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Fit for an On-Site Clinic

On-site clinics are one solution to rising health care costs.

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December Cover

As executives look for ways to manage rising health care costs and absenteeism and to hike productivity, some employers are looking to on-site health care clinics as a solution. On-site clinics aren't new, but they have evolved to serve a different purpose. Historically, on-site clinics were largely used in the manufacturing and mining industries to deal with occupational injuries, as well as to treat minor illnesses and conditions.

Today's on-site clinics are far broader in the scope of services provided. They are not limited to treatment of job injuries or minor conditions. Instead, an employee may be able to receive comprehensive health care services, very similar to what is expected during a visit to a primary care physician or even an urgent care center or emergency room.

These clinics are intended to provide cost savings to the employer as well as complement the employer's wellness, disease management and preventive care programs. A 2010 study funded by the Robert Wood Johnson Foundation explains, "By far the strongest motivation for implementing workplace clinics is to contain direct medical costs. In the short term, exerting greater control over direct costs, such as specialist visits, nongeneric prescriptions, emergency department visits and avoidable hospitalizations, is a key employer objective." To achieve greater savings, employers are often providing spouses and dependent children access to the clinics, at little or no cost to the employee.

Key Decisions

An employer's decision to build an on-site center is only the beginning. Once business leaders have made that choice, they need to deal with some important decisions:

  • Will the clinic be accessible only by employees, or will spouses, dependents and retirees also be able to use it?
  • Will the clinic provide care only for occupational injuries or for a wider range of ailments? In keeping with the interest in wellness, the trend appears to be toward broader coverage.
  • Will the employee pay all charges for services at the clinic, or will some or all charges be covered by the employee health plan?
  • Will staffing be available at the clinic—physicians, nurse practitioners and physician assistants? Depending on state law, physician oversight may be required.
  • Will the clinic be built as a separate facility, will the employer lease space or share space with another employer, or will it be located in a mobile unit? What privacy concerns, if any, would accompany that decision?
  • Will the employer incur costs to build the clinic and maintain it?
  • Will the employer measure return on investment (ROI)? The 2010 Robert Wood Johnson Foundation study notes that there are two principal ways to measure ROI—a "hard ROI" that measures savings in direct medical costs only, and a "soft ROI" that includes productivity gains from other factors, such as reduced absenteeism.
  • Who will manage the clinic and be responsible for managing risk and maintaining compliance with appropriate laws and regulations, including medical privacy? While an employer may self-manage or hire a medical provider to manage the clinic, most employers have engaged third-party vendors to manage clinic operations and regulatory compliance.

Not for Everyone

On-site clinics are not necessarily right for every employer. As a rule of thumb, an on-site clinic is most likely appropriate for employers with at least 1,000 employees. However, the size of the employer is not the sole determining factor.

Depending on the employer's objectives, an employer with high rates of absenteeism due to illness, low rates of utilization of preventive care services and long employee commutes for medical care may benefit from an on-site clinic. In addition, an on-site clinic may prove to be a necessary component for an employer's ongoing wellness and disease management programs, helping to manage health care costs and improve long-term employee health.

Compliance with Many Laws

The implementation and operation of any on-site clinic will necessarily implicate a plethora of health care laws. For example, depending on the services provided, the clinic may have to comply with licensure requirements for clinical laboratories and physicians, pharmacists and others.

If the clinic accepts Medicare, Medicaid or reimbursement from any government payer, the clinic should ensure that compensation arrangements and contractual matters comply with federal regulatory laws as applicable. For instance, the Anti-Kickback Statute is a criminal prohibition against payments in any form made to induce or reward referral or generation of federal health care program business.

An employer with high rates of absenteeism due to illness, low rates of utilization of preventive care services and long employee commutes for medical care may benefit from an on-site clinic.

The Stark Law prohibits referrals by physicians who have a financial relationship with an entity furnishing designated health service for which payment otherwise may be made under Medicare, unless an exception applies. Depending on the structure of the clinic, these laws may or may not be applicable. Likewise, from a private insurance perspective, the clinic will need to negotiate, and comply with the terms of, various managed-care contracts.

