5 PRSRT STD

Antitrust Report
(continued from page 2)
U.S. POSTAGE
PAID
Bellmawr, NJ
Permit No. 58
HEALTH
analysis (and therefore avoid condemnation as per se illegal),
the Agencies will consider the extent to which a particular
payment for performance arrangement constitutes the sharing
of substantial financial risk among the members of the joint
venture, whether that sharing is likely to produce efficiencies,
Joint Price Negotiations
A joint venture will escape summary condemnation when
joint price negotiations are reasonably necessary to achieve
substantial efficiencies arising from the clinical integration.
The extent to which joint contracting is reasonably necessary
1810 Chapel Avenue West
Cherry Hill, NJ 08002-4609
Return Service Requested
LAW REPORT
A Newsletter from the Health Care Law Practice Group
and whether any price or otherwise per se illegal agreements www.flastergreenberg.com Winter 2004
to achieve efficient clinical integration will vary, depending
among the members are reasonably necessary to achieve
on the facts and circumstances. Participants in a joint venture
those efficiencies. Thus, a joint venture among physician
that is not sufficiently integrated face significant antitrust risk
groups where the groups and their members earn exactly the
income produced by their separate offices may create a serious
if they attempt to contract jointly. In PA, Patient Lists Protected — Editor’s Note. . .
The Report sets forth six groups of questions for physicians
antitrust issue.
to ask if they are considering clinical integration. These groups Even If No Restrictive Covenant By Stephen M. Greenberg

Identifying Clinical Integration
Statement 8 notes that clinical integration can be
evidenced by a “network implementing an active and ongoing
program to evaluate and modify practice patterns by the
network’s physician participants and create a high degree of
interdependence and cooperation among the physicians to
control costs and ensure quality.” Statement 8 further
identifies three arrangements that a clinical integration
program might include:
1. Establishing mechanisms to monitor and control utiliza-
tion of health care services that are designed to control
costs and assure quality of care
2. Selectively choosing network physicians who are likely to
further these efficiency objectives
I
of questions are intended to provide insights into the types n this issue, the Health Law Report
of questions the Agencies are likely to ask when analyzing By Michael D. Homans focuses on two topics of particular
interest to health care providers:
the competitive implications of a physician network joint n a significant victory for physicians’
venture that justifies joint action involving price or other
competitively significant terms on the grounds that the joint
venture is clinically integrated. The answers to these questions
I groups and healthcare firms, a
Pennsylvania Court recently ruled that
patient lists and appointment books
trade secrets and antitrust laws. As
physicians combine and affiliate practices
to leverage contract negotiations with
large third party payers, the antitrust issue simply cannot
will determine whether a physician network joint venture is constitute trade secrets that cannot be be ignored.
or can become sufficiently clinically integrated to generate taken or misused by current or former
Michael D. Homans, whose practice emphasizes
efficiencies for the benefit of consumers and therefore avoid physicians and employees. Why is this an
employment law, reviews a recent Pennsylvania decision.
condemnation. important win for healthcare employers?
This ruling holds that patient lists and appointment books
In summary, the Report makes the Agencies joint position Because it strengthens existing law by
constitute trade secrets of a physician’s practice and are
quite clear: vigorous antitrust enforcement helps protect and confirming that employees cannot misap- subject to common law protection—even without the
propriate such patient data — even if no employment con-
promote competition, which in turn promotes the delivery of benefit of a restrictive covenant.
tract or restrictive covenant expressly forbids it.
high quality, cost-effective health care services. We believe
the Agencies will be playing an active role in the future. That
Practice Areas Thomas D. Scholtes, the newest member of our

3. The significant investment of capital, both monetary and
human, in the necessary infrastructure and capability to
realize the claimed efficiencies.
In 2002, the FTC staff closed an investigation into a
physician collaboration that created a substantial degree of
market concentration. That’s because the parties demonstrated
the collaboration created considerable efficiencies, including
improvements in the quality of care.
Health Care Practice Group Services
◆ Starting a Practice or Business
◆ Employer-Employee Agreements
◆ Sales, Acquisitions and Mergers of Practices
◆ Management Companies
role will be to protect and promote competition by bringing Health Care Law Practice Group
enforcement actions for violations of antitrust and consumer
Richard J. Flaster
protection laws. ◆ 856-661-2260
This article provides just a short summary of the Report. If rick.flaster@flastergreenberg.com
you have questions or would like more information about specific
aspects of the Report, Thomas D. Scholtes can be reached at Kenneth S. Goodkind
856-382-2227. 856-661-2273
ken.goodkind@flastergreenberg.com
Vincent J. Nolan III
856-661-2275
vincent.nolan@flastergreenberg.com
◆ Litigation and Dispute Resolution
◆ Contracts Alma L. Saravia
856-661-2290
◆ Fraud, Abuse and Other Regulations alma.saravia@flastergreenberg.com
◆ Licensing Board Representation
Stephen M. Greenberg
856-661-2261
steve.greenberg@flastergreenberg.com
Markley S. Roderick
856-661-2265
mark.roderick@flastergreenberg.com
Laura B. Wallenstein
856-661-2263
laura.wallenstein@flastergreenberg.com
Alan H. Zuckerman
856-661-2266
alan.zuckerman@flastergreenberg.com
◆ Bankruptcy & Financial Work-outs
◆ Business & Corporate Services
◆ Closely-Held Businesses
◆ Commercial Litigation
◆ Commercial Real Estate
◆ Construction Law
◆ E-Commerce & Internet
◆ Emerging Business
◆ Employee Benefits
◆ Environmental Law
◆ Estate Planning & Administration
◆ Family Law & Adoption
◆ Federal & State Taxation
◆ Health Care Law
◆ Labor & Employment Law
Facts and Issues in Case
In Pollack v. Skinsmart Dermatology and Aesthetic Center
(October 5, 2004), the facts were fairly simple.
Toby Shawe, M.D., and Samy Badawy, M.D., are
dermatologists who worked for the Philadelphia Institute of
Dermatology (“PID”), a private medical practice owned by
Andrew Pollack, M.D. As part of PID’s operations, it
maintained a database of every patient seen (nearly 20,000),
and appointment books for each physician. PID limited
access to this information to only certain employees.
In late 2001, Dr. Pollack discussed the sale of PID to
Drs. Shawe and Badawy. A tentative agreement was reached
in June of 2002, but never came to fruition. In August 2002,
Drs. Shawe and Badawy resigned from PID, rather than
purchase the practice. Prior to resigning, they directed PID
staff members to copy the appointment books for each of
them, and to print out portions of the patient lists.
Health Care Practice Group, presents a short primer on
antitrust law and its application to health care provider
practice combinations and affiliations. He also reviews a
joint report issued this summer by the U.S. Department
of Justice and the Federal Trade Commission, the two
governmental agencies charged with enforcing the
antitrust laws.
Finally, Alma L. Saravia reviews a recent decision by
the Appellate Division of the New Jersey Superior Court.
This decision upholds the NJ Board of Medical
Examiners’ regulation on in-office anesthesia and how it
will be implemented.
We hope you find these articles interesting and inform-
ative. If they raise any questions, I encourage you to con-
tact me or any other member of our Health Care Practice
Group. Our contact information is provided on the back
cover of the Health Law Report. ◆

