Reference no: EM131727028

You are outside counsel to the Marcus Welby Healthcare Corporation (MWHC), which is concerned that expenses in some of its ancillary departments are causing it to lose money under Medicare and HMO insurance. It would like to start charging its hospital-based physicians for some of the costs of running their departments. Its current relationship with these physicians is one in which they have exclusive contracts to work in these departments, but no money changes hands between them. The hospital handles all billing, staffing, and overhead, but it bills separately for facility charges versus professional fees, and the physicians keep all the professional fees the hospital collects on their behalf. This is the standard practice in the industry. MWHC has the following suggestions for changing this arrangement:

• Have the radiology group pay for services, supplies, personnel, utilities, maintenance, and billing services furnished by the hospital. In a non-hospital, office-based setting, this package would normally cost about $100,000 to $150,000 per year. The hospital will charge the radiology group only $25,000 at first, but increase the charges to $100,000 over four years. Payments are due only if the hospital's gross revenue derived from radiology services exceeds $1,000,000 in the previous year.

• The hospital's clinical laboratory, under the direction of the pathology group, would pay the hospital a 20 percent fee for "specimen collection and handling services" when a physician on the MWHC medical staff orders a test from the clinical lab.

What advice would you give?