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Sept. 28 — Health-care providers need to take a strategic look at the roles that the members of their in-house legal departments play within their companies, given the recent changes in the legal and regulatory environment in the health-care space.
A number of observers told Bloomberg BNA that they have noticed a move by hospitals and other health-care organizations to get their in-house legal departments more involved in the company, either through strategic engagement or through simply handing more legal work to their in-house legal departments.
“Health-care systems are taking another look at the role of in-house counsel and they are definitely rethinking the role,” Werner Boel, a principal in the Atlanta office of executive search firm Witt/Kieffer, said.
According to Boel, many organizations are seeking not only to get in-house counsel more involved in the strategic aspects of the company, but also to curtail potential legal issues before a member of the in-house team gets involved.
Boel said that many of his health-care clients were seeking executives with legal backgrounds or at least some legal training to avoid some of the pitfalls that might befall executives who aren't as savvy to the heavy regulations that govern health-care providers.
“They are looking for individuals to help with the strategic goals of the organization but also who understand the regulatory requirements, the dictates of the Affordable Care Act and the legal ramifications of any of the organization's strategic decisions,” Boel said.
Additionally, Boel said that a recent emphasis by the Department of Justice on holding executives personally liable for corporate malfeasance could spur a desire to have someone with legal experience in a strategic business role.
However, Anne M. Murphy, former general counsel at Rush University Medical Center in Chicago, warned that executives with legal training shouldn't think that they can bypass the in-house legal department when making corporate decisions.
“You do need to have clarity that the general counsel and his or her staff is responsible for providing the legal advice and the legal decisionmaking,” she said.
“But for the right person who has a legal background, moving into a position that is not a legal role, but is compatible with their skill set could be a real benefit to the company,” she added.
Instead of relying on the legal background of executives to avoid running afoul of regulators, Murphy recommended that health care executives get their in-house legal teams involved early on in corporate decision-making.
“Generally there is a trend in favor of making the general counsel a strategic partner,” she said.
“Having a general counsel that is at the table and providing meaningful input as strategic decisions are being made can be invaluable,” she added.
According to Murphy, this trend probably reflects a recognition that in a highly regulated field, having someone who can provide that legal input on the front end is an effective way to mitigate legal risk.
“This is particularly true given the ever higher stakes for health-care providers when it comes to fraud and abuse or possible Stark Law and Anti-Kickback Statute violations,” she said.
Another way that health care providers are re-evauating their in-house legal teams is by handling their own legal work, as opposed to relying on outside counsel for advice.
A study done by BTI Consulting Group in Wellesley, Mass., found that a representative sample of Fortune 1000 companies moved approximately $4 billion in legal work to their in-house legal departments over the past year. According to the independent research company, much of that movement has come in terms of small scale transactional work and commercial litigation.
“The trend is really more for bringing in specialists to fulfill certain needs such as IP work, contracts, some small M&A work,” Michael Rynowecer, the President and Founder of BTI told Bloomberg BNA.
“But lawyers often require special care and training, so an organization has to be willing to absorb the overhead involved,” he added.
Boel said that, in his experience, health-care organizations are looking for specialties that aren't within the regular skill set for a health lawyer. “For example, it's only been in the last few years that a health lawyer would probably have a strong background in corporate transactions or antitrust, but those skills are very much in demand now,” he said.
“There is definitely a spectrum of experience that a large legal department would need in the current environment,” Murphy said.
“However, you are always going to need to rely on outside counsel where the issues rise to the level of significant exposure or long and drawn-out litigation,” she said.
Additionally, although a health-care organization may want to in-source more specialized legal work, it is important for that organization to keep in mind budget constraints and the natural ebb-and-flow of legal work, Rynowecer said.
“The general counsel has to consider fixed costs versus variable costs,” Rynowecer said. “He knows that he can turn off the outside law firm at any time if the needs of the company change,” he said.
“But when a company's needs change and it has hired in an in-house attorney, it has to go about making a reduction in force or repurposing that individual and that is something that generally you don't want to do,” he added.
The trend towards health-care organizations to handle more work isn't all bad for firms who advise these organizations though. According to Rynowecer, if a firm is willing to make changes to its client service model, it can still reap the benefits of those relationships.
“For a law firm facing this trend, there are really two things that you can do: work on some level of alternative fee or staffing arrangement to make using the firm more cost-competitive and eliminate the inefficiencies of the work itself to streamline the process,” he said.
Additionally, Rynowecer recommended that firms could offer non-legal assistance to organizations as a way to maintain the relationship with their clients. “Clever firms will tell companies that are moving their work in-house that the in-house attorneys can come to training sessions at the firm, or that the firm can act as the research arm and provide paralegal assistance,” he said.
Firms that try to help with the in-sourcing efforts end up getting more work from clients than those who fight the trend, Rynowecer said.
“Clients are more inclined to think that the helpful firm has a better understanding of its needs, which can turn in-sourcing into a really interesting business development tool,” he said.
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