◆ Estate Planning ◆ Buying or Leasing Real Estate

Thomas D. Scholtes
856-382-2227
Douglas S. Stanger
609-645-1881 ◆ Land Use
Drs. Shawe and Badawy then established their own
dermatological practice, Skinsmart Dermatology and
In This Issue…
thomas.scholtes@flastergreenberg.com doug.stanger@flastergreenberg.com ◆ Mergers & Acquisitions In PA, Patient Lists Protected —
◆ Ownership Agreements ◆ Ambulatory Surgical Centers and Ambulatory Aesthetic Center, P.C. (“Skinsmart”). They called patients Even If No Restrictive Covenant............................................1
Care Facilities ◆ Pensions & Retirement Plans who were previously scheduled for procedures at PID to
◆ Multidisciplinary Practices Antitrust Report Focuses on Health Care Combinations ........2
◆ Securities Law reschedule them to Skinsmart. Also, they contacted their
◆ Admitting and Terminating Partners ◆ Healthcare “Roll-Up” Companies Visit our Web site at: NJ Board of Medical Examiners In-Office Anesthesia
◆ Technology other PID patients, and mailed an announcement to patients Regulation Upheld ................................................................3
◆ Lobbying ◆ Internet-Based Healthcare Businesses www.flastergreenberg.com ◆ Trademark & Copyright (continued on page 4)
Copyright © 2004 Health Law Report • Flaster/Greenberg P.C.
www.flastergreenberg.com
 2 3 4

Antitrust Report Focuses on Health Care Combinations NJ Board of Medical Examiners In PA, Patient Lists Protected
(continued from page 1)
By Thomas D. Scholtes
ncreasingly over the past few years, Finally, Section 5 of the FTC Act provides that “unfair
In-Office Anesthesia and referring physicians informing them about Skinsmart. Practice Pointers

I physician practice groups are forming

affiliations with other practice groups,
while merger and acquisition activity among
physician groups is on the rise. Called health
methods of competition in or affecting commerce, and unfair
or deceptive acts or practices in or affecting commerce are . . .
unlawful.” The U.S. Supreme Court has ruled that this
Regulation Upheld
By Alma L. Saravia
Approximately $700,000 of Skinsmart’s profit was attributed
to patients who followed Drs. Shawe and Badawy to their
new practice. As a result, PID and Dr. Pollack sued Drs.
Shawe and Badawy and Skinsmart in the Philadelphia Court
Clearly, Dr. Pollack and PID scored a victory with this
decision, and probably will recover a large sum. Yet, one can
assume they would have preferred to avoid this ugly breakup,
provision provides the FTC with the authority to attack two years of litigation, and the loss of patients and profits —
n November 3, 2004, the Appellate Division of Common Pleas for damages and lost profits.

care combinations, these two trends are in
response to the market power exerted by
large, third party payers. However, physician
combinations and affiliations raise significant
antitrust issues.
On July 23, 2004, the Federal Trade Commission (“FTC”)
and the Department of Justice (“DOJ” and together with
the FTC, the “Agencies”) issued a joint report, “Improving
Health Care: A Dose of Competition” (the “Report”).
While addressing a wide range of issues affecting the quality,
accessibility and cost of health care services, the Report
provides some guidance for physicians in analyzing physician
combinations and affiliations. The Report reviews the role of
competition in producing better quality health care services
at lower prices and it provides six recommendations to improve
competition in health care markets. This article focuses only
on the physician-related issues addressed in the Report.
Competition Law Basics
The principal sources of federal competition law are the
Sherman Act, the Clayton Act, the Hart-Scott-Rodino
Antitrust Improvements Act (“HSR Act”) and the Federal
Trade Commission Act (“FTC Act”).
The Sherman Act prohibits unilateral and collective
conduct that poses unacceptable dangers to competition.
Section 1 of the Sherman Act declares unlawful “every
contract, combination . . . or conspiracy, in restraint of
trade,” while Section 2 of the Sherman Act prohibits
“monopolization” and “attempted monopolization.”
Courts reviewing Section 1 cases generally focus on
whether the allegedly conspiring parties reach agreement,
and whether that agreement was unreasonably restrictive. By
contrast, courts reviewing Section 2 cases generally examine
whether the defendant created or maintained a monopoly
through wrongful or exclusionary means. Some conduct
(such as naked agreements among physicians to fix prices) is
per se a violation of the Sherman Act.
The Clayton Act prohibits mergers and acquisitions where
the effect “may be substantially to lessen competition, or to
tend to create a monopoly.”
Under the HSR Act, parties to proposed mergers and
acquisitions that exceed statutory thresholds are required to
notify the federal antitrust agencies of their plans and afford
the government a limited opportunity to investigate before
the transaction is effectuated.
conduct constituting a Sherman Act violation.
FTC Challenges
The types of conduct that the FTC has challenged over
the years include:
• Agreements on price and price-related terms
• Agreements to obstruct the entry of innovative forms of
health care financing and delivery
• Restraints on advertising and other forms of solicitation.
Since 2002, the FTC has entered into 17 consent
agreements with physicians, their organizations, or their
non-physician consultants and agents. These agreements are
about settling charges that physicians have engaged in unfair
methods of competition — primarily involving joint
contracting with payers and other forms of price-fixing.
The Department of Justice also has undertaken many
investigations and public enforcement actions in recent years.
These include obtaining a consent decree requiring the
dissolution of a physician organization of over 1,200 members
(where the participating physicians did not integrate their
practices to create significant efficiencies to the benefit of
managed care purchasers and their employees and enrollees).
The Report cites its approval of Health Care Statement 8.
Statement 8 was issued in 1996 by the Agencies dealing with
the application of the antitrust statutes to health care providers.
Statement 8 provides that “physician network joint ventures
will be analyzed under the rule of reason, and will not be
viewed as per se illegal, if the physicians’ integration through
the network is likely to produce significant efficiencies that
benefit consumers, and any price agreements (or other
agreements that would otherwise be per se illegal) by the
network physicians are reasonably necessary to realize those
efficiencies.” Statement 8 further notes that financial
risk-sharing and clinical integration may involve sufficient
integration to demonstrate that the venture is likely to
produce significant efficiencies.
Determining Financial Integration
Statement 8 provides that only those physician networks
that share substantial financial risk can qualify for an antitrust
safe harbor on the basis of their financial integration. In
determining whether a physician network joint venture is
sufficiently financially integrated to warrant rule of reason
(continued on page 5)
O
of the New Jersey Superior Court denied the
New Jersey Association of Nurse Anesthetists’
(“NJANA”) challenge to the recently enacted
anesthesiologist supervision requirements of the
New Jersey State Board of Medical Examiners’
(“BME”) in-office anesthesia regulation. The
Appellate Division panel upheld the BME regulation
setting forth standards for the administration of
anesthesia in physicians’ offices during surgeries and procedures.
The regulation mandates that a physician who provides conscious
sedation in his office must be privileged by a hospital in conscious
sedation or obtain alternative privileges from the BME in order to
supervise a certified registered nurse anesthetist (“CRNA”). If the
physician does not obtain those privileges, he must hire an anesthesi-
ologist to provide the anesthesia. However, if the physician provides
general or regional anesthesia in the office, the BME requires that two
physicians be present - the one performing the procedure and the
physician providing the anesthesia and that physician must be an
anesthesiologist (or a physician with extensive anesthesia training).
At its November 10, 2004 meeting, the BME voted to implement
the new anesthesiologist supervision requirements as follows:
• By December 1, 2004 a physician who has already submitted an
application to the BME for alternate privileges must pay the
application fee
• By January 1, 2005 a physician who has already submitted an
application must complete all of the regulation’s requirements
(i.e., complete the patient log and Advanced Cardiac Life Support
certification)
• By February 1, 2005 any physician who wishes to continue
providing conscious sedation with a CRNA must submit an
application to the BME for alternate privileges or replace the
CRNA with an anesthesiologist. (If an application is submitted
timely, the physician may continue to work with the CRNA while
the application is reviewed, which could be a lengthy process.)
In addition, the requirement that two physicians must be present
for general or regional anesthesia will become effective on
February 1, 2005.
New Jersey is the only state in the nation to mandate that CRNAs
must work under the supervision of an anesthesiologist or a physician
with anesthesia privileges in an office setting. The New Jersey Nurse
Practice Act does not require nurses to be supervised by a physician.
NJANA is appealing the decision to New Jersey Supreme Court. ◆
The Court’s Decision
The Court first addressed whether the patient list and
appointment books constituted trade secrets. The Court
concluded that both did, for several reasons.
First, PID took steps (limiting access and disclosure) to
keep the information confidential, including restricting access
to the files. The other most important factors to the Court
appeared to be that: (1) PID had expended substantial time,
effort and money compiling the patient data, and (2) the
data had great value and importance to the business.
The defendants admitted that the patient data was valuable,
and had in fact offered to pay for it as part of their proposed
Office Locations purchase of PID. However, the defendants argued that the
data was not truly a trade secret because the patient names
Commerce Center
did not belong exclusively to PID. The Court rejected this
1810 Chapel Avenue West
argument, noting that the value of the trade secret was not in
Cherry Hill, NJ 08002-4609
the names themselves, but in PID’s efforts in “organizing and
856-661-1900
compiling the contact and other information for each patient.”
11 Penn Center
1818 Market Street, Suite 3402
Second, the Court addressed whether the defendants’
Philadelphia, PA 19103 conduct constituted misappropriation under the law. The
215-569-1022 duty not to disclose a trade secret arises from one of two
sources: a restrictive covenant with the employer or a
190 S. Main Road confidential employment relationship. The doctors did not
Vineland, NJ 08360
have employment agreements. However, the Court held that
856-691-6200
the physicians had a confidential employment relationship
216 North Avenue while working with PID. Therefore, the physicians could not
Cranford, NJ 07016 misappropriate the trade secrets.
908-245-8021
Finally, the Court found that the defendants breached
2900 Fire Road, Suite 102A their duty of loyalty to PID. Under Pennsylvania law, as in
Egg Harbor Township, NJ 08234 New Jersey and most states, an employee owes a duty of
609-645-1881 loyalty to his or her employer such that throughout
employment, the employee “must act with the utmost good
913 North Market Street, Suite 702
faith in the furtherance and advancement of the interests” of
Wilmington, DE 19810
302-351-1910
the employer. While the duty of loyalty generally ends once
the employment relationship ends, the court noted that the
duty continues with regard to trade secrets obtained during
the employment.
This report, published as a service to
The court awarded summary judgment on liability to the
Flaster/Greenberg clients and interested
plaintiffs. The exact damages will have to be determined by a
readers, is for general use and information. subsequent trial or settlement. The record did show that at
The content should not be interpreted as least $700,000 in profits had been diverted from PID to
Skinsmart as a result of the misconduct.
rendering legal advice on any specific matter.
which will continue regardless of the outcome of this litigation.
To prevent these problems and to protect healthcare
providers’ trade secrets, the Pollack case offers these lessons:
• Require employment agreements, including restrictive
covenants, of all physicians and employees to protect
patient data and other valuable trade secrets, and to
prevent unfair competition by defectors. If PID had
obtained such agreements it might have prevented this
whole affair, and/or been able to get a restraining order
and preliminary injunction to block the pirating of
patients before it took place.
• Take efforts to protect patient lists and other trade secrets
from disclosure. Drs. Shawe and Badawy obtained the
assistance of a clerical employee in stealing the patient
data. Employers should limit access to such computer
data, restrict or prohibit printouts, and instruct all
employees about the secrecy of patient information and
the duty of loyalty. In fact, the use and disclosure of this
patient information by the defendants likely constituted a
violation of the HIPAA Privacy Rule.
• Document the value of patient lists and other trade secrets,
if possible. This can be set forth in financial statements
and/or documented by the time, money and effort spent
in developing the patient lists.
• Take immediate legal steps to stop patient solicitation by
ex-employees, if such solicitation is in violation of an
employment agreement or involves the misappropriation
of patient lists or trade secrets. ◆
Save The Date – January 6, 2005
Rutgers Quarterly Business Outlook
New Jersey State Treasurer John McCormac will present his
2005 economic forecast for Southern New Jersey’s economy, at
the Rutgers-Camden Quarterly Business Outlook, on Tuesday,
January 6, 8 to 9:30 a.m. at the Clarion Hotel and Conference
Center, Route 70 West, near I-295 in Cherry Hill. A panel of
top executives also will report on their respective business sec-
tors’ performance in the most recent quarter and anticipated
economic health for the next six months.
Sponsored by the Rutgers University School of Business at
Camden and supported by Flaster/Greenberg P.C. and the
Chamber of Commerce of Southern New Jersey, the quarterly
breakfast conference evaluates the region’s health by examining
key South Jersey industries. Free of charge, advance registration is
required. To register, send an e-mail to firm@flastergreenberg.com.

