Grassley Renews Probe of Nonprofit Hospitals

The Iowa Republican has asked the IRS for data on how many of the nation’s approximately 3,000 tax-exempt hospitals are in compliance with charity care requirements.


Grassley asked for information about whether tax-exempt hospitals are meeting the statutory requirements laid out in section 501 of the Internal Revenue Code.

The lawmaker is renewing his probe of tax-exempt hospitals after hearing reports that ‘at least some of these tax-exempt hospitals have cut charity care, despite increased revenue.’

Senate Finance Committee Chairman Chuck Grassley has renewed efforts to ensure that nonprofit hospitals are earning their tax-exempt status by providing enough services for low-income people.

In a letter to Internal Revenue Service Commissioner Charles Rettig, the Iowa Republican asked for data on how many hospitals are in compliance with the requirements for tax-exempt status and the status of IRS examinations of those not in compliance.

“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me,” Grassley said in his letter.

“As chairman of the Senate Judiciary Committee, I oversaw an investigation into the billing practices of the Mosaic Life Care hospital. That investigation resulted in debt relief of almost $17 million for thousands of low-income patients.  This issue is still just as important to me now that I am chairman of the Senate Finance Committee,” Grassley wrote.

The Mosaic Life inquiry examined the billing and debt collection practices at the health system after news reports indicated it had sued low-income patients who should have qualified for charity care.

Grassley told Rettig that he was renewing his probe of tax-exempt hospitals after hearing “reports” that “at least some of these tax-exempt hospitals have cut charity care, despite increased revenue, calling into question their compliance with the standards set by Congress.”

He asked Rettig for information about whether tax-exempt hospitals are meeting the statutory requirements laid out in section 501 of the Internal Revenue Code, and he cited in his letter an article in Politico that suggested nonprofit hospitals were profiting from the Affordable Care Act while simultaneously cutting their charity care.

In February 2018, Grassley sent a letter to the IRS to inquire about how the agency reviews nonprofit hospital compliance.

Acting Commissioner David J. Kautter responded in April 2018 that the IRS reviews the status of about 1,000 U.S. tax-exempt hospitals each year by reviewing Forms 990, hospital websites, and other information in order to identify the hospitals with the highest likelihood of noncompliance.

Kautter said the IRS assigns either a compliance check or examination to those hospitals that appear to be most at risk of noncompliance.

Melinda Hatton, general counsel for the American Hospital Association, said her organization was confident that nonprofit hospitals are meeting their mission.

“In 2015, an AHA analysis of Schedule H filings reported that 13.3% of tax-exempt hospitals and health systems total expenses were devoted to community benefits programs, and that half of that spending was attributable to expenditures for providing financial assistance to needy patients and absorbing losses from Medicaid and other means-tested government program underpayments,” she said.

Hatton said an analysis by Ernst & Young for the AHA found that hospitals’ and health systems’ community benefit activities outweigh the value of their federal tax exemption by a factor of 11 to one. “According to the report, non-profit hospitals in 2013 were exempt from an estimated $6 billion in federal taxes and provided an estimated $67.4 billion in community benefits,” Hatton said.

“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me.”





Collectively, the executives, business owners and medical professionals involved in the conspiracy are accused of causing more than $1 billion in losses for Medicare.


Two dozen people were indicted in the multistate, international telemarketing and DME scheme, which allegedly occurred in 17 federal judicial districts.

The 130 DME companies submitted more than $1.7 billion in claims to Medicare, were paid more than $900 million, and accounted in total for more than $1 billion in losses for the federal government.

The swindled money was allegedly laundered through international shell corporations and used to purchase exotic automobiles, yachts and luxury real estate in the United States and abroad,

Federal prosecutors are calling it one of the largest healthcare fraud schemes they’ve ever investigated.

Criminal indictments were made public this week against 24 people, including CEOs, COOs, physicians, and other executives at five telemedicine companies, and the owners of 130 durable medical equipment companies across 17 federal judicial districts for their roles in various schemes to bilk Medicare out of $1.2 billion.

Prosecutors said the DME companies allegedly paid kickbacks and bribes in exchange for the referral of Medicare beneficiaries by physicians in cahoots with fraudulent telemedicine companies for unnecessary back, shoulder, wrist and knee braces.

Some of the defendants allegedly controlled an international telemarketing network that lured over hundreds of thousands of elderly and/or disabled patients into a criminal scheme that crossed borders, involving call centers in the Philippines and throughout Latin America, prosecutors said.

