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‘Corporate Shield’ Loophole Violates Federal Law and Jeopardizes Patient Safety

May 29, 2014

‘Corporate Shield’ Loophole Violates Federal Law and Jeopardizes Patient Safety

HHS Should Close Loophole That Allows Physicians and Other Health Care Providers to Evade Malpractice Payment Reporting

WASHINGTON, D.C. – The U.S. Department of Health and Human Services (HHS) should close a loophole that has allowed physicians and other health care providers to evade having medical malpractice payment reports submitted to the National Practitioner Data Bank (NPDB), Public Citizen said in a petition today. Such evasions deprive data bank users, such as hospitals and state licensing boards, of important information about health care providers.

Public Citizen is seeking an amendment to the existing reporting requirements that would clarify that a report of a medical malpractice payment must be submitted to the NPDB in the name of any health care practitioners on whose behalf the malpractice payment is made, whether or not they are named as defendants in the claim or action.

The current NPDB regulations, which are not consistent with the underlying federal statute that established the NPDB, allow for what is commonly referred to as the “corporate shield” loophole. Use of this loophole involves a practice where a medical malpractice victim agrees to dismiss a defendant health care practitioner from a malpractice lawsuit or claim ? usually as part of settlement negotiations ? thereby leaving or substituting a hospital or other corporate entity as a defendant. Such dismissals often occur in response to a request from attorneys of a self-insured hospital or other corporate entity that employs the defendant health care practitioner. The loophole is used, at least in part, for the purpose of allowing the practitioner to avoid having a report of a malpractice payment made on his or her behalf submitted to the NPDB.

The data bank is used by state licensing boards, hospitals and health maintenance organizations, among other authorized users, to conduct critically important background checks to determine if a doctor or other health care provider has been sanctioned for misconduct by a hospital, had his or her license to practice curtailed by a state medical or other health care professional board or had malpractice payments made on his or her behalf. The goal of the NPDB is to protect patients from doctors and other health care providers who provide substandard or negligent care.

“The NPDB was created to ensure patient safety by providing a comprehensive, reliable information center concerning the malpractice payment and disciplinary history of physicians and other health care practitioners,” said Dr. Michael Carome, director of Public Citizen’s Health Research Group. “Any use of the corporate shield loophole hampers the ability of the NPDB to fulfill its mission by making the NPDB’s information less complete, reliable and useful for state licensing boards, hospitals and other users.”

Dr. Robert E. Oshel, Ph.D., a consultant to Public Citizen’s Health Research Group and formerly associate director for research and disputes at the NPDB, added, “The corporate shield loophole makes it possible for physicians whose negligent or substandard care has resulted in compensable injury to patients to evade having that fact appear in the data bank.”

In 1998, the Health Resources and Services Administration (HRSA) itself acknowledged that the NPDB regulations conflicted with the law and issued a proposed rule that would have closed the corporate shield loophole. However, the rule was never finalized, and in 2009, HRSA abruptly withdrew the proposal without explanation.

Today, physicians are much more likely to be employees of hospitals and other health care corporate entities than previously, making it more likely that they will be shielded from malpractice payment reporting through the corporate shield loophole. This likely is one reason for the decrease in the number of malpractice payments reported to the NPDB over the past decade.

“Failure to report a physician on whose behalf a malpractice payment has been made not only violates federal law, but it also poses a risk to the health and well-being of patients because it allows, in some cases, incompetent practitioners to move from one state or hospital to another state or hospital without disclosure or discovery of their previous damaging or incompetent performance through the NPDB,” said Carome. “It is time for the HHS to issue a rule slamming the door on this loophole, as it should have done when it first acknowledged the problem more than 15 years ago.”

View Public Citizen’s petition.