Health Law Report • Flaster/Greenberg P.C. www.flastergreenberg.com Health Law Report • Flaster/Greenberg P.C.
 2 3 4

Antitrust Report Focuses on Health Care Combinations NJ Board of Medical Examiners In PA, Patient Lists Protected
(continued from page 1)
By Thomas D. Scholtes
ncreasingly over the past few years, Finally, Section 5 of the FTC Act provides that “unfair
In-Office Anesthesia and referring physicians informing them about Skinsmart. Practice Pointers

I physician practice groups are forming

affiliations with other practice groups,
while merger and acquisition activity among
physician groups is on the rise. Called health
methods of competition in or affecting commerce, and unfair
or deceptive acts or practices in or affecting commerce are . . .
unlawful.” The U.S. Supreme Court has ruled that this
Regulation Upheld
By Alma L. Saravia
Approximately $700,000 of Skinsmart’s profit was attributed
to patients who followed Drs. Shawe and Badawy to their
new practice. As a result, PID and Dr. Pollack sued Drs.
Shawe and Badawy and Skinsmart in the Philadelphia Court
Clearly, Dr. Pollack and PID scored a victory with this
decision, and probably will recover a large sum. Yet, one can
assume they would have preferred to avoid this ugly breakup,
provision provides the FTC with the authority to attack two years of litigation, and the loss of patients and profits —
n November 3, 2004, the Appellate Division of Common Pleas for damages and lost profits.

