12 key legal issues impacting health systems

1. Increased government interest in False Claims Act, Stark Act and related issues. In 2023, the U.S. government and whistleblowers were involved in 543 False Claims Act settlements and judgments. This is the highest number recorded in a single year, with healthcare fraud making up the bulk of cases and valued at over $1.8 billion. 

2. Increased antitrust investigations and challenges to mergers and acquisitions. Hospitals and health systems face an extraordinarily active Department of Justice and Federal Trade Commission in their pursuits to merge, acquire or affiliate with one another. The agencies filed 50 merger challenges in fiscal year 2022, marking the highest level of enforcement activity in more than 20 years. 

In recent months, the FTC challenged John Muir Health's proposed $142.5 million acquisition of a Tenet Healthcare hospital in California, resulting in the deal being abandoned. It also challenged Novant Health's $320 million acquisition of two North Carolina hospitals from Community Health Systems.

It's worth noting that the FTC has yet to challenge a cross-regional health system merger, in which systems that operate in different geographic markets combine, though that's not to say such a challenge is ruled out. Systems like Advocate Aurora Health, dually headquartered in Milwaukee and Downers Grove, Ill., and Atrium Health, based in Charlotte, N.C., executed such a merger in 2022 and Oakland, Calif.-based Kaiser Permanente and Danville, Pa.-based Geisinger are actively pursuing such a deal to form an enterprise called Risant Health. 

3. Increased cyber attacks and ransomware efforts. Health system ransomware attacks nearly doubled in 2023, with 141 U.S. hospitals affected and data stolen in 32 of 46 recorded events. Ransomware attacks are not just increasing in frequency, but also in scale and malicious intent, growing to become a serious national security issue. 

Cybercriminals first targeted a single hospital in 2016, and have since escalated to attacking multistate health system networks and, more recently, payment and prescription infrastructure on a global scale that can cause potentially long-term damage to healthcare organizations. The nature of these attacks has become increasingly cruel with cybercriminals hitting children's hospitals, demanding $900,000 from a safety-net hospital in 48 hours, publishing data about hospital staff, or leaking nude patient photos. 

Ransomware prevention and mitigation demands active participation from multiple stakeholders, including U.S. and international cybersecurity authorities. Health systems are reevaluating their cybersecurity safeguards and making some new investments in the face of heightened threats. San Diego-based Scripps Health, for example, hired a former FBI agent as its new senior director for corporate and system safety and security. Scripps met the retired special agent, Todd Walbridge, after he advised the system when it experienced a ransomware attack in 2021.

4. Safety and violence issues aimed at employees. Acts of harassment and violence in hospitals surged during the COVID-19 pandemic, and we are now gaining the data that puts numbers to this troubling trend. More than double the number of health workers reported harassment at work in 2022 than in 2018, including threats, bullying, verbal abuse, or other actions from patients and co-workers that create a hostile work environment, according to the CDC. 

Violence in healthcare facilities is currently regulated by a patchwork of various state protection laws. The Safety from Violence for Healthcare Employees Act aims to make protections uniform. The bipartisan legislation, introduced in the House and Senate last year, would make it a federal crime to knowingly assault hospital workers and enact federal protections for healthcare workers like those in effect for air transportation workers. 

5. Pricing transparency issues. Price transparency was long upheld as a solution to empower patient finances when it comes to healthcare decisions, but the federal price transparency rules that went into effect in 2021 have largely fallen short from their intended impact. About 35% of 2,000 hospitals were fully compliant with federal price transparency rules, according to a patient advocacy group report released this year. While compliance is meager, so is enforcement: As of March 1, CMS has fined 14 hospitals for price transparency violations. Eight of those hospitals have appealed their fines, which are under review. 

6. Negotiations between systems and payers. Media-reported contract negotiation disputes between payers and providers increased by 69% from 2022 to 2023, with the number of affected communities expanding. Nearly half of these public disputes failed to reach agreement, with patients/members going out of network as a result. This figure does not account for negotiations that did not escalate to the level of public breakdown.

Health systems coming off a financially difficult 2022 turned to health insurers in their latest round of negotiations to request payment increases to offset losses. Despite median health system margins and labor costs seeing greater stability in 2023, providers still face challenges. Rate increases will vary significantly among providers, Moody's forecasts, and margin improvement will necessitate relentless expense management for some hospitals.

7. Medicare Advantage claims and issues. More than half (51%) of eligible Medicare beneficiaries are enrolled in Medicare Advantage, leaving hospitals and health systems increasingly vulnerable to the denial patterns of the health plans sold by private insurers. Revenue reductions related to Medicare Advantage denials increased 55.7% for the median hospital from January 2022 to July 2023, according to data released by the American Hospital Association and Syntellis in late 2023. 

