PENNSYLVANIA: An Introduction to Healthcare

Consolidation in the Health Care Industry

Pennsylvania, like other markets across the country, has experienced major consolidation in the health care industry. Physicians have become employed by health systems, and independent practices are a minority. That said, the health systems are challenged in terms of how to incentivise physicians in their compensation and what results they seek from their employed doctors. Other forms of physician alignment have also emerged with some frequency, including leasing the practice to the hospital without selling the practice’s assets. This, in turn, means that the contracts with insurers to pay for physician services run through the hospital or its affiliated physician practice, challenging those payment models and the contracts that create them as well. 

Private equity becomes a player

In addition, private equity has become a player in the industry with varying results in terms of cost savings and quality of care. Pennsylvania does not permit physicians to be employed by non-professional entities, so the structuring of these new relationships is another challenge adding to the complexity of these transactions.

Fraud enforcement and whistle-blower lawsuits

Fraud and abuse enforcement and the dynamics of whistle-blower lawsuits also remain a significant threat. Every year Medicare fine-tunes the Physician Fee Schedule, and in recent years has taken that publishing opportunity to regulate in other ways. For example, they have used the fee schedule publication to clarify substantive aspects of the rules regarding “incident to” billing as well as Stark law interpretations. In addition, Pennsylvania has an Insurance Fraud Code (and a Workers’ Compensation version of that statute), which restricts in different ways the potential relationships among providers, physicians, lawyers, payers, and claims submission for insurance payments. In Pennsylvania itself, the Workers’ Compensation laws are linked to Medicare payment rates, but in 2024, the Commonwealth Court issued a startling opinion that extended some of the substance of the federal physician self-referral restrictions into the Pennsylvania rules. That case is on appeal. Issues of physicians under Workers’ Compensation owning pharmacies when the law prevents them from dispensing drugs has also raised controversy.

Employment agreements and insurance laws

On a different note, beginning January 1, 2025, Pennsylvania law prohibits post termination restrictive covenants in employment agreements with a term of more than one year for practitioners. Effective after March 31, 2025, a modification of Pennsylvania’s insurance laws requires insurers in Pennsylvania to cover health care services provided by telemedicine which otherwise meet the insurer’s coverage requirements.