care combinations, these two trends are in
response to the market power exerted by
large, third party payers. However, physician
combinations and affiliations raise significant
antitrust issues.
On July 23, 2004, the Federal Trade Commission (“FTC”)
and the Department of Justice (“DOJ” and together with
the FTC, the “Agencies”) issued a joint report, “Improving
Health Care: A Dose of Competition” (the “Report”).
While addressing a wide range of issues affecting the quality,
accessibility and cost of health care services, the Report
provides some guidance for physicians in analyzing physician
combinations and affiliations. The Report reviews the role of
competition in producing better quality health care services
at lower prices and it provides six recommendations to improve
competition in health care markets. This article focuses only
on the physician-related issues addressed in the Report.
Competition Law Basics
The principal sources of federal competition law are the
Sherman Act, the Clayton Act, the Hart-Scott-Rodino
Antitrust Improvements Act (“HSR Act”) and the Federal
Trade Commission Act (“FTC Act”).
The Sherman Act prohibits unilateral and collective
conduct that poses unacceptable dangers to competition.
Section 1 of the Sherman Act declares unlawful “every
contract, combination . . . or conspiracy, in restraint of
trade,” while Section 2 of the Sherman Act prohibits
“monopolization” and “attempted monopolization.”
Courts reviewing Section 1 cases generally focus on
whether the allegedly conspiring parties reach agreement,
and whether that agreement was unreasonably restrictive. By
contrast, courts reviewing Section 2 cases generally examine
whether the defendant created or maintained a monopoly
through wrongful or exclusionary means. Some conduct
(such as naked agreements among physicians to fix prices) is
per se a violation of the Sherman Act.
The Clayton Act prohibits mergers and acquisitions where
the effect “may be substantially to lessen competition, or to
tend to create a monopoly.”
Under the HSR Act, parties to proposed mergers and
acquisitions that exceed statutory thresholds are required to
notify the federal antitrust agencies of their plans and afford
the government a limited opportunity to investigate before
the transaction is effectuated.
conduct constituting a Sherman Act violation.
FTC Challenges
The types of conduct that the FTC has challenged over
the years include:
• Agreements on price and price-related terms
• Agreements to obstruct the entry of innovative forms of
health care financing and delivery
• Restraints on advertising and other forms of solicitation.
Since 2002, the FTC has entered into 17 consent
agreements with physicians, their organizations, or their
non-physician consultants and agents. These agreements are
about settling charges that physicians have engaged in unfair
methods of competition — primarily involving joint
contracting with payers and other forms of price-fixing.
The Department of Justice also has undertaken many
investigations and public enforcement actions in recent years.
These include obtaining a consent decree requiring the
dissolution of a physician organization of over 1,200 members
(where the participating physicians did not integrate their
practices to create significant efficiencies to the benefit of
managed care purchasers and their employees and enrollees).
The Report cites its approval of Health Care Statement 8.
Statement 8 was issued in 1996 by the Agencies dealing with
the application of the antitrust statutes to health care providers.
Statement 8 provides that “physician network joint ventures
will be analyzed under the rule of reason, and will not be
viewed as per se illegal, if the physicians’ integration through
the network is likely to produce significant efficiencies that
benefit consumers, and any price agreements (or other
agreements that would otherwise be per se illegal) by the
network physicians are reasonably necessary to realize those
efficiencies.” Statement 8 further notes that financial
risk-sharing and clinical integration may involve sufficient
integration to demonstrate that the venture is likely to
produce significant efficiencies.
Determining Financial Integration
Statement 8 provides that only those physician networks
that share substantial financial risk can qualify for an antitrust
safe harbor on the basis of their financial integration. In
determining whether a physician network joint venture is
sufficiently financially integrated to warrant rule of reason
(continued on page 5)
O
of the New Jersey Superior Court denied the
New Jersey Association of Nurse Anesthetists’
(“NJANA”) challenge to the recently enacted
anesthesiologist supervision requirements of the
New Jersey State Board of Medical Examiners’
(“BME”) in-office anesthesia regulation. The
Appellate Division panel upheld the BME regulation
setting forth standards for the administration of
anesthesia in physicians’ offices during surgeries and procedures.
The regulation mandates that a physician who provides conscious
sedation in his office must be privileged by a hospital in conscious
sedation or obtain alternative privileges from the BME in order to
supervise a certified registered nurse anesthetist (“CRNA”). If the
physician does not obtain those privileges, he must hire an anesthesi-
ologist to provide the anesthesia. However, if the physician provides
general or regional anesthesia in the office, the BME requires that two
physicians be present - the one performing the procedure and the
physician providing the anesthesia and that physician must be an
anesthesiologist (or a physician with extensive anesthesia training).
At its November 10, 2004 meeting, the BME voted to implement
the new anesthesiologist supervision requirements as follows:
• By December 1, 2004 a physician who has already submitted an
application to the BME for alternate privileges must pay the
application fee
• By January 1, 2005 a physician who has already submitted an
application must complete all of the regulation’s requirements
(i.e., complete the patient log and Advanced Cardiac Life Support
certification)
• By February 1, 2005 any physician who wishes to continue
providing conscious sedation with a CRNA must submit an
application to the BME for alternate privileges or replace the
CRNA with an anesthesiologist. (If an application is submitted
timely, the physician may continue to work with the CRNA while
the application is reviewed, which could be a lengthy process.)
In addition, the requirement that two physicians must be present
for general or regional anesthesia will become effective on
February 1, 2005.
New Jersey is the only state in the nation to mandate that CRNAs
must work under the supervision of an anesthesiologist or a physician
with anesthesia privileges in an office setting. The New Jersey Nurse
Practice Act does not require nurses to be supervised by a physician.
NJANA is appealing the decision to New Jersey Supreme Court. ◆
The Court’s Decision
The Court first addressed whether the patient list and
appointment books constituted trade secrets. The Court
concluded that both did, for several reasons.
First, PID took steps (limiting access and disclosure) to
keep the information confidential, including restricting access
to the files. The other most important factors to the Court
appeared to be that: (1) PID had expended substantial time,
effort and money compiling the patient data, and (2) the
data had great value and importance to the business.
The defendants admitted that the patient data was valuable,
and had in fact offered to pay for it as part of their proposed
Office Locations purchase of PID. However, the defendants argued that the
data was not truly a trade secret because the patient names
Commerce Center
did not belong exclusively to PID. The Court rejected this
1810 Chapel Avenue West
argument, noting that the value of the trade secret was not in
Cherry Hill, NJ 08002-4609
the names themselves, but in PID’s efforts in “organizing and
856-661-1900
compiling the contact and other information for each patient.”
11 Penn Center
1818 Market Street, Suite 3402
Second, the Court addressed whether the defendants’
Philadelphia, PA 19103 conduct constituted misappropriation under the law. The
215-569-1022 duty not to disclose a trade secret arises from one of two
sources: a restrictive covenant with the employer or a
190 S. Main Road confidential employment relationship. The doctors did not
Vineland, NJ 08360
have employment agreements. However, the Court held that
856-691-6200
the physicians had a confidential employment relationship
216 North Avenue while working with PID. Therefore, the physicians could not
Cranford, NJ 07016 misappropriate the trade secrets.
908-245-8021
Finally, the Court found that the defendants breached
2900 Fire Road, Suite 102A their duty of loyalty to PID. Under Pennsylvania law, as in
Egg Harbor Township, NJ 08234 New Jersey and most states, an employee owes a duty of
609-645-1881 loyalty to his or her employer such that throughout
employment, the employee “must act with the utmost good
913 North Market Street, Suite 702
faith in the furtherance and advancement of the interests” of
Wilmington, DE 19810
302-351-1910
the employer. While the duty of loyalty generally ends once
the employment relationship ends, the court noted that the
duty continues with regard to trade secrets obtained during
the employment.
This report, published as a service to
The court awarded summary judgment on liability to the
Flaster/Greenberg clients and interested
plaintiffs. The exact damages will have to be determined by a
readers, is for general use and information. subsequent trial or settlement. The record did show that at
The content should not be interpreted as least $700,000 in profits had been diverted from PID to
Skinsmart as a result of the misconduct.
rendering legal advice on any specific matter.
which will continue regardless of the outcome of this litigation.
To prevent these problems and to protect healthcare
providers’ trade secrets, the Pollack case offers these lessons:
• Require employment agreements, including restrictive
covenants, of all physicians and employees to protect
patient data and other valuable trade secrets, and to
prevent unfair competition by defectors. If PID had
obtained such agreements it might have prevented this
whole affair, and/or been able to get a restraining order
and preliminary injunction to block the pirating of
patients before it took place.
• Take efforts to protect patient lists and other trade secrets
from disclosure. Drs. Shawe and Badawy obtained the
assistance of a clerical employee in stealing the patient
data. Employers should limit access to such computer
data, restrict or prohibit printouts, and instruct all
employees about the secrecy of patient information and
the duty of loyalty. In fact, the use and disclosure of this
patient information by the defendants likely constituted a
violation of the HIPAA Privacy Rule.
• Document the value of patient lists and other trade secrets,
if possible. This can be set forth in financial statements
and/or documented by the time, money and effort spent
in developing the patient lists.
• Take immediate legal steps to stop patient solicitation by
ex-employees, if such solicitation is in violation of an
employment agreement or involves the misappropriation
of patient lists or trade secrets. ◆
Save The Date – January 6, 2005
Rutgers Quarterly Business Outlook
New Jersey State Treasurer John McCormac will present his
2005 economic forecast for Southern New Jersey’s economy, at
the Rutgers-Camden Quarterly Business Outlook, on Tuesday,
January 6, 8 to 9:30 a.m. at the Clarion Hotel and Conference
Center, Route 70 West, near I-295 in Cherry Hill. A panel of
top executives also will report on their respective business sec-
tors’ performance in the most recent quarter and anticipated
economic health for the next six months.
Sponsored by the Rutgers University School of Business at
Camden and supported by Flaster/Greenberg P.C. and the
Chamber of Commerce of Southern New Jersey, the quarterly
breakfast conference evaluates the region’s health by examining
key South Jersey industries. Free of charge, advance registration is
required. To register, send an e-mail to firm@flastergreenberg.com.

