal, state, local) funds • Review financial statements and ensure appropriate expenditures • Approve audit firm and review / accept auditor’s report • Review and approve grant applications and other government filings (including Form 990) • Establish appropriate executive compensation consistent with federal tax law and federal cost principles • In general, health centers and other tax-exempt organizations may pay reasonable compensation for services provided • What comparable organizations pay to similarly qualified and experienced persons for comparable services, e.g., salary comparability studies • All compensation must be considered, e.g., fringe benefits, life insurance, auto allowance, etc.
Fiscal Responsibilities • Incentive Compensation • Total compensation (including incentives) must be reasonable • Incentives must promote the tax-exempt purposes of the organization • Incentives should be “capped” at a fixed amount to insure that the overall compensation paid is “reasonable” • Other laws, e.g., Stark Law for physician incentive compensation, must be considered
Fiscal Responsibilities • Intermediate Sanctions (IRC Section 4958; 26 CFR § 53.4958) • Section 4958 imposes a penalty tax on a disqualified person, e.g., Board member, CEO, CFO, who engages in an excess benefit transaction with an organization exempt under IRC §§ 501(c)(3) or (4) • Organization managers, e.g., Board members, CEO, CFO, and persons with those duties, are liable for a 10% tax if they knowingly approve an excess benefit transaction • Example of an excess benefit transaction – payment of unreasonable executive compensation
Fiscal Responsibilities • Intermediate Sanctions (cont.) • Presumption of “reasonableness” • Compensation arrangement should be approved by the board composed entirely of individuals who do not have a conflict of interest with respect to the transaction • Review appropriate salary comparability information prior to establishing executive compensation • Adequately document the basis of the compensation decision within 60 days of the decision and properly report the decision • Can rely on a reasoned, written opinion of legal counsel, a CPA, or a valuation expert (after full disclosure of the facts)
Fiscal Responsibilities • Federal Cost Principles • OMB Circular A-122 • Applies to federal grant funds received by a health center, e.g., Section 330 funds, but does not apply to other revenue • Compensation is broadly defined • Compensation is an allowable cost to the extent that total compensation paid is reasonable for services rendered
Standard of Care • In making decisions, the Board should adhere to the applicable “Standard of Care” to avoid liability • Corporate • Strict liability (e.g., tax withholding, accountability for grant funds) • Reasonable care (e.g., malpractice) • Individual • Business judgment rule: prudent business conduct versus gross negligence (check state law for appropriate standard) • Intermediate sanctions for engaging in an excess benefit transaction (executive compensation)
Common Sources of Liability • Inattention to / non-compliance with fiduciary duties • Not adhering to the applicable “Standard of Care” when making decisions • Not managing conflicts of interest Could result in both personal and corporate liability • Other common sources of liability • Employment practices – the most common reason for suits against nonprofit board members • Violation of federal and state laws • Violation of regulations affecting the services that the organization provides • Claims by service recipients • Theft or destruction of property Typically result in corporate liability but not personal liability
General Precautions • Corporate • Bond employees with access to funds and require sub-grantees to do likewise • Insure employees who provide medical/child care, drive vans, etc. • Check credentials, background, references of all employees • Risk management: identify, analyze, and choose appropriate method to control/avoid risk • Individual • Comply with fiduciary duties • Obtain “Directors and Officers” insurance policy
Community-Based Board of Directors: Composition • Must have between 9 and 25 members • A minimum of 51% of board members (at least a majority) must be active consumers of the FQHC’s services • Consumer board members • Should utilize the FQHC as their principal source of primary care and should have used health the services within the last two years • Must reasonably represent the patient population served in terms of demographic factors such as race, ethnicity and gender • Parents / legal guardians of minor children or legally incompetent adults, and legal sponsors of immigrants can be included as “patient representatives” • Non-consumer board members • Should be representative of the community served and be selected for expertise in areas such as finance and banking, legal community affairs, etc. • No more than one half of non-consumer members can derive more than 10 percent of their income from the health care industry • FQHC employees and immediate family members cannot serve on the board
