Healthcare Contracts, Organizational Responsibility and Licensing

Alabama Nurse, Sep-Nov 2005 by Bross, William

Introduction

Healthcare facilities of all types deal with contracts everyday just like in any other business. As a matter of fact, I think they deal with more types and complexities of contracts than any other business type. For this reason, it is important to have a basic understanding of what is required in a contract. We will explore those in a minute. Know that you will not have to completely understand the contracts you face with in your roles in the healthcare setting, as your facility should have legal counsel available to assist in their formation and interpretation.

Another concept that we must understand is that of agency law and its relationship with accountability within your organization. There are many sources of liability within a healthcare facility. These vary from facility to facility and from position to position. For this reason, licensing requirements are implemented at the state and sometimes the national level to ensure that persons are qualified to perform their roles. Begin to think about all the job types that are regulated and licensed in your facilities. Risk management plays an important role in assessing problems and developing measures to correct problem areas as they are identified.

Basic Principles of Contract Law

Without going into great explanation, a contract is a voluntary agreement between two parties (it should be in writing) where each side benefits. Something of value (consideration) is required. This consideration is usually monetary, though it may be in other forms such as agreeing to perform tasks or other services. A breach occurs when either party fails to comply with the terms. There are many examples in the health care field-failure to perform a procedure, provide competent care, provide adequate staffing, a safe and comfortable facility, contracted services to a facility, the list goes on and on. Additionally, contracts may be related to goods and products delivered to our facilities, staffing provided by agencies and physician services. Keep in mind, too, that it might involve contracts with insurers and third party services.

Now, let's go a little farther into contract theory. To be valid, there must be an offer and an acceptance. One party must offer something, for example to provide health care to a person. The other side must accept, by entering the facility. The offer and acceptance may be very simple like this or it may be complex with numerous expectations of each party (such as the purchase of certain goods or services). Keep in mind that one must have capacity to enter into a contract. A minor or incompetent person is not able to enter into legally binding contracts. They can be voided.

I suggest, and many states require a contract to be in writing in order to be valid. Oral contracts are often used, but might not be enforceable. Once a contract is entered into by both parties, performance must be completed by both parties. In other words, the contract must be carried out. If a party breaks or breaches a contract, there are remedies available for the harmed party. For example, there may be monetary damages. Often, the nonconforming party is made to complete the contract (specific performance). Think about how these concepts might apply in the health care setting. It is easy to see how they apply to the purchase of goods or medical supplies for the facility. If I agree to buy 500 boxes of a product and you agree to provide them to me, a contract is formed. If I pay you and you do not give me the products, I can ask for performance of the contract or my money back.

Much of contract law is determined from specific cases -called case law. The sale of goods is governed by the Uniform Commercial Code (UCC)-a federal set of rules and regulations. It is a complex set of rules, and best handled by persons very familiar with them.

Types of Contracts

There are many types including governmental (Medicare, Medicaid, reimbursement), vendor (sales contracts between anyone you can think of), employment contracts (many providers are contracted by the facility, however, many are also employed at will and can be terminated at any time for any reason or no reason), independent contractors, managed care, and insurance contracts.

A review of specific types of contracts would consume our time, and could easily fill this entire publication. Just be aware of the various contracts out there, and know you role in performing duties associated with those contracts.

Organizational Responsibility and Liability

All healthcare facilities have a certain level of corporate responsibility and liability. A corporation is its own legal entity and can be sued by persons that are harmed. It is important to know and develop an organizational structure with specific responsibilities. The staff must know their role within the organization and must act within this scope or description. Failure to follow policies results in liability to the organization and employee. Employees have duties and responsibilities to follow and the company is liable for their actions under the doctrine of respondeat superior. Again, the employee must be acting in his/her scope of duty. If your employees are doing things clearly outside of their roles, you are not responsible for defending them. However, if you know they are doing things beyond their scope and allow them to continue, you might be liable.