Health Law Report • Flaster/Greenberg P.C. www.flastergreenberg.com Health Law Report • Flaster/Greenberg P.C.
 2 3 4

Antitrust Report Focuses on Health Care Combinations NJ Board of Medical Examiners In PA, Patient Lists Protected
(continued from page 1)
By Thomas D. Scholtes
ncreasingly over the past few years, Finally, Section 5 of the FTC Act provides that “unfair
In-Office Anesthesia and referring physicians informing them about Skinsmart. Practice Pointers

I physician practice groups are forming

affiliations with other practice groups,
while merger and acquisition activity among
physician groups is on the rise. Called health
methods of competition in or affecting commerce, and unfair
or deceptive acts or practices in or affecting commerce are . . .
unlawful.” The U.S. Supreme Court has ruled that this
Regulation Upheld
By Alma L. Saravia
Approximately $700,000 of Skinsmart’s profit was attributed
to patients who followed Drs. Shawe and Badawy to their
new practice. As a result, PID and Dr. Pollack sued Drs.
Shawe and Badawy and Skinsmart in the Philadelphia Court
Clearly, Dr. Pollack and PID scored a victory with this
decision, and probably will recover a large sum. Yet, one can
assume they would have preferred to avoid this ugly breakup,
provision provides the FTC with the authority to attack two years of litigation, and the loss of patients and profits —
n November 3, 2004, the Appellate Division of Common Pleas for damages and lost profits.