Community-Based Board of Directors: Authorities • Must autonomously exercise certain policy-making authorities including • Approving the selection, evaluation and, if necessary, dismissal of the health center CEO • Developing, adopting and as necessary revising operational policies • Approving the FQHC’s budget, annual project plan, and grant (or re-certification) application • Measuring and evaluating the health center’s achievements and use knowledge to update mission, goals, objectives, plans • Evaluating itself periodically for efficiency, effectiveness, and compliance with all Section 330-related requirements • Assuring compliance with applicable law, regulation and policy
Board’s Role in Policy-Making • What is “governance”? • Establishing, adopting and periodically updating the health center’s mission and vision • Public declaration of guiding principles and values • Defines organizational purpose • Vision = long range strategic plans • Setting direction, priorities and goals to support and further the mission and vision • Establishing policies that codify the direction, priorities and goals
Board’s Role in Policy-Making • The board should develop, establish, review and, as necessary, revise policies that affect the health center organization as a whole • Are consistent with the health center’s mission, vision, values, goals and objectives • Clarify and communicate the board’s expectations • Provide organizational direction and general course of action • Establish a “framework” for current operations and future decision-making • Ensure uniformity and consistency of action • Serve as the underlying bases for procedures
Board’s Role in Policy-Making • The board should adopt (but NOT develop) procedures that affect individual operations, departments, employees • Will be developed and implementedby management to guide the day-to-day operations of the health center • Involve the application of the board-established priorities and policies to operations • Serve as “reference” sources so that the board can determine if policies are • Appropriately implemented and up-to-date • Functioning in a satisfactory manner, consistent with mission, goals and objectives
Regulatory Authority for Policy-Making • Approve the selection, evaluation and, if necessary, dismissal of the health center CEO • There must be a direct line of authority between the board and the CEO, who delegates to staff as appropriate • The board should participate in reviewing and approving key actions of the health center, BUT delegate comprehensive day-to-day operational responsibilities to CEO and the management team • Provide direction to, oversee, support and establish effective communication with the CEO • However, should notusurp the CEO’s authority, unnecessarily intervene in day-to-day administration of center, micro-manage or try to do it all
Regulatory Authority for Policy-Making • Approve the health center CEO (cont.) • The CEO and management team should • Allocate and operate within available resources • Take necessary operational steps (i.e. vendor and provider contracts; approving expenditures) • Oversee and monitor effectiveness of daily operations • Identify and resolve problems • Interact with the community, providers and payors • Respond to opportunities and plan for future events • Provide the board with sufficient information necessary for it to perform its responsibilities and, as necessary, request direction and guidance • However, should not substitute their own judgment for that of the board or try to do it all so as not to “bother” the board
Regulatory Authority for Policy-Making • Develop, adopt, and periodically update health care policies • Scope and availability of services • Location and hours of service • Quality of care audit procedures • Develop, adopt, and periodically update personnel policies • Selection and dismissal procedures • Salary and benefit scales • Employee grievance procedures • Equal opportunity practices
Regulatory Authority for Policy-Making • Personnel policies (cont.) • While the board hires, evaluates, and, if necessary, dismisses the CEO, and establishes overall personnel policies, it should defer specific staff issues to the CEO • Should not get involved and/or communicate with staff directly, except in “special” defined circumstances (serious issues concerning the CEO; staff assigned to board committees) and only in accordance with established policy and procedure • Should not try to manage staff, or override or reverse management decisions with respect to any aspects of staffing (hiring, evaluating, dismissing, resolving grievances, etc.) • The CEO and management team should • Hire, manage, supervise, evaluate, discipline and dismiss all staff • Address grievances and complaints from staff and patients
Regulatory Authority for Policy-Making • Develop, adopt, and periodically update policies for financial management practices • System to assure accountability for health center resources (i.e., internal controls to manage risks and monitor reliability and integrity of information; purchasing policies; billing and collection system) • Long-range financial planning (should be tied to long-term strategic plan) • Approval of annual project plan, budget and audit • Health center’s financial priorities • Eligibility for services and payment schedules, including • Schedule of charges • Partial payment / discount schedules (“sliding fee scales”)
Regulatory Authority for Policy-Making • Financial management practices (cont.) • Must have a schedule of charges designed to cover the reasonable costs of operation and consistent with locally prevailing rates • Must have a corresponding schedule of discounts appropriate for target population • Adjusted based on ability to pay for individuals/families with annual incomes at or below 200 percent of poverty • Full discounts (or, at most, a nominal fee) for individuals/families with annual incomes at or below 100 percent of poverty
