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In the fast-changing world of health care, more and more emphasis is being placed on primary and preventive care, with a view towards identifying potential health problems before they become more serious. The Affordable Care Act is just one of many initiatives that seek to shift the focus of medicine towards more cost-effective and better-quality care. Yet health care costs continue to rise. One response to this trend is the rapidly growing number of corporate employers offering on-site health and wellness centers for their employees.

The concept is not new. For decades, many employers had employed or contracted physicians on-site. However, employers often limited themselves to having a physician available to provide minor services such as pre-employment physical examinations and first aid. Today, many employers offer state-of-the-art health and wellness centers at multiple company sites. These can be staffed by physicians, nurse practitioners or physician assistants. Some are exclusively available to employees, while others are open to family members and even retirees. Services include care for on-site job injuries or ailments; pre-employment and annual physicals; screening for breast, prostate and skin cancer and osteoporosis; flu shots; weight-loss and smoking-cessation programs; diabetes management and more.

There are important advantages for employers in establishing these centers. They offer a convenient location for employees to obtain first aid and basic health care services. In turn, they can help an employer to contain its spiraling health benefit costs, reduce sick time and increase worker productivity. They also add a relatively inexpensive benefit that can help in employee recruitment and retention, enable the promotion of healthful lifestyles and enhance the employer’s image of good corporate citizenship.

Unfortunately, from a legal and regulatory perspective, nothing is simple when it comes to health care. Even with the best intentions, an employer can open itself up to significant potential liabilities if it is not aware of the laws and regulations applicable to these centers—and the potential liabilities that can arise.

This article will outline for corporate counsel some of the important issues they should be aware of when a company embarks on opening on-site employee health and wellness centers.

Practice of Medicine

Every state licenses and regulates the practice of medicine and the delivery of health care services within its borders. Almost all states have what is referred to as a prohibition on the corporate practice of medicine. This restriction, which traces its origins to court decisions going back to the 19th century, basically prohibits general business corporations from offering or providing medical care to the general public. Medical services for the most part have to be provided by licensed professionals such as physicians, or licensed entities such as hospitals and clinics.

Each state has its own version of the corporate practice prohibition; most are strict but some are less so. There are very few exceptions to the prohibition, and the exceptions vary widely from state to state. For example, in many states an employer may provide limited medical services and first aid to its employees, or employ or contract with a physician to perform pre-employment physicals. The logic behind this exception is that the employer is not providing general medical services, but rather having a medical professional take care of minor workplace health issues, or assess the health of a prospective employee to determine if the person is fit to perform his/her job functions, and whether the person’s health or medical condition may pose a health threat to other employees. The employer in this situation is not holding itself out to the general public as a purveyor of health care services. Similarly, a large mall or sporting arena may have a physician, nurse or even an ambulance available to handle medical emergencies that may arise. Again, depending upon the state, other exceptions could include a school hiring a nurse to take care of students’ health needs, or employers making flu shots available to employees.

In some states, employers are permitted to offer on-site comprehensive general medical and health care services to employees and their families. In other states, the operation of such a center could be construed as the unlicensed operation of a medical clinic and the unauthorized practice of medicine, which can result in fines, penalties, an action by the state regulators to enjoin its operation and even possible criminal prosecution. Thus, it is extremely important to understand relevant state requirements and restrictions when establishing an employee health center. Large corporations with plans to operate employee health centers in multiple states must comply with the laws of each state where these centers will be located.

Liability

Another obvious liability for an employer-run clinic is exposure to medical malpractice. If the center is to be run by company-employed caregivers, the employer must carefully screen each doctor, nurse or other professional to determine whether they are currently licensed, have primary care experience, have medical malpractice suits or disciplinary actions pending, etc. And the employer must ensure that they and the care they provide are properly supervised by a competent medical director. Even highly competent professionals can make mistakes, and if an employee or family member is injured through a misdiagnosis or inappropriate treatment, it is virtually certain that the personal injury lawyer who is retained will name the employer as a defendant under the theory of respondeat superior. As such, the employer should consider carrying sufficient professional liability (malpractice) insurance covering its employed caregivers in addition to general liability insurance.

Often, the simplest way to provide these services and limit liability is to outsource them. For example, an employer can construct a properly equipped clinic space on its premises, and then enter into a landlord-tenant relationship with a private physician practice that would then provide the medical services to employees. Alternatively, the employer could outsource the operation of the center to a licensed hospital or clinic, thus avoiding any licensing issues. There are many ways to establish an employee health and wellness center while also protecting the employer from liability.

Confidentiality

An employer-run health center has to comply with state laws and regulations governing the confidentiality of the medical records it keeps on file. A health center that submits bills or transmits medical information electronically would have to comply with the privacy rules promulgated pursuant to the federal Health Insurance Portability and Accountability Act (HIPAA). These rules set minimum standards for the confidentiality and protection of personal health information, and supersede state laws or regulations if state protections are less than what HIPAA requires.

A company-run clinic must be able to keep its medical records confidential from the employer, and the employer is prohibited by the Americans with Disabilities Act (ADA) from using such information in making decisions regarding hiring, promotion or termination. Another law that an employer with on-site health services should be aware of is the Genetic Information Nondiscrimination Act of 2008 (GINA). This law strictly limits disclosure of a person’s genetic information, including family medical history. It also prohibits discrimination based on genetic information in any aspect of employment, including hiring, promotions, terminations, salary, fringe benefits and so on.

Labor

Employers that have unionized workers and that want to establish a health and wellness center must remember that by doing so, they are offering their employees a new benefit. As such, it will likely fall into the category of collective bargaining issues that must be negotiated with the union, particularly if the employer plans to charge employees any fees for using the center. If the employer is going to hire new employees to staff the center, it’s possible that some of them may fall into one or more collective bargaining units.

ERISA

Next, a company-run clinic can raise employee benefits issues. If an employer goes beyond providing basic services such as pre-employment physicals and first aid for on-site injuries and illnesses, the higher level services could be considered an employee welfare benefit plan under the Employee Retirement Income and Security Act of 1974 (ERISA). Accordingly, if an employer provides more comprehensive health care services to its employees, it could be subject to many of the same benefit, reporting and disclosure requirements that are applicable to the employer’s health insurance program for its employees. There are ways to offer limited benefits that would not trigger ERISA issues, but before offering any wellness center benefits, the employer should carefully consider the ERISA implications.

Taxes

There are also potential tax issues. Generally speaking, the cost of operating such a center is a deductible business expense for the employer, and the services provided are not a taxable benefit for the employees. However, if the on-site health service is only available to senior management and/or highly compensated employees, this can result in a taxable benefit to those employees. In addition, if an employer’s on-site health service provides non-medical services (e.g., cosmetic or grooming), these are generally taxable to the employee who takes advantage of them.

Conclusion

This inventory of legal issues is by no means complete. Moreover, our purpose in raising these legal issues is not to discourage employers from offering these services. Indeed, employer on-site health centers can offer many benefits and advantages to employers and employees alike. Employer on-site health services are proliferating, and can provide cost-effective preventive and primary care to workers. However, corporate counsel must be aware of all of the potential legal issues that arise from the operation of these centers, and structure the arrangement accordingly.

Francis J. Serbaroli is a principal shareholder in the New York City office of Greenberg Traurig and the former vice-chair of New York State’s Public Health Council. He is the author of The Corporate Practice of Medicine Prohibition in the Modern Era of Health Care, published by Bloomberg BNA, as well as more than 130 articles on legal issues affecting the health care industry.