care combinations, these two trends are in
response to the market power exerted by
large, third party payers. However, physician
combinations and affiliations raise significant
antitrust issues.
On July 23, 2004, the Federal Trade Commission (“FTC”)
and the Department of Justice (“DOJ” and together with
the FTC, the “Agencies”) issued a joint report, “Improving
Health Care: A Dose of Competition” (the “Report”).
While addressing a wide range of issues affecting the quality,
accessibility and cost of health care services, the Report
provides some guidance for physicians in analyzing physician
combinations and affiliations. The Report reviews the role of
competition in producing better quality health care services
at lower prices and it provides six recommendations to improve
competition in health care markets. This article focuses only
on the physician-related issues addressed in the Report.
Competition Law Basics
The principal sources of federal competition law are the
Sherman Act, the Clayton Act, the Hart-Scott-Rodino
Antitrust Improvements Act (“HSR Act”) and the Federal
Trade Commission Act (“FTC Act”).
The Sherman Act prohibits unilateral and collective
conduct that poses unacceptable dangers to competition.
Section 1 of the Sherman Act declares unlawful “every
contract, combination . . . or conspiracy, in restraint of
trade,” while Section 2 of the Sherman Act prohibits
“monopolization” and “attempted monopolization.”
Courts reviewing Section 1 cases generally focus on
whether the allegedly conspiring parties reach agreement,
and whether that agreement was unreasonably restrictive. By
contrast, courts reviewing Section 2 cases generally examine
whether the defendant created or maintained a monopoly
through wrongful or exclusionary means. Some conduct
(such as naked agreements among physicians to fix prices) is
per se a violation of the Sherman Act.
The Clayton Act prohibits mergers and acquisitions where
the effect “may be substantially to lessen competition, or to
tend to create a monopoly.”
Under the HSR Act, parties to proposed mergers and
acquisitions that exceed statutory thresholds are required to
notify the federal antitrust agencies of their plans and afford
the government a limited opportunity to investigate before
the transaction is effectuated.
conduct constituting a Sherman Act violation.
FTC Challenges
The types of conduct that the FTC has challenged over
the years include:
• Agreements on price and price-related terms
• Agreements to obstruct the entry of innovative forms of
health care financing and delivery
• Restraints on advertising and other forms of solicitation.
Since 2002, the FTC has entered into 17 consent
agreements with physicians, their organizations, or their
non-physician consultants and agents. These agreements are
about settling charges that physicians have engaged in unfair
methods of competition — primarily involving joint
contracting with payers and other forms of price-fixing.
The Department of Justice also has undertaken many
investigations and public enforcement actions in recent years.
These include obtaining a consent decree requiring the
dissolution of a physician organization of over 1,200 members
(where the participating physicians did not integrate their
practices to create significant efficiencies to the benefit of
managed care purchasers and their employees and enrollees).
The Report cites its approval of Health Care Statement 8.
Statement 8 was issued in 1996 by the Agencies dealing with
the application of the antitrust statutes to health care providers.
Statement 8 provides that “physician network joint ventures
will be analyzed under the rule of reason, and will not be
viewed as per se illegal, if the physicians’ integration through
the network is likely to produce significant efficiencies that
benefit consumers, and any price agreements (or other
agreements that would otherwise be per se illegal) by the
network physicians are reasonably necessary to realize those
efficiencies.” Statement 8 further notes that financial
risk-sharing and clinical integration may involve sufficient
integration to demonstrate that the venture is likely to
produce significant efficiencies.
Determining Financial Integration
Statement 8 provides that only those physician networks
that share substantial financial risk can qualify for an antitrust
safe harbor on the basis of their financial integration. In
determining whether a physician network joint venture is
sufficiently financially integrated to warrant rule of reason
(continued on page 5)
O
of the New Jersey Superior Court denied the
New Jersey Association of Nurse Anesthetists’
(“NJANA”) challenge to the recently enacted
anesthesiologist supervision requirements of the
New Jersey State Board of Medical Examiners’
(“BME”) in-office anesthesia regulation. The
Appellate Division panel upheld the BME regulation
setting forth standards for the administration of
anesthesia in physicians’ offices during surgeries and procedures.
The regulation mandates that a physician who provides conscious
sedation in his office must be privileged by a hospital in conscious
sedation or obtain alternative privileges from the BME in order to
supervise a certified registered nurse anesthetist (“CRNA”). If the
physician does not obtain those privileges, he must hire an anesthesi-
ologist to provide the anesthesia. However, if the physician provides
general or regional anesthesia in the office, the BME requires that two
physicians be present - the one performing the procedure and the
physician providing the anesthesia and that physician must be an
anesthesiologist (or a physician with extensive anesthesia training).
At its November 10, 2004 meeting, the BME voted to implement
the new anesthesiologist supervision requirements as follows:
• By December 1, 2004 a physician who has already submitted an
application to the BME for alternate privileges must pay the
application fee
• By January 1, 2005 a physician who has already submitted an
application must complete all of the regulation’s requirements
(i.e., complete the patient log and Advanced Cardiac Life Support
certification)
• By February 1, 2005 any physician who wishes to continue
providing conscious sedation with a CRNA must submit an
application to the BME for alternate privileges or replace the
CRNA with an anesthesiologist. (If an application is submitted
timely, the physician may continue to work with the CRNA while
the application is reviewed, which could be a lengthy process.)
In addition, the requirement that two physicians must be present
for general or regional anesthesia will become effective on
February 1, 2005.
New Jersey is the only state in the nation to mandate that CRNAs
must work under the supervision of an anesthesiologist or a physician
with anesthesia privileges in an office setting. The New Jersey Nurse
Practice Act does not require nurses to be supervised by a physician.
NJANA is appealing the decision to New Jersey Supreme Court. ◆
The Court’s Decision
The Court first addressed whether the patient list and
appointment books constituted trade secrets. The Court
concluded that both did, for several reasons.
First, PID took steps (limiting access and disclosure) to
keep the information confidential, including restricting access
to the files. The other most important factors to the Court
appeared to be that: (1) PID had expended substantial time,
effort and money compiling the patient data, and (2) the
data had great value and importance to the business.
The defendants admitted that the patient data was valuable,
and had in fact offered to pay for it as part of their proposed
Office Locations purchase of PID. However, the defendants argued that the
data was not truly a trade secret because the patient names
Commerce Center
did not belong exclusively to PID. The Court rejected this
1810 Chapel Avenue West
argument, noting that the value of the trade secret was not in
Cherry Hill, NJ 08002-4609
the names themselves, but in PID’s efforts in “organizing and
856-661-1900
compiling the contact and other information for each patient.”
11 Penn Center
1818 Market Street, Suite 3402
Second, the Court addressed whether the defendants’
Philadelphia, PA 19103 conduct constituted misappropriation under the law. The
215-569-1022 duty not to disclose a trade secret arises from one of two
sources: a restrictive covenant with the employer or a
190 S. Main Road confidential employment relationship. The doctors did not
Vineland, NJ 08360
have employment agreements. However, the Court held that
856-691-6200
the physicians had a confidential employment relationship
216 North Avenue while working with PID. Therefore, the physicians could not
Cranford, NJ 07016 misappropriate the trade secrets.
908-245-8021
Finally, the Court found that the defendants breached
2900 Fire Road, Suite 102A their duty of loyalty to PID. Under Pennsylvania law, as in
Egg Harbor Township, NJ 08234 New Jersey and most states, an employee owes a duty of
609-645-1881 loyalty to his or her employer such that throughout
employment, the employee “must act with the utmost good
913 North Market Street, Suite 702
faith in the furtherance and advancement of the interests” of
Wilmington, DE 19810
302-351-1910
the employer. While the duty of loyalty generally ends once
the employment relationship ends, the court noted that the
duty continues with regard to trade secrets obtained during
the employment.
This report, published as a service to
The court awarded summary judgment on liability to the
Flaster/Greenberg clients and interested
plaintiffs. The exact damages will have to be determined by a
readers, is for general use and information. subsequent trial or settlement. The record did show that at
The content should not be interpreted as least $700,000 in profits had been diverted from PID to
Skinsmart as a result of the misconduct.
rendering legal advice on any specific matter.
which will continue regardless of the outcome of this litigation.
To prevent these problems and to protect healthcare
providers’ trade secrets, the Pollack case offers these lessons:
• Require employment agreements, including restrictive
covenants, of all physicians and employees to protect
patient data and other valuable trade secrets, and to
prevent unfair competition by defectors. If PID had
obtained such agreements it might have prevented this
whole affair, and/or been able to get a restraining order
and preliminary injunction to block the pirating of
patients before it took place.
• Take efforts to protect patient lists and other trade secrets
from disclosure. Drs. Shawe and Badawy obtained the
assistance of a clerical employee in stealing the patient
data. Employers should limit access to such computer
data, restrict or prohibit printouts, and instruct all
employees about the secrecy of patient information and
the duty of loyalty. In fact, the use and disclosure of this
patient information by the defendants likely constituted a
violation of the HIPAA Privacy Rule.
• Document the value of patient lists and other trade secrets,
if possible. This can be set forth in financial statements
and/or documented by the time, money and effort spent
in developing the patient lists.
• Take immediate legal steps to stop patient solicitation by
ex-employees, if such solicitation is in violation of an
employment agreement or involves the misappropriation
of patient lists or trade secrets. ◆
Save The Date – January 6, 2005
Rutgers Quarterly Business Outlook
New Jersey State Treasurer John McCormac will present his
2005 economic forecast for Southern New Jersey’s economy, at
the Rutgers-Camden Quarterly Business Outlook, on Tuesday,
January 6, 8 to 9:30 a.m. at the Clarion Hotel and Conference
Center, Route 70 West, near I-295 in Cherry Hill. A panel of
top executives also will report on their respective business sec-
tors’ performance in the most recent quarter and anticipated
economic health for the next six months.
Sponsored by the Rutgers University School of Business at
Camden and supported by Flaster/Greenberg P.C. and the
Chamber of Commerce of Southern New Jersey, the quarterly
breakfast conference evaluates the region’s health by examining
key South Jersey industries. Free of charge, advance registration is
required. To register, send an e-mail to firm@flastergreenberg.com.

Health Law Report • Flaster/Greenberg P.C. www.flastergreenberg.com Health Law Report • Flaster/Greenberg P.C.
 5 PRSRT STD

Antitrust Report
(continued from page 2)
U.S. POSTAGE
PAID
Bellmawr, NJ
Permit No. 58
HEALTH
analysis (and therefore avoid condemnation as per se illegal),
the Agencies will consider the extent to which a particular
payment for performance arrangement constitutes the sharing
of substantial financial risk among the members of the joint
venture, whether that sharing is likely to produce efficiencies,
Joint Price Negotiations
A joint venture will escape summary condemnation when
joint price negotiations are reasonably necessary to achieve
substantial efficiencies arising from the clinical integration.
The extent to which joint contracting is reasonably necessary
1810 Chapel Avenue West
Cherry Hill, NJ 08002-4609
Return Service Requested
LAW REPORT
A Newsletter from the Health Care Law Practice Group
and whether any price or otherwise per se illegal agreements www.flastergreenberg.com Winter 2004
to achieve efficient clinical integration will vary, depending
among the members are reasonably necessary to achieve
on the facts and circumstances. Participants in a joint venture
those efficiencies. Thus, a joint venture among physician
that is not sufficiently integrated face significant antitrust risk
groups where the groups and their members earn exactly the
income produced by their separate offices may create a serious
if they attempt to contract jointly. In PA, Patient Lists Protected — Editor’s Note. . .
The Report sets forth six groups of questions for physicians
antitrust issue.
to ask if they are considering clinical integration. These groups Even If No Restrictive Covenant By Stephen M. Greenberg