Denials and reimbursement practices have more than a dozen hospitals and health systems cutting ties with some or all Medicare Advantage contracts. "It's become a game of delay, deny and not pay,'' Chris Van Gorder, president and CEO of San Diego-based Scripps Health, told Becker's last year. "Providers are going to have to get out of full-risk capitation because it just doesn't work — we're the bottom of the food chain, and the food chain is not being fed." 

8. Union, labor and workforce shortage issues. Workforce challenges again ranked No. 1 on the list of hospital CEOs' top concerns in 2023, according to the annual survey from the American College of Healthcare Executives, and it's evident why. Hospitals and health systems are vying for talent in an increasingly competitive landscape with growing labor costs and intensifying union activity. While the share of unionized healthcare workers holds steady, union activity is increasingly visible and public-facing.

We are seeing unions move beyond traditional collective bargaining and deploy other tactics to pursue their agenda, including targets on C-level compensation, non-standard reporting of patient safety concerns, and advertised opposition to hospital M&A. In one shift, we are also seeing continued interest among medical residents in unionization, including those affiliated with Northwestern Medicine in Chicago and Mass General Brigham in Boston. 

Heightened labor tensions could increase pressure on wages, thereby complicating hospital and health system cost containment in the long-term, particularly as union contract negotiations coincide with a period of heightened bargaining power for workers.

9. Use of artificial intelligence. Health systems are in the early days of working through the many legal, ethical, equity, privacy and security issues associated with greater use of AI in healthcare settings. Early lawsuits and legal proceedings serve as indicators of the potential dilemmas that may arise as this technology is increasingly utilized in clinical care delivery and administrative operations. 

Throughout 2023, we saw health insurers face litigation for alleged use of AI to systematically review and reject claims — challenges that most health systems likely welcome amid the AI "arms race" within the healthcare revenue cycle and as denials affect a growing portion of revenue. The year has started with lawmakers putting forward questions about how to better regulate AI in healthcare, including the proposal of the Algorithmic Accountability Act that would require health systems to regularly assess whether their AI tools are being used as intended and and if they are perpetuating harmful biases.

10. Business and venture capital investments by health systems. As health systems face a growing portion of low governmental reimbursement with the aging population, many have looked to diversify their revenue streams via investments and healthcare venture capital. 

Large, integrated systems have stood up investment arms, such as Ascension Ventures, Intermountain Ventures Fund, Mayo Clinic Ventures and Northwell Holdings, among many others. Worth noting, too, is that one venture capital firm — General Catalyst — is reversing the trend line and buying a health system. General Catalyst's Health Assurance Transformation Corp., is working to acquire Summa Health in Akron, Ohio, and transition the system to a for-profit entity. 

There are inherent legal risks to the relationships shared between health systems and venture capital investments, including potential conflicts of interest and issues around data privacy, ownership, governance and security. Furthermore, losses tied to investments played a part in hospitals' and health systems' 2022 financial distress — a hit that some economists said is an issue of fiscal responsibility that should not be subsidized by taxpayers. 

11. Telehealth and digital health issues. Health systems doubled down on their abilities to care for patients outside of brick-and-mortar facilities when they proved extra critical throughout the COVID-19 pandemic. Such investments face growing questions around regulations, scalability and financing. 

Most states still ban or severely restrict telehealth appointments with physicians licensed out-of-state, for one. In another issue, CMS' Acute Hospital Care at Home Waiver is set to expire at the end of this year, requiring legislative action to either extend the waiver or make the program permanent. If hospitals are going to invest in the infrastructure and hire and/or train staff to deliver care in the home, they need a guarantee that it's something they can do for a while.

Outside of uncertainty in digital health structure, legal risks abound as personal health information moves throughout more channels for a hospital and health system. More than one-third of all data breaches are tied back to health systems' third parties or vendors. This statistic is worth noting given that healthcare data breaches hit an all-time high in 2023. 

12. Hospital and unit closure issues. A handful of hospitals have already announced closure plans within the first quarter of the year as more than 400 in rural America are at risk of closure, and health systems continue to close, consolidate or reduce services at hospital locations. 

The impact of hospital closures cannot be understated. They have direct repercussions on patients, as well as on access and wait times at other nearby facilities, and they also pose long-term challenges to the economic health of the community. 

Unfortunately, hospital closures often escalate rapidly from initial announcement to full shutdown. Lawmakers tend to become aware of hospital financial troubles only after closure announcements are made, indicating that issues may have been deteriorating for some time and patient care quality may already be compromised.

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