Is it Legal? Understanding the Difference Between a Crime, a Breach, and Bad Business

Owners of healthcare practices and business often ask attorneys, “Is what I want to do legal?” To understand the answer, you’ll need to know a few critical distinctions in the eyes of the law.

The definition of the word legal in a dictionary.

For healthcare providers, understanding the nuances of the legal system might feel tricky. What is considered “legal”? What’s going to put me in court? To demonstrate the various situations that might lead to questions like these, consider the following scenarios:

  • A physician who takes Medicare pays a physical therapist 20% of the revenue for each patient that the physical therapist refers to his practice. This is a crime.
  • A physician leaves her practice and opens up shop across the street, violating her non-competition clause. This is a breach.
  • A social worker asks his patients to sign a waiver promising not to sue him for sexual harassment. This is bad business.

Understanding the key differences between these sorts of actions can help you know what to expect when doing business, make smarter decisions, and avoid unwanted consequences.

It can be difficult to determine how distinctions amongst actions are drawn in the eyes of the law. A helpful first step is differentiating between the use of civil laws versus criminal laws. Civil cases usually involve private disputes between persons or organizations. Criminal cases involve an action that harms society as a whole. Alternatively, an action or policy might not implicate either of these systems of law but is still advised against in practice.

Taking a closer look at each of the above three scenarios can help illustrate these ideas.

What is a Crime?

A crime is an act that violates a law for which someone can be punished. Crimes are usually prosecuted by the government since they affect society “at large” as opposed to only affecting private organizations or individuals. 

Crimes vary based on the laws of the federal, state, and local governments where the crime takes place. Depending on the law or laws that have been broken, various criminal penalties may apply. 

In the scenario above, the physician who takes Medicare and pays a physical therapist 20% of the revenue for each referral likely violates the Anti-Kickback Statute. Thus, the participants would be subject to the criminal penalties that those laws specify. 

Some crimes may carry hefty fines, while others can result in complicated litigation and subsequent jail time. When in doubt, consult with legal counsel to understand which laws apply and how to avoid violating those laws.

What is a Breach?

A breach happens when one party to a contract fails to meet some obligation they had as part of the terms of that contract. If a breach does occur, a good contract often specifies the consequences of that breach. The involved parties may choose to resolve the issue amongst themselves. Otherwise, the parties can take their dispute to court.

Contract law disputes that end up in court are litigated as civil cases. That is, they involve a disagreement between private parties as opposed to society as a whole. Therefore, someone who breaches a contract will not go to jail for that breach. However, courts can choose to award various remedies to the wronged party in a breach of contract dispute. Two common remedies are:

  • Money damages – Just as they sound, a court might make the breaching party pay a monetary sum to the other party as “damages” for the breach.
  • Specific performance – A court can also compel a breaching party to carry out the obligations specified in the contract. Courts often use this remedy when the payment of money would still not be enough to compensate the victim of the breach fairly.

In the scenario above, the physician breached the non-competition clause in her employment contract by opening a practice across the street. To remedy the situation, a court could compel the physician to pay her old practice as compensation for her breach. Moreover, the court could require the physician to stop competing with her former practice.

Bad Business Practices

Unlike crimes or breaches, bad business practices may not result in specific legal consequences. A bad business practice will not put you in criminal court. However, you should think twice about engaging in bad business practices, especially if you want to build support and trust amongst your customer base. 

In the above scenario, a social worker who asks his patients to sign a waiver promising not to sue him for sexual harassment might not be committing any crime.  (Even so, any legal challenge to a waiver of sexual harassment claims would likely result in the waiver being deemed unenforceable by a civil court). Ultimately, it is important to consider that using such a waiver could easily result in unhappy patients, a diminished reputation, and reduced business. 

Overall, whether an action is a crime, breach, or bad business practice can significantly affect the subsequent outcome. Although navigating the legal system often feels like a complicated endeavor, an experienced attorney can help outline a course of action that works best for your practice. 

If you operate in a state where our firm practices, consider hiring Jackson LLP Healthcare Lawyers to provide you with guidance. We offer free consultations to determine how well we fit your needs.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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