The defendants allegedly paid doctors to prescribe DME either without any patient interaction or with only a brief telephonic conversation with patients they had never met or seen.

“The breadth of this nationwide conspiracy should be frightening to all who rely on some form of healthcare,” said Don Fort, Chief of Criminal Investigations at the Internal Revenue Service, one of six federal agencies involved in the probe.

“The conspiracy described in this indictment was not perpetrated by one individual.  Rather, it details broad corruption, massive amounts of greed, and systemic flaws in our healthcare system that were exploited by the defendants,” Fort said.

The 130 DME companies submitted more than $1.7 billion in claims to Medicare and were paid more than $900 million, and accounted in total for more than $1 billion in losses for the federal government.

The swindled money was allegedly laundered through international shell corporations and used to purchase exotic automobiles, yachts and luxury real estate in the United States and abroad, prosecutors said.

Court documents allege that some of the defendants lured patients for the scheme by using an international call center that advertised to Medicare beneficiaries and “up-sold” the beneficiaries to get them to accept numerous “free or low-cost” DME braces, regardless of medical necessity.

The international call center allegedly paid illegal kickbacks and bribes to telemedicine companies to obtain DME orders for these Medicare beneficiaries. The telemedicine companies then allegedly paid physicians to write medically unnecessary DME orders. Finally, the international call center sold the DME orders that it obtained from the telemedicine companies to DME companies, which fraudulently billed Medicare.


  • In New Jersey, Neal Williamsky 59, of Marlboro, and Nadia Levit, 39, of Englishtown, New Jersey, owners of 25 DME companies, were indicted for their alleged participation in a $150 million scheme.

    Albert Davydov, 26, of Rego Park, New York, was charged for his alleged participation in a $35 million DME scheme.

    Creaghan Harry, 51, of Highland Beach, Florida; Lester Stockett, 51, of Deefield Beach, Florida; and Elliot Loewenstern, 56, of Boca Raton, Florida; the owner, CEO and VP of marketing, respectively, of call centers and telemedicine companies were charged for their alleged participation in a $454 million kickback and money laundering scheme.

    Joseph DeCoroso, MD, 62, of Toms River, New Jersey, was charged in a $13 million conspiracy to commit healthcare fraud and separate charges of healthcare fraud for writing medically unnecessary orders for DME, often without speaking to patients, while working for two telemedicine companies.

  • In Florida, Willie McNeal, 42, of Spring Hill, the owner and CEO of two telemedicine companies, was charged for his alleged participation in a $250 million scheme to swap kickbacks and bribes for DME referrals.
  • In Dallas, Texas, Leah Hagen, 48, and Michael Hagen, 51, of Dalworthington Gardens, owners and operators of two DME companies, were charged for their alleged participation in a $17 million kickback scheme that generated unnecessary DME orders.
  • In El Paso, Texas, Christopher O’Hara, 54, of Kingsbury, the owner of a telemedicine company, was charged in an $40 million scheme to swap kickbacks and bribes for referrals to DME providers.
  • In Philadelphia, Randy Swackhammer, MD, 60, of Goldsboro, North Carolina, was charged for an alleged $5 million conspiracy to commit healthcare fraud. Swackhammer allegedly wrote medically unnecessary orders for DME while working for a telemedicine company, often with only brief conversations with patients.
  • In California, Darin Flashberg, 41, and Najib Jabbour, 47, both of Glendora, and owners of seven DME companies, were charged with alleged participation in a $34 million scheme that paid kickbacks and bribes in exchange for unnecessary DME orders.
  • In South Carolina, Andrew Chmiel, 43, of Mt. Pleasant, owner of over a dozen companies involved in the scheme, was charged in a $200 million scheme to pay kickbacks and bribes in exchange for unnecessary DME orders.





Drug Trade Group Quietly Spends ‘Dark Money’ To Sway Policy And Voters

Drug Trade Group Quietly Spends ‘Dark Money’ To Sway Policy And Voters


In 2010, before the Affordable Care Act was passed by Congress, the pharmaceutical industry’s top lobbying group was a very public supporter of the measure. It even helped fund a multimillion-dollar TV ad campaignbacking passage of the law.

But last year, when Republicans mounted an aggressive effort to repeal and replace the law, the group made a point of staying outside the fray.