Identifying Clinical Integration
Statement 8 notes that clinical integration can be
evidenced by a “network implementing an active and ongoing
program to evaluate and modify practice patterns by the
network’s physician participants and create a high degree of
interdependence and cooperation among the physicians to
control costs and ensure quality.” Statement 8 further
identifies three arrangements that a clinical integration
program might include:
1. Establishing mechanisms to monitor and control utiliza-
tion of health care services that are designed to control
costs and assure quality of care
2. Selectively choosing network physicians who are likely to
further these efficiency objectives
I
of questions are intended to provide insights into the types n this issue, the Health Law Report
of questions the Agencies are likely to ask when analyzing By Michael D. Homans focuses on two topics of particular
interest to health care providers:
the competitive implications of a physician network joint n a significant victory for physicians’
venture that justifies joint action involving price or other
competitively significant terms on the grounds that the joint
venture is clinically integrated. The answers to these questions
I groups and healthcare firms, a
Pennsylvania Court recently ruled that
patient lists and appointment books
trade secrets and antitrust laws. As
physicians combine and affiliate practices
to leverage contract negotiations with
large third party payers, the antitrust issue simply cannot
will determine whether a physician network joint venture is constitute trade secrets that cannot be be ignored.
or can become sufficiently clinically integrated to generate taken or misused by current or former
Michael D. Homans, whose practice emphasizes
efficiencies for the benefit of consumers and therefore avoid physicians and employees. Why is this an
employment law, reviews a recent Pennsylvania decision.
condemnation. important win for healthcare employers?
This ruling holds that patient lists and appointment books
In summary, the Report makes the Agencies joint position Because it strengthens existing law by
constitute trade secrets of a physician’s practice and are
quite clear: vigorous antitrust enforcement helps protect and confirming that employees cannot misap- subject to common law protection—even without the
propriate such patient data — even if no employment con-
promote competition, which in turn promotes the delivery of benefit of a restrictive covenant.
tract or restrictive covenant expressly forbids it.
high quality, cost-effective health care services. We believe
the Agencies will be playing an active role in the future. That
Practice Areas Thomas D. Scholtes, the newest member of our

3. The significant investment of capital, both monetary and
human, in the necessary infrastructure and capability to
realize the claimed efficiencies.
In 2002, the FTC staff closed an investigation into a
physician collaboration that created a substantial degree of
market concentration. That’s because the parties demonstrated
the collaboration created considerable efficiencies, including
improvements in the quality of care.
Health Care Practice Group Services
◆ Starting a Practice or Business
◆ Employer-Employee Agreements
◆ Sales, Acquisitions and Mergers of Practices
◆ Management Companies
role will be to protect and promote competition by bringing Health Care Law Practice Group
enforcement actions for violations of antitrust and consumer
Richard J. Flaster
protection laws. ◆ 856-661-2260
This article provides just a short summary of the Report. If rick.flaster@flastergreenberg.com
you have questions or would like more information about specific
aspects of the Report, Thomas D. Scholtes can be reached at Kenneth S. Goodkind
856-382-2227. 856-661-2273
ken.goodkind@flastergreenberg.com
Vincent J. Nolan III
856-661-2275
vincent.nolan@flastergreenberg.com
◆ Litigation and Dispute Resolution
◆ Contracts Alma L. Saravia
856-661-2290
◆ Fraud, Abuse and Other Regulations alma.saravia@flastergreenberg.com
◆ Licensing Board Representation
Stephen M. Greenberg
856-661-2261
steve.greenberg@flastergreenberg.com
Markley S. Roderick
856-661-2265
mark.roderick@flastergreenberg.com
Laura B. Wallenstein
856-661-2263
laura.wallenstein@flastergreenberg.com
Alan H. Zuckerman
856-661-2266
alan.zuckerman@flastergreenberg.com
◆ Bankruptcy & Financial Work-outs
◆ Business & Corporate Services
◆ Closely-Held Businesses
◆ Commercial Litigation
◆ Commercial Real Estate
◆ Construction Law
◆ E-Commerce & Internet
◆ Emerging Business
◆ Employee Benefits
◆ Environmental Law
◆ Estate Planning & Administration
◆ Family Law & Adoption
◆ Federal & State Taxation
◆ Health Care Law
◆ Labor & Employment Law
Facts and Issues in Case
In Pollack v. Skinsmart Dermatology and Aesthetic Center
(October 5, 2004), the facts were fairly simple.
Toby Shawe, M.D., and Samy Badawy, M.D., are
dermatologists who worked for the Philadelphia Institute of
Dermatology (“PID”), a private medical practice owned by
Andrew Pollack, M.D. As part of PID’s operations, it
maintained a database of every patient seen (nearly 20,000),
and appointment books for each physician. PID limited
access to this information to only certain employees.
In late 2001, Dr. Pollack discussed the sale of PID to
Drs. Shawe and Badawy. A tentative agreement was reached
in June of 2002, but never came to fruition. In August 2002,
Drs. Shawe and Badawy resigned from PID, rather than
purchase the practice. Prior to resigning, they directed PID
staff members to copy the appointment books for each of
them, and to print out portions of the patient lists.
Health Care Practice Group, presents a short primer on
antitrust law and its application to health care provider
practice combinations and affiliations. He also reviews a
joint report issued this summer by the U.S. Department
of Justice and the Federal Trade Commission, the two
governmental agencies charged with enforcing the
antitrust laws.
Finally, Alma L. Saravia reviews a recent decision by
the Appellate Division of the New Jersey Superior Court.
This decision upholds the NJ Board of Medical
Examiners’ regulation on in-office anesthesia and how it
will be implemented.
We hope you find these articles interesting and inform-
ative. If they raise any questions, I encourage you to con-
tact me or any other member of our Health Care Practice
Group. Our contact information is provided on the back
cover of the Health Law Report. ◆

◆ Estate Planning ◆ Buying or Leasing Real Estate

Thomas D. Scholtes
856-382-2227
Douglas S. Stanger
609-645-1881 ◆ Land Use
Drs. Shawe and Badawy then established their own
dermatological practice, Skinsmart Dermatology and
In This Issue…
thomas.scholtes@flastergreenberg.com doug.stanger@flastergreenberg.com ◆ Mergers & Acquisitions In PA, Patient Lists Protected —
◆ Ownership Agreements ◆ Ambulatory Surgical Centers and Ambulatory Aesthetic Center, P.C. (“Skinsmart”). They called patients Even If No Restrictive Covenant............................................1
Care Facilities ◆ Pensions & Retirement Plans who were previously scheduled for procedures at PID to
◆ Multidisciplinary Practices Antitrust Report Focuses on Health Care Combinations ........2
◆ Securities Law reschedule them to Skinsmart. Also, they contacted their
◆ Admitting and Terminating Partners ◆ Healthcare “Roll-Up” Companies Visit our Web site at: NJ Board of Medical Examiners In-Office Anesthesia
◆ Technology other PID patients, and mailed an announcement to patients Regulation Upheld ................................................................3
◆ Lobbying ◆ Internet-Based Healthcare Businesses www.flastergreenberg.com ◆ Trademark & Copyright (continued on page 4)
Copyright © 2004 Health Law Report • Flaster/Greenberg P.C.
www.flastergreenberg.com
 5 PRSRT STD

Antitrust Report
(continued from page 2)
U.S. POSTAGE
PAID
Bellmawr, NJ
Permit No. 58
HEALTH
analysis (and therefore avoid condemnation as per se illegal),
the Agencies will consider the extent to which a particular
payment for performance arrangement constitutes the sharing
of substantial financial risk among the members of the joint
venture, whether that sharing is likely to produce efficiencies,
Joint Price Negotiations
A joint venture will escape summary condemnation when
joint price negotiations are reasonably necessary to achieve
substantial efficiencies arising from the clinical integration.
The extent to which joint contracting is reasonably necessary
1810 Chapel Avenue West
Cherry Hill, NJ 08002-4609
Return Service Requested
LAW REPORT
A Newsletter from the Health Care Law Practice Group
and whether any price or otherwise per se illegal agreements www.flastergreenberg.com Winter 2004
to achieve efficient clinical integration will vary, depending
among the members are reasonably necessary to achieve
on the facts and circumstances. Participants in a joint venture
those efficiencies. Thus, a joint venture among physician
that is not sufficiently integrated face significant antitrust risk
groups where the groups and their members earn exactly the
income produced by their separate offices may create a serious
if they attempt to contract jointly. In PA, Patient Lists Protected — Editor’s Note. . .
The Report sets forth six groups of questions for physicians
antitrust issue.
to ask if they are considering clinical integration. These groups Even If No Restrictive Covenant By Stephen M. Greenberg