There could also be state law concerns: The Texas Patient Non-Solicitation Act states that a person commits an offense if the person knowingly offers to pay or agrees to accept remuneration in cash or in kind to or from another for soliciting a patient for or from a person licensed by a state health care regulatory agency. Basically, this law is a state law version of the Anti-Kickback Statute, but it pertains to health care services reimbursed by both private and government payers. So, if the clinic accepts reimbursement from any form of insurance, this law could be implicated.

Some states have strong corporate practice of medicine doctrines or fee-splitting laws that could pertain to employer-sponsored clinics. The corporate practice of medicine doctrine prohibits a lay corporation from employing a physician or controlling a physician's practice of medicine. To avoid a violation of the corporate practice of medicine doctrine, it is recommended that the clinic independently contract or hire a nurse practitioner or physician assistant to provide the majority of the services, and, pursuant to an independent contractor agreement, contract with a physician to provide the applicable oversight for these services.

The corporate practice of medicine doctrine does not typically apply to nurses and physician assistants, so these individuals may be employed. However, it may be advantageous to maintain an independent contractor relationship with these professionals to reduce the likelihood that the clinic will be held vicariously liable for their actions. The clinic may contract directly with these professionals or via a staffing company that contracts with these professionals. However, the clinic may not be able to avoid claims of malpractice, negligence or other forms of liability based on the services provided by these health care professionals.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy and security rules and the Health Information Technology for Economic and Clinical Health Act contain specific requirements on how health information should be safeguarded and protected by health care providers and health plans, both referred to as "covered entities." In particular, for a health care provider to be a covered entity required to comply with HIPAA, the provider must transmit any health information in electronic form in connection with a transaction covered by HIPAA. An example of such a HIPAA transaction would be electronically billing insurance claims. Depending on how the clinic is structured, it will most likely be subject to HIPAA as a covered entity health care provider, especially if it electronically files insurance claims, and may even be a covered entity health plan as explained in more detail below.

An on-site clinic may implicate employee benefits laws as well. For example, an on-site clinic that provides services beyond treatment of minor illnesses or injuries to employees or first aid for workplace injuries, or that permits spouses, dependents or former employees access to the clinic, will constitute an "employee welfare benefit plan" for purposes of the Employee Retirement Income Security Act of 1974. In short, this means that the employer is required to adopt a written plan describing the services available at the clinic and the costs of those services, and to satisfy applicable reporting and disclosure requirements as well as fiduciary responsibility rules.

Similarly, an on-site clinic that provides comprehensive medical services will be a "group health plan" subject to the continuation coverage requirements under COBRA.

Currently, however, an on-site clinic appears to be an "excepted benefit" for purposes of the portability, privacy and security requirements prescribed by HIPAA, although some practitioners expect this will change in the future. Please note, however, as referenced above, the clinic is likely subject to HIPAA privacy and security requirements in its capacity as a "health care provider."

And, benefits such as the services available at the clinic and the amount of reimbursement available for the cost of such services will constitute a self-insured medical expense reimbursement plan subject to the nondiscrimination requirements of the Internal Revenue Code of 1986. Failure to satisfy the applicable code requirements can result in adverse tax consequences to the employer's officers and other highly compensated individuals.

Team Approach

Due to the financial commitment and legal ramifications of implementing and operating an on-site clinic, an employer interested in this alternative must rely on a team of professionals made up of members of its finance, benefits and legal departments, as well as an outside consultant and attorney. An analysis of the employer's current health care costs and objectives, as well as a feasibility study to determine the cost and scope of the services to be provided at the clinic, are imperative. An attorney experienced in the various laws implicated by use of an on-site clinic can ensure that a company will get the most out of this innovative concept in employee health care.

Oliphant is an employee benefits attorney and Murray is a health care attorney at Winstead PC in Dallas.


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