“We’ve not taken a position,” said Stephen Ubl, head of the organization, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, in a March 2017 interview.

That stance, however, was at odds with its financial support of another group, the American Action Network, which was heavily involved in that effort to put an end to the ACA, often referred to as Obamacare, spending an estimated $10 million on an ad campaign designed to build voter support for its elimination.

“Urge him to repeal and replace the Affordable Care Act now,” one ad running in early 2017 advised viewers to tell their congressman. That and similar material (including robocalls) paid for by the American Action Network ran numerous times last year in 75 congressional districts.

PhRMA was one of AAN’s biggest donors the previous year, giving it $6.1 million, federal regulatory filings show. And PhRMA had a substantial interest in the outcome of the repeal efforts. Among other actions, the GOP-backed health bill would have eliminated a federal fee paid by pharmaceutical companies, one estimated at $28 billion over a decade.

But there was no way the public could have known at the time about PhRMA’s support of AAN or the identity of other deep-pocketed financiers behind the group.

Unlike groups receiving its funds, PhRMA and similar nonprofits must report the grants in their own filings to the Internal Revenue Service. But the disclosures don’t occur until months or sometimes more than a year after the donation.

The conservative-leaning AAN has become one of the most prominent nonprofits for funneling “dark money” — difficult-to-trace funds behind TV ads, phone calls, grass-roots organizing and other investments used to influence politics. Such groups have thrived since the Supreme Court’s Citizens United decision in 2010, which loosened rules for corporate political spending, and amid what critics say is nonexistent policing of remaining rules by the IRS.

(It’s impossible to know from public records whether PhRMA donated before or after President Donald Trump’s victory, which made repealing the health law a substantial possibility. In any case, most donations to dark-money groups are not earmarked for a particular program.)

Generally speaking, dark-money groups are politically active organizations, often nonprofits, that are not required to disclose identities of their donors. Under IRS regulations, donors may fund a nonprofit group such as AAN, which is allowed to engage in political activities and is not required to reveal its funding sources.

Dark-money groups are often chartered under Section 501(c)(4) of the tax law, which grants tax exemption to “social welfare organizations.” For those seeking to influence politics but stay in the background, 501(c)(4) designations offer two big advantages: tax exemption and no requirement to disclose donors.

Against the backdrop of high drug prices and its heaviest political expenditures in years, the pharmaceutical industry is directing substantial resources through AAN and other such groups that hide the identity of their donors and have few if any limits on fundraising.

“PhRMA has always been very aggressive and very effective in their influence efforts,” said Michael Beckel, research manager at Issue One, a nonprofit devoted to campaign-finance transparency. “That includes using these new, dark-money vehicles to influence policy and elections.”

PhRMA’s $6.1 million, unrestricted donation to AAN was its single-biggest grant in 2016, dwarfing its $130,000 contribution to the same group the year before. Closely associated with House Republicans — AAN has a former Republican senator and two former Republican House members on its board — the group backed the failed GOP health bill intended to replace the Affordable Care Act. It also supported the successful Tax Cuts and Jobs Act of 2017, which reduced corporate taxes by hundreds of billions of dollars over a decade.

So far in this election cycle, AAN has given more than $19 million to the Congressional Leadership Fund, a Republican super PAC with which it shares an address and staff, according to the Center for Responsive Politics. The fund recently ran ads opposing Democratic candidates in high-profile special congressional elections in Georgia and Pennsylvania.

PhRMA disputes the suggestion that it backs particular actions by the recipients of its donations. “PhRMA engages with groups and organizations that have a wide array of health care opinions and policy priorities,” said its spokesman, Robert Zirkelbach. “It is inaccurate and would be inappropriate for you to attribute those grants to a specific campaign.”

AAN declined several requests for comment.

Including AAN, PhRMA gave nearly $10 million in 2016 to politically active groups that don’t have to disclose donors, its most recent filing with the IRS shows. By contrast, PhRMA and its political action committee, or PAC, made only about $1 million in comparatively transparent political donations in 2015 and 2016 that were disclosed to regulators and reported by the Center for Responsive Politics.

PhRMA’s 2016 political activities included support for the Republican National Convention. Rather than directly support the Cleveland convention, which several companies pulled out of after it became clear that Donald Trump was going to be the presidential nominee, PhRMA routed $150,000 through limited liability companies with names like Convention Services 2016 and Friends of the House 2016.

