PENNSYLVANIA: An introduction to Healthcare

Pennsylvania, like other markets across the country, has experienced major consolidation in the healthcare industry. Physicians have largely become employed by healthcare systems, and independent practices are now a minority. That being said, these healthcare systems face challenges in terms of how to incentivise physicians through their compensation and what results are sought from the employed doctors. Other forms of physician alignment have also emerged with some frequency, including leasing the practice to the hospital without selling the practices’ 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.

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 and abuse enforcement and the dynamics of whistle-blower lawsuits as 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 restrict 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. On a different note, from 1 January 2025, Pennsylvania law prohibits post-termination restrictive covenants in employment agreements with a term of more than one year for practitioners. In July 2024, Governor Shapiro also signed into law a modification of Pennsylvania’s insurance laws, which requires insurers in Pennsylvania to cover healthcare services provided by telemedicine which otherwise meet the insurer’s coverage requirements.