Regulatory Authority for Policy-Making • Develop policies to evaluate health center activities • Service utilization patterns • Productivity • Patient satisfaction • Achievement of project objectives • Process for hearing/resolving patient grievances • Measure and evaluate the health center’s achievements and use knowledge to update mission, goals, objectives, plans • Evaluate itself periodically for efficiency, effectiveness, and compliance with all Section 330-related requirements • Conduct operational and strategic planning • Assure health center compliance with applicable federal, state and local laws, regulations, and policies
Latest Developments in Corporate Responsibility & Accountability
Health Reform Opportunities • Creation of $11 billion Community Health Center Trust Fund over the next five years • Expand operational capacity to serve 20 million new patients • Enhance medical, oral, and behavioral health services • Expand and improve existing facilities and construct new sites – new capital applications due October 12 (grants.gov) and November 9 (EHB) • Expands Medicaid coverage up to 133% of FPL • Establishes a new Medicare Prospective Payment System (PPS) for Federally Qualified Health Centers (FQHCs), effective cost reporting periods beginning on or after October 1, 2014 – elimination of Medicare payment cap • Requires that FQHCs be paid no less than Medicaid PPS rates by the health insurance exchange plans
Health Reform Opportunities • Provides funding for CHC-based teaching/residency programs • Provides funding for Community Transformation Grants, Collaborative Care Networks, Community Health Teams, and Patient-Centered Medical Homes • Establishes Medicare and Medicaid Accountable Care Organization (ACO) and Bundled Payment Demonstrations
Health Reform Accountability Measures • Mandatory Compliance Programs as a condition of enrollment in Medicare, Medicaid, and CHIP (more on that later …) • Mandatory return of overpayments within 60 days of identification • Higher risk of False Claims liability • Increased federal funding of Medicare and Medicaid program integrity enforcement activities • Increased OIG enforcement authorities • Enhanced penalties for fraudulent conduct
Enhanced Enforcement Activities • Office of Inspector General (OIG) Work Plan FY 2010 – Recovery Act Audits of Health Centers • General findings of a few audited health centers • Managed and accounted for Federal funds in accordance with Federal regulations • Financially viable and have the capacity to manage and account for Federal funds and operate the health center in accordance with health center-related rules • However, some health centers, according to the OIG, apparently lacked certain written policies and procedures • Procurement • Accounting of federal property • Use of consultants • Federal grant reporting • Accounting system • Segregation of duties • Adequate safeguarding of assets • Whistleblower process
Enhanced Enforcement Activities • OIG Work Plan FY 2012 – Recovery Act audits of health centers include continuation of FY 2011 reviews of • Capacity of grantees receiving funds under ARRA-related NAP, IDS, CIP, and FIP awards to manage and account for Federal funds and to operate community health service delivery sites in accordance with federal statutory and regulatory requirements • IT controls of health centers funded by HRSA HIT grants to ensure adequate HIT security controls to protect sensitive EHR and personal information • Health center-controlled networks to determine whether HRSA HIT grants supported the adoption, use and sustainability of EHRs
Enhanced Enforcement Activities • OIG Work Plan FY 2012 – Affordable Care Act audits of health centers include new reviews of • Capacity of health centers receiving funds under ACA awards to manage and account for Federal funds and to operate community health service delivery sites in accordance with federal statutory and regulatory requirements • Health center compliance with federal grant requirements to determine the allowability of expenditures and the adequacy of accounting systems; and to assess the accounting for program income
High Risk Areas for Health Center Boards • Section 330-related requirements and expectations regarding the board’s compliance with • Fiduciary duties • Exercising due care in decision-making • Managing conflicts of interest • Maintaining confidentiality • Section 330 composition requirements • Oversight vs. involvement in daily operations • Autonomous exercise of regulatory authorities • Avoiding (and addressing) rogue conduct
Additional High Risk Areas • Appropriate claims submissions (billing) • Employing or contracting with suspended or excluded providers • http://www.oig.hhs.gov/fraud/exclusions/exclusions_list.asp • http://www.epls.gov • Accuracy of grant applications, reports, and other representations • Compliance with HHS administrative requirements • Federal procurement policies • Federal equipment and property standards