Like 501(c)(4)s, LLCs do not have to disclose their donors. PhRMA’s support was revealed in IRS filings more than a year later. (Donations by PhRMA and other groups to Friends of the House, which financed a luxury lounge for convention dignitaries, were first reported by the Center for Public Integrity last fall.)

PhRMA’s surge in donations to AAN coincides with the arrival of Ubl, who took over as president and CEO in 2015 and has long-standing ties to Norm Coleman, a former U.S. senator from Minnesota who is now AAN’s chairman. Ubl once ran the lobby for makers of knee implants, heart stents and other medical devices, one of whose most powerful members, Medtronic, is based in Minneapolis.

Dues paid by member drug companies rose by 50 percent after he got there. PhRMA’s total revenue increased by nearly a fourth in 2016, according to IRS filings.

PhRMA’s 2016 dark-money contributions included $150,000 to Americans for Prosperity, a conservative group associated with billionaires Charles and David Koch. Their group has already signaled it will be active in November’s elections, running attack ads against Sen. Jon Tester, a vulnerable Montana Democrat, for not supporting ACA repeal.

PhRMA also gave $50,000 to Americans for Tax Reform, run by conservative anti-tax activist Grover Norquist.

PhRMA and other trade associations donate to such groups “to avoid attracting attention” amid the political fray, said Bruce Freed, president of the Center for Political Accountability, which seeks to shed light on corporate political spending. Nevertheless “they’re achieving their goals by giving money to these folks and helping elect members that are going to be in support of them.”

Mostly smaller amounts went to centrist and liberal groups. Center Forward, which claims to seek bipartisan, common ground on drug policy and other issues, got $300,000 directly from PhRMA and another $179,000 from a PhRMA-backed group called the Campaign for Medical Discovery, according to tax filings.

Zirkelbach disputed the notion that PhRMA donations to AAN and other groups were intended to achieve specific goals, saying, “We seek to work with organizations we agree with as well as those where we have disagreements on public policy issues.”

Much of the work by PhRMA-linked, dark-money groups touches health policy and harmonizes with PhRMA’s positions.

During debates over the tax overhaul, Center Forward worked to preserve a tax credit for researching rare-disease medicines known as orphan drugs. PhRMA took a similar stance, encouraging Congress “to maintain incentives” for rare-disease drugs.

AAN, which collected total contributions and grants of $14.6 million for fiscal 2016, launched a $2.6 million mass-mailing and ad campaign against letting Medicare lower drug prices through negotiations. PhRMA supported that stance, telling Healthline that such a measure could jeopardize seniors’ access to medicine and discourage companies from developing drugs.

Americans for Tax Reform ran similar ads in local markets opposing “price controls” on prescription drugs.

PhRMA’s dark-money allies push its agenda without disclosing its role, critics say.

PhRMA is “spending millions of dollars on politics every cycle, and they’re splitting it up between the state and federal level,” said Robert Maguire, political nonprofits investigator for the Center for Responsive Politics, which tracks political donations. “They’re just not running the political ads themselves,” which keeps their name off the product, he said.

A group called Caregiver Voices United, which got $720,000 from PhRMA in 2016, backed a secret effort to generate letters opposing a drug-transparency bill in Oregon. The campaign surfaced when an employee leaked phone-script documents to a lawmaker, as reported in February by The Register-Guard newspaper in Eugene.

Caregiver Voices United is “not influenced” by PhRMA or any other outside group, said John Schall, its president.

Dark-money groups received pharmaceutical industry money from individual companies as well, not just the PhRMA trade organization.

In 2016, Amgen gave $7,500 to Third Way, a center-left group that supports reimbursement for drugs and medical devices based on their results, according to the Center for Political Accountability. Johnson & Johnson gave $35,000 that year to the Republican Main Street Partnership, a 501(c)(4) that describes itself as a coalition of lawmakers committed to “conservative, pragmatic government,” the CPA data show.

But CPA’s research also reveals that many pharmaceutical companies don’t disclose donations made to 501(c)(4) organizations, nor are they legally required to.

Corporations “could dump millions into one of these (c)(4)s and nobody would ever know where it came from,” said Steven Billet, a former AT&T lobbyist who teaches PAC management at George Washington University.


Trump Says He Got Rid of Obamacare. The I.R.S. Doesn’t Agree.

