Shobha N. Lizaso


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“I became a lawyer to be an advocate and to protect those that are passionate about their cause.”

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There has been a growing trend in the substance abuse rehabilitation industry to provide services through a non-profit, tax-exempt organization. Unfortunately, there is also a growing trend relating to IRS audits of non-profits. An audit by the IRS can yield many negative outcomes, including the revocation of a treatment center’s tax exempt status and fines imposed on the organization and/or its Directors when the non-profit fails to operate within the rules applicable to 501(c)3 non-profit organizations.

A non-profit may be able to fly under the IRS’s radar for a few years, but as the years pass, the chances that non-profit non-compliance will be caught by the IRS grows exponentially.  To protect your non-profit, please follow some of these basic rules:

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It was just less than a year ago that medical device developer, Olympus Corp, agreed to pay a $646 million settlement to resolve claims of illegal kickbacks to physicians and hospitals. This is considered to be the largest settlement amount in the history of violations to the Anti-kickback Statute. The federal Anti-Kickback Statute (“Anti-Kickback Statute”) is a criminal statute that prohibits the exchange (or offer to exchange), of anything of value, in an effort to induce or reward the referral of federal health care program business.  Conviction for a single violation under the Anti-Kickback Statute may result in a fine of up to $25,000 and imprisonment for up to five (5) years.  In addition, a conviction will result in mandatory exclusion from participation in federal health care programs. The government may also assess civil money penalties, which could result in treble damages plus $50,000 for each violation of the Anti-Kickback Statute.

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Building a brand image is extremely important in today’s technology-driven economy.  Because of social media, online advertising, and the availability of online reviews, local healthcare providers need to engage at a higher degree than ever before to attract new patients, retain current patients, and establish themselves as experts in their respective fields.

Patients choose providers based on specializations, reputation, and quality of care, so the first step in branding is selecting and registering the trademarks for your practice.  Trademarks are the names, slogans, tag lines, and/or logos that identify and represent your practice, its services, and mission to the public, and are the foundation for the facility’s overall branding and marketing strategy. In addition to the trademarks associated with your main practice, you may also use trademarks to protect your stake in a specific area or a specific area of expertise. For example, the trademark and logos used for a hospital’s senior services might be different than one used for its cardiac care services.  If you do not protect your trademark, a competitor could use it or something similar, which could confuse your patients and potentially draw business away from your practice..

Do you really need to register your trademarks?  Consider the following:

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“Prevention is better than cure” is a maxim that has reigned in the healthcare industry for thousands of years; however, this phrase echoes through the halls of the legal profession as well.

Healthcare practices often neglect to appreciate the value of their confidential information as assets and the need to protect these assets. Although HIPAA and HITECH compliance aids in maintaining the confidentiality of patient records, it does not protect a provider’s trade secrets.

Trade secrets of a healthcare practice may include any of the following: patient lists, financial information, contract rates, contract terms client lists, collection rates, marketing tactics, pricing/discount information, and methods of doing business. If leaked, this information may be used by competitors to secure advantages over a healthcare practice. For example, patient lists could be used to solicit a practice’s patients or contract rates and terms can be used by a competitor to undercut the rates of a practice.

In simple terms, trade secrets can include any business information that is: a) not publicly known, b) is valuable due to its secrecy, and c) is subject to reasonable procedures to keep it confidential. The law gives a healthcare practice the right to an injunction which is an immediate court order stopping a party from using the practice’s trade secrets. However, the practice will be required to show the Court that reasonable steps were taken to protect this information from unwanted disclosure.

A healthcare practice can do the following to protect their important and confidential information from being disclosed and from being used to cause financial damage:

  • Retain an attorney who has healthcare and intellectual property experience to perform an assessment to determine what confidential information assets are present and to determine the level of protection is placed on the information.
  • Draft a Trade Secret Policy and incorporate it into the employee handbook.
  • Continually reiterate the Trade Secret Policy through periodic memos or newsletters, updates to the policy, annual performance reviews and staff meetings.
  • Require employees to sign a non-competition agreement, which precludes a former employee from working with a competitor in a position where a risk of use (or misuse) of confidential and information would exist.
  • Require employees to enter into a Non-Disclosure Agreement if their job duties may expose them to the information.
  • Require exiting employees certify in writing that they have returned all copies of secret material and given back all company property.
  • Label proprietary information with confidentiality warnings.
  • Restrict access to only those who have a business reason to know the information
  • Keep the information in a restricted or secure area.
  • Restrict access to the information through passwords.

Unlike other forms of intellectual property protection that offer limited life span, trade secrets can be kept indefinitely so long as the protected information remain confidential and not known publicly. A practice cannot control what a judge or a jury will determine with respect to information that was misappropriated from the practice, or what value the Court may determine that the information may have. However, a healthcare practice can protect its valuable information, but should set these protections in motion as soon as possible before an occurrence of a breach that could yield catastrophic financial damage later.

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