Board’s Role in Corporate Responsibility • The board’s role derives from • General duty to oversee and monitor health center operations • Fiduciary duties • Fiscal responsibilities • Public trust • Caremark Decision • Delaware Court held that a Board’s failure to adopt a compliance program may constitute a breach of fiduciary duties • Health center regulation - 42 CFR § 51c.304(d)(3)(v): Board is required to assure that the health center is operated in compliance with applicable federal, state, and local laws and regulations
What is a Corporate Compliance Program? • What is a corporate compliance program? • Internal operational tool • Examines and evaluates the quality and sufficiency of internal controls and operational activities • Promotes self-regulation, identification, correction, reporting and prevention • Demonstrates commitment to compliance and honest conduct • Improves quality, efficiency and effectiveness of health care services and operational activities, while reducing related costs • May mitigate penalties if non-compliance occurs • Limits corporate director liability • Centralized education and communication system regarding health-care-related laws, regulations, policies
What is a Corporate Compliance Program? • To date, implementation of a corporate compliance program has been voluntary • HOWEVER - Health Reform mandates a compliance program as a condition of enrollment in Medicare, Medicaid, and CHIP • Implementation date to be determined • Core components of compliance program to be established by the Secretary of HHS in consultation with the OIG • Specific to particular industry or category of the supplier or provider • Likely to be substantially similar to the core elements from previous OIG compliance guidances • Do not wait for implementation!!
Elements of a Corporate Compliance Program • Seven core components: step-by-step approach • Designate a compliance officer/contact • Conduct initial (“baseline”) internal monitoring and oversight, and regular audits thereafter • Develop written standards and policies to implement the compliance program and to govern health center operations • Conduct culturally and linguistically competent training and education programs • Develop effective, clear, open lines of communication between compliance and health center personnel, including an open door policy and a strong policy prohibiting retaliation • Investigate detected problems and develop corrective action • Publicize and enforce disciplinary standards
Structure of a Corporate Compliance Program • Organizational structure of an effective compliance program • Board of Directors • Oversees compliance program • May delegate some of the oversight activities to Compliance (or Audit) Committee of the board but should retain final oversight responsibility • Holds CEO accountable for compliance • Chief Executive Officer • Hires Compliance Officer • Holds senior staff accountable for compliance within respective areas of responsibility • Compliance Officer • Implements compliance program at health center • Provides accurate and complete reports to the CEO and the board • May chair a staff-level compliance committee
Board’s Role in Corporate Compliance Program • Similar to other oversight activities, the board is responsible for establishing, overseeing, and periodically evaluating the compliance program • If you have not yet implemented a compliance program, pass a resolution to establish the compliance program and approve the initial policies that define its framework • Adopt key policies and procedures that define the compliance program framework, and review and approve modifications, as necessary
Board’s Role in Corporate Compliance Programs • Board’s role (cont.) • Ensure funds budgeted for the compliance program are sufficient and appropriate, considering the health center’s high risks • Review the annual compliance work plan and, during the year, monitor progress towards its implementation • Receive regular reports from the CEO and (once appointed by the CEO) Compliance Officer about progress in implementing the compliance program and, once implemented, compliance program activities • Receive information and reports from the Compliance Officer about investigations of non-compliance (as appropriate) • Periodically evaluate the performance and effectiveness of the compliance program
Board’s Role in Corporate Compliance Programs • Compliance committee of the board • If the board decides to delegate some of the oversight activities, then it may establish a compliance committee to • Review policies • Receive regular reports from the Compliance Officer • Evaluate the compliance program, making recommendations to the full board
OIG Resources for Boards • Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors (April 2003) • Educational resource that includes structural and procedural “suggested questions” to assist boards in exercising their responsibilities regarding: • Development, implementation and oversight of the compliance program • Management’s operation of the program • Periodic evaluation of the program’s effectiveness, and the sufficiency of the reporting system
OIG Resources For Boards • An Integrated Approach to Corporate Compliance (July 2004) • Supplement to the first resource that includes “suggested questions” to ensure that the board understands • The scope of the compliance program • The roles of the in-house counsel and the compliance officer and each position’s reporting relationship to the board • The role of the attorney-client privilege • Board should ensure that processes are in place under which it receives information related to compliance in a timely manner