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At a rally in Michigan a little over a week ago, President Trump assured his supporters that he had kept his promise to abolish the Affordable Care Act — even though Congress had failed to repeal the Obama-era health law.

“Essentially, we are getting rid of Obamacare,” Mr. Trump said, reminding a cheering crowd that the individual mandate that required most people to have health insurance or pay a penalty was scrapped as part of the Republican tax bill he signed into law last year. “Some people would say, essentially, we have gotten rid of it.”

But despite Mr. Trump’s longstanding desire to unwind the signature legislative achievement of his predecessor, many parts of the Affordable Care Act remain in place. And the Trump administration is even enforcing some of its provisions more aggressively than President Barack Obama did — a reality that has enraged business groups and Republicans in Congress who still want the law officially repealed.

While the individual mandate may be dead, the employer mandate — the requirement that many companies offer health insurance to their workers or pay a penalty — is very much alive. Under Mr. Trump, the Internal Revenue Service has been pursuing companies that fail to comply with the mandate and, according to the agency, was sending penalty notices to more than 30,000 businesses around the country.

Business groups are pushing for the I.R.S. to stop enforcing the mandate and House Republicans, who voted to repeal much of the Affordable Care Act a year ago, have proposed legislation to eliminate it. But most Democrats oppose major changes to the law and the Republican leaders in the Senate have shown no interest in tackling health care after last year’s stinging defeat.

The employer mandate requires companies with more than 50 full-time employees to provide health benefits to eligible employees or face fines of more than $2,000 per worker. The Congressional Budget Office predicted that these fines would total $12 billion in 2018.

The I.R.S. is working on settlements with some of the businesses that have had technical issues or paperwork glitches, according to David Kautter, the Treasury Department’s assistant secretary for tax policy and the acting I.R.S. commissioner.

But other companies that have failed to provide insurance will face stiff fines.

“I think it is horribly unfair and unjust,” Representative Jody Hice, a Republican from Georgia who has been a leading voice in the opposition to the employer mandate, said at a hearing where Mr. Kautter testified in April. “What I am asking at this point is for the I.R.S. to continue not to enforce it, as is what took place under the Obama administration,” he said, referring to a reprieve that was granted while businesses and the government sorted out compliance details.

Some lawyers contend that the I.R.S. is on shaky ground in trying to enforce the employer mandate penalties, arguing that the government has not followed proper procedures, like notifying employers that they were in violation of the law.

“The Affordable Care Act and federal regulations clearly state that a health insurance exchange must notify an employer that one or more employees qualified for premium tax credits before the I.R.S. can impose penalties,” said Christopher E. Condeluci, an employee benefits lawyer. “Most of the employers subject to penalties for 2015 never received the notices required under the law.”

E. Neil Trautwein, a vice president of the National Retail Federation, said some penalties resulted from an employer’s failure to check a particular box on a government form indicating that it had offered coverage to eligible employees.

In one case, Mr. Trautwein said, a $20 million penalty was imposed on a restaurant chain because one of its vendors had failed to check the proper box. “The penalty was negotiated down to zero,” Mr. Trautwein said. “It was an inadvertent mistake in filling out a complicated new form.”

John D. Arendshorst, an employee benefits attorney at Varnum, said he has been busy fielding questions from companies that have received proposed assessments from the I.R.S. and said the government has shown a willingness to reduce penalties when appropriate. In one case, a business with about 500 employees received an assessment for $1.9 million. That was ultimately reduced to $20,000 because the penalty was caused by a computer error.

“They were shocked for sure,” Mr. Arendshorst said of the initial penalty letter. “They felt it was a big mistake and it turned out to be.”

Under the Affordable Care Act, the employer mandate was to take effect in 2014. The Obama administration delayed enforcement for an additional year after employers said they needed more time to comply with rules requiring them to report on the coverage they provided to employees. And the Treasury Department needed more time to clarify the requirements. It was not until late last year that the I.R.S. had the capacity to determine which businesses were in violation of the mandate, and the agency is just now sending penalty letters related to the 2015 tax year. Penalty letters for the 2016 and 2017 tax years are expected to follow soon.

Republicans criticized the decision to begin enforcing the mandate as a parting shot by the former I.R.S. commissioner John Koskinen, whom they had previously assailed over the agency’s scrutiny of conservative nonprofit organizations. While Mr. Trump had issued an executive order that called for easing the Affordable Care Act’s regulations, the Treasury Department, which oversees the I.R.S., said it was required to abide by the law and enforce the employer mandate.

