HEALTH & LIFE SCIENCES NEWS
HEALTH & LIFE SCIENCES NEWS
Exploring Critical Business and Legal Issues across the Healthcare and Life Sciences Industries
HEALTH & LIFE SCIENCES NEWS
Exploring Critical Business and Legal Issues across the Healthcare and Life Sciences Industries

Regulating Nonprofit Health Care: Insights from State Attorneys General

By on August 29, 2018
Posted In Uncategorized

Infographic: How Do State Attorneys General Track Nonprofit Health Care?

McDermott recently launched a special edition podcast providing an in-depth discussion of the interplay between State Attorneys General enforcement authority and nonprofit Board of Directors responsibility in the governance and operation of health systems. This special edition of the Governing Health podcast series welcomed four prominent State Attorneys General (AG) to discuss the transformation of the nonprofit health care sector.

Episode one focuses on the jurisdiction of the State Attorneys General, the types of data commonly flagged for review, and the importance of an actively engaged Board of Directors. Here are five key takeaways:

  • An actively engaged board is critical to avoid pitfalls. The board of directors must provide strategic oversight and organizational direction to help a nonprofit avoid pitfalls. When a board becomes complacent or overly deferential to executive management, problems almost always arise, said Mark Pacella, Chief Deputy Attorney General of Pennsylvania, Charitable Trusts and Organizations Section. Given the sheer size of the nonprofit sector, state AGs cannot monitor every entity for early warning signs, such as diversions of assets or conflicts of interest. Therefore, “[directors] have to be actively engaged, they have to put themselves in a position to be aware of a nonprofit’s activities, to be aware of the risks,” said Bob Carlson, Assistant Attorney General of Missouri.
  • The AG has broad jurisdiction over nonprofit health care matters. In Pennsylvania, for example, court rules of procedure require that the AG’s office be notified of Orphan’s Court proceedings and civil matters that implicate a charitable interest, giving the AG the opportunity to intervene. Investigators also follow up on developments published in the news media, and complaints from whistleblowers or competitors.
  • Red flags in a Form 990 can lead to an investigation. State AGs are moving from a complaint-driven enforcement system to a system driven by data and analytics. With the automation of the 990 process, for example, the New York AG office can proactively identify warning signs in a nonprofit health care entity’s financial activities, including negative net worth, loans to officers (which are illegal in New York), and indicators of asset or cash flow problems. This data-driven system allows investigators to make more sophisticated decisions not just about enforcement, but about outreach. “The goal is not to make [these organizations] miserable,” said Jim Sheehan, Chief of the New York Attorney General Charities Bureau. “The goal is to say, ‘OK, looks like you have a difficulty, let’s talk with the agency that pays you and with the charities about what you can do to address it.”
  • In an investigation, the AG can and will subpoena directors and officers.The AG’s formal investigation tools include subpoena power and civil investigation demands, which often involve interviewing insiders such as board members, Carlson said.
  • State registration for charities that solicit public funds is about to get much easier. The National Association of State Charity Officials (NASCO) is developing a single-registration portal, said Karen Gano, President of NASCO and Assistant Attorney General of Connecticut, Special Litigation Unit. Currently, 40 states require registration of charities that solicit funds from the public. The NASCO portal will eliminate duplication and onerous data entry by allowing organizations to register online once, rather than filing registrations under 40 different state regimes, Gano said. The portal will be introduced in phases starting in fall 2018.

Our guests include:

  • Bob Carlson, Assistant Attorney General of Missouri
  • Karen Gano, President of the National Association of State Charity Officials and Assistant Attorney General of Connecticut, Special Litigation Unit
  • Mark Pacella, Chief Deputy Attorney General of Pennsylvania, Charitable Trusts and Organizations Section
  • Jim Sheehan, Chief of the New York Attorney General’s Charities Bureau

Click here to listen to the full episode, and stay tuned for episodes two and three of this special series, which will cover topics such as the consequences of “mission drift,” considerations in M&A transactions, collaboration between state and federal regulators, guidance for operating across state lines, and much more.

STAY CONNECTED

TOPICS

ARCHIVES

Chambers 2021 Top Ranked
U.S. News Law Firm of the Year 2022 Health Care Law
LEgal 500 EMEA top tier firm 2021
Legal 500 USA top tier firm