Identifying Clinical Integration
Statement 8 notes that clinical integration can be
evidenced by a “network implementing an active and ongoing
program to evaluate and modify practice patterns by the
network’s physician participants and create a high degree of
interdependence and cooperation among the physicians to
control costs and ensure quality.” Statement 8 further
identifies three arrangements that a clinical integration
program might include:
1. Establishing mechanisms to monitor and control utiliza-
tion of health care services that are designed to control
costs and assure quality of care
2. Selectively choosing network physicians who are likely to
further these efficiency objectives
I
of questions are intended to provide insights into the types n this issue, the Health Law Report
of questions the Agencies are likely to ask when analyzing By Michael D. Homans focuses on two topics of particular
interest to health care providers:
the competitive implications of a physician network joint n a significant victory for physicians’
venture that justifies joint action involving price or other
competitively significant terms on the grounds that the joint
venture is clinically integrated. The answers to these questions
I groups and healthcare firms, a
Pennsylvania Court recently ruled that
patient lists and appointment books
trade secrets and antitrust laws. As
physicians combine and affiliate practices
to leverage contract negotiations with
large third party payers, the antitrust issue simply cannot
will determine whether a physician network joint venture is constitute trade secrets that cannot be be ignored.
or can become sufficiently clinically integrated to generate taken or misused by current or former
Michael D. Homans, whose practice emphasizes
efficiencies for the benefit of consumers and therefore avoid physicians and employees. Why is this an
employment law, reviews a recent Pennsylvania decision.
condemnation. important win for healthcare employers?
This ruling holds that patient lists and appointment books
In summary, the Report makes the Agencies joint position Because it strengthens existing law by
constitute trade secrets of a physician’s practice and are
quite clear: vigorous antitrust enforcement helps protect and confirming that employees cannot misap- subject to common law protection—even without the
propriate such patient data — even if no employment con-
promote competition, which in turn promotes the delivery of benefit of a restrictive covenant.
tract or restrictive covenant expressly forbids it.
high quality, cost-effective health care services. We believe
the Agencies will be playing an active role in the future. That
Practice Areas Thomas D. Scholtes, the newest member of our

3. The significant investment of capital, both monetary and
human, in the necessary infrastructure and capability to
realize the claimed efficiencies.
In 2002, the FTC staff closed an investigation into a
physician collaboration that created a substantial degree of
market concentration. That’s because the parties demonstrated
the collaboration created considerable efficiencies, including
improvements in the quality of care.
Health Care Practice Group Services
◆ Starting a Practice or Business
◆ Employer-Employee Agreements
◆ Sales, Acquisitions and Mergers of Practices
◆ Management Companies
role will be to protect and promote competition by bringing Health Care Law Practice Group
enforcement actions for violations of antitrust and consumer
Richard J. Flaster
protection laws. ◆ 856-661-2260
This article provides just a short summary of the Report. If rick.flaster@flastergreenberg.com
you have questions or would like more information about specific
aspects of the Report, Thomas D. Scholtes can be reached at Kenneth S. Goodkind
856-382-2227. 856-661-2273
ken.goodkind@flastergreenberg.com
Vincent J. Nolan III
856-661-2275
vincent.nolan@flastergreenberg.com
◆ Litigation and Dispute Resolution
◆ Contracts Alma L. Saravia
856-661-2290
◆ Fraud, Abuse and Other Regulations alma.saravia@flastergreenberg.com
◆ Licensing Board Representation
Stephen M. Greenberg
856-661-2261
steve.greenberg@flastergreenberg.com
Markley S. Roderick
856-661-2265
mark.roderick@flastergreenberg.com
Laura B. Wallenstein
856-661-2263
laura.wallenstein@flastergreenberg.com
Alan H. Zuckerman
856-661-2266
alan.zuckerman@flastergreenberg.com
◆ Bankruptcy & Financial Work-outs
◆ Business & Corporate Services
◆ Closely-Held Businesses
◆ Commercial Litigation
◆ Commercial Real Estate
◆ Construction Law
◆ E-Commerce & Internet
◆ Emerging Business
◆ Employee Benefits
◆ Environmental Law
◆ Estate Planning & Administration
◆ Family Law & Adoption
◆ Federal & State Taxation
◆ Health Care Law
◆ Labor & Employment Law
Facts and Issues in Case
In Pollack v. Skinsmart Dermatology and Aesthetic Center
(October 5, 2004), the facts were fairly simple.
Toby Shawe, M.D., and Samy Badawy, M.D., are
dermatologists who worked for the Philadelphia Institute of
Dermatology (“PID”), a private medical practice owned by
Andrew Pollack, M.D. As part of PID’s operations, it
maintained a database of every patient seen (nearly 20,000),
and appointment books for each physician. PID limited
access to this information to only certain employees.
In late 2001, Dr. Pollack discussed the sale of PID to
Drs. Shawe and Badawy. A tentative agreement was reached
in June of 2002, but never came to fruition. In August 2002,
Drs. Shawe and Badawy resigned from PID, rather than
purchase the practice. Prior to resigning, they directed PID
staff members to copy the appointment books for each of
them, and to print out portions of the patient lists.
Health Care Practice Group, presents a short primer on
antitrust law and its application to health care provider
practice combinations and affiliations. He also reviews a
joint report issued this summer by the U.S. Department
of Justice and the Federal Trade Commission, the two
governmental agencies charged with enforcing the
antitrust laws.
Finally, Alma L. Saravia reviews a recent decision by
the Appellate Division of the New Jersey Superior Court.
This decision upholds the NJ Board of Medical
Examiners’ regulation on in-office anesthesia and how it
will be implemented.
We hope you find these articles interesting and inform-
ative. If they raise any questions, I encourage you to con-
tact me or any other member of our Health Care Practice
Group. Our contact information is provided on the back
cover of the Health Law Report. ◆

◆ Estate Planning ◆ Buying or Leasing Real Estate

Thomas D. Scholtes
856-382-2227
Douglas S. Stanger
609-645-1881 ◆ Land Use
Drs. Shawe and Badawy then established their own
dermatological practice, Skinsmart Dermatology and
In This Issue…
thomas.scholtes@flastergreenberg.com doug.stanger@flastergreenberg.com ◆ Mergers & Acquisitions In PA, Patient Lists Protected —
◆ Ownership Agreements ◆ Ambulatory Surgical Centers and Ambulatory Aesthetic Center, P.C. (“Skinsmart”). They called patients Even If No Restrictive Covenant............................................1
Care Facilities ◆ Pensions & Retirement Plans who were previously scheduled for procedures at PID to
◆ Multidisciplinary Practices Antitrust Report Focuses on Health Care Combinations ........2
◆ Securities Law reschedule them to Skinsmart. Also, they contacted their
◆ Admitting and Terminating Partners ◆ Healthcare “Roll-Up” Companies Visit our Web site at: NJ Board of Medical Examiners In-Office Anesthesia
◆ Technology other PID patients, and mailed an announcement to patients Regulation Upheld ................................................................3
◆ Lobbying ◆ Internet-Based Healthcare Businesses www.flastergreenberg.com ◆ Trademark & Copyright (continued on page 4)
Copyright © 2004 Health Law Report • Flaster/Greenberg P.C.
www.flastergreenberg.com