Mr. Koskinen pushed back against the idea that he was attempting to punish conservatives by jump-starting enforcement of the employer mandate, and he said that companies had been given plenty of notice that they needed to provide insurance to their employees.

“The I.R.S. does not have the authority not to collect the money,” Mr. Koskinen said in an interview, adding that there was no reason to hold off on penalizing companies. “Delaying wouldn’t accomplish anything except delay.”

Business groups have been lobbying Congress to repeal the employer mandate or to get the I.R.S. to stop enforcing it. They argue that companies did not receive sufficient notice that they needed to comply with a provision of the health law that had not been enforced for seven years.

“The employer mandate always existed to support the individual mandate,” said Jim Klein, president of the American Benefits Council. “There’s no logic or fairness in having an employer mandate in the absence of having an individual mandate.”

Mr. Klein said he would like to see a legislative fix to address the situation.

Mr. Trump himself has added to the confusion over the mandate by repeatedly asserting that the Affordable Care Act had been essentially eliminated because Republicans did away with the individual mandate.

“It’s yet another reason why the employer mandate needs to go,” Representative Kevin Brady of Texas, the Republican chairman of the House Ways and Means Committee, said of the penalties.



Florida hospital CEO charged with fraud after allegedly embezzling funds


Former chief executive of Calhoun-Liberty Hospital is charged with using money to pay various personal expenses.

A former Florida hospital CEO has been indicted by a federal grand jury on charges he embezzled money from the hospital where he worked through false billing practices and a shell company, according to the U.S. Department of Justice.

Phillip Hill Jr. of Blountstown, Florida has been indicted on 24 counts of wire fraud and 4 counts of filing false tax returns. The indictment alleges that between 2010 and 2015, when Hill served in dual roles as Chief Executive Officer and department head of Emergency Management Services, to embezzle money from Calhoun-Liberty Hospital.  According to the indictment, he billed the hospital for goods it never received using invoices in the name of “Southeastern Medical Supply,” a fake business connected to a bank account he himself controlled. The indictment also stated that Hill ordered medical supplies from eBay and other vendors then billed the hospital for them supplies at price points far exceeding what Hill actually paid, the DOJ said.

According to the indictment, Hill used the funds in the Southeastern bank account to pay personal credit card bills, fund a business he owned and operated, to obtain cash, and to pay personal expenses including groceries and travel.

The DOJ also said the indicated that an employee at the hospital once inquired after contact information for Southeastern Medical Supply, and Hill responded that he had lost his phone and didn’t have the number, and also that the last time he had “talked with” the company they were discussing going out of business.

The maximum penalty for each wire fraud count is 20 years in prison. The maximum penalty for each count of filing false tax returns is 3 years in prison.  A trial date of this July 2nd has been set. The case was investigated by the Internal Revenue Service — Criminal Investigation, the Florida Department of Law Enforcement, and the Blountstown Police Department.

Hospital CEOs could face new taxes 

The Republican tax overhaul bill also includes a small section that would levy a 20% excise tax on any wages of more $1 million for executives who work at tax-exempt organizations. Guess who’s not thrilled about that? Hospitals.

What they’re saying: The American Hospital Association said it was “concerned” about that provision because “there is already a rigorous process prescribed by the Internal Revenue Service for setting up executive compensation.”

Go deeper: As Axios’ Bob Herman has reported, hospital and health system CEOs command some of the highest salaries in the not-for-profit world.

When ‘gigging’ healthcare, providers must balance risk with cost

An explosion of innovative tech is disrupting the care-delivery model, aiming for both cost savings and better outcomes. Uber’s partnership with MedStar Health to reduce patient no-shows, a huge cost-sink, and the expansive potential of drones to fill healthcare infrastructure gaps in remote areas are just two examples of ways in which healthcare providers are setting out to provide better care at lower cost.

Cost-saving innovations have also begun to extend to the healthcare employment model — something notably risky when it comes to compliance. One program offers a solution to staffing issues that connects freelance nurses with open positions using an entirely digital platform in an attempt to modernize the business. Others have opted for more ad hoc hiring processes for IT and transcription talent.

Either way, the “gig economy” has reached healthcare — and it looks like it’s here to stay.

What does gig work in the healthcare space look like right now?

Healthcare providers have to manage an employee population with vastly different skill sets. But even in the diverse healthcare workplace, where special rules run rampant, some general guidance still applies.

Typically, the more specialized and trained the worker, the less likely they can be hired on as an independent contractor, Matt Stevenson, partner at Mercer, told HR Dive. And right now, most gig workers are on the lower end of the skill scale — especially in healthcare.

“Because of the way healthcare has been restructured, there’s been an explosion of employment at the low end,” Stevenson said. Increased calls for low-acuity care, like physical therapy and daily caregiving, have heralded the growth of contracted work. Convenience for both patient and provider also plays a part. Telehealth (while not specifically contract work, usually) allows doctors to sign up for specific hours to treat patients via phone or video, while digitization lets those doctors keep all records securely online. It brings a flexibility few office jobs can compete with.

Another bonus: cost.

“Incentives are changing,” Stevenson said. “You are now paying for results instead of the hospital getting paid more for you being in the hospital longer.”

As providers seek better outcomes for a lower price, contract work plays a pivotal role in improving care but keeping barriers low for patients. Caregivers can visit homes and encourage patient compliance, such as taking medicine and completing physical therapy, and hospitals can hire those workers on a job-to-job basis, which is cheaper overall.

Providers must keep liability in mind when hiring out independent gig work, however. Hospitals in need of on-demand talent often retain nursing agencies that take on liability, employee background checks and other major risk issues in exchange for hefty fees. Independent workers tend to be cheaper, but come with much higher risk.

Managing liability and questions of quality

Classification is a perpetual headache for employers in many industries. Simply calling someone an independent contractor doesn’t cut it, Shanna Wall, labor law attorney at ComplyRight, said. Nationally, employers have to satisfy a slew of tests under regulations from the IRS, the U.S. Department of Labor and individual states meant to protect workers from exploitation. Courts have been in on the action, too.

Most tests balance on one key question: How much independence does an individual worker have? More specifically, does an employer focus on a result alone or the job itself? Is the worker using their own equipment and deciding their own hours, or is an employer dictating that? The more control an employer has, the riskier independent contractor classification can be.

But that’s not all. Medical personnel have to deal with strict laws on private health information, such as the Health Insurance Portability and Accountability Act (HIPAA). Contractors must be trained on what those and other rules require.

“How do you ensure the quality of care provided by the gig person is okay?” Stevenson said. “How do you keep costs down but ensure quality? You may pay $15 an hour, but that is low for healthcare.”

Worse, if something goes wrong, the provider is on the hook. By giving jobs to outside workers, providers risk losing strict control over the quality of care and, in the long term, their brand. Employers already struggle to gather data on full-time employees. Gathering data on the success of gig workers is even tougher, since the very nature of the relationship is fairly low-touch.

That’s partly why the agency model has lasted for so long, as they take on most of those risks and give hospitals the ability to up- or downsize when needed. But the costs are real.

In the future: Outsourcing some jobs but not all

For that reason, employers may want to consider their needs on a sliding scale of risk versus efficiency. Joint employer cases are still working their way through the courts. Uncertainty remains the rule of the day. “It’s always best practice to err on the side of an abundance of caution,” Wall said.

As far as the future goes, that uncertainty renders predictions suspect. Digitization has encouraged the contracting out of some support services, including diagnostic work such as radiology. As long as a radiologist has an internet connection, they can read a scan and send their analysis from anywhere.

Innovation continues in the on-demand non-emergency medical transportation space, too. Circulation, a Boston-based provider of medical transportation, recently raised $10.5 million in a funding round that included participation from leading names in healthcare such as the Boston Children’s Hospital, Humana and NextGen Venture Partners. Experts believe that ride-share partnerships could save billions of dollars usually spent by Medicaid.

But as more employers focus on ways to engage employees, contract workers will largely remain outside those efforts, Stevenson said. Gig workers usually seek independence for a reason, be it the flexibility of hours or ability to set their own pay. They prefer autonomy, and don’t want to be bogged down in HR processes.

“If I really cared about engagement, I would bring them in-house,” Stevenson said.  But as long as demand is high, treatment of contract workers will have to remain top notch to keep a steady flow of candidates in the pipeline.

The influx of independent work has enabled unprecedented flexibility for workers and access to talent for employers. But above all, employers must be wary of the risks to truly enjoy the perks of independent contracting.

“You think you are safe from compliance because they are gig workers, but really, it’s the opposite,” Wall said.