As a College officer, you have a fiduciary responsibility to act reasonably and in the best interests of the College when acting in an ACOG capacity. This basic legal principle is important to remember in carrying out your responsibilities.
This section will highlight a few important legal topics you should be familiar with, but it cannot cover all legal issues related to the College. If you have any questions about the law as it applies to your College activities, or if you are concerned that some activity may create liability for you or the College, be sure to contact the College General Counsel for advice.
The College is a nonprofit corporation, organized under Illinois law. ACOG is a single corporate entity. Unlike some other medical organizations, our Districts and Sections are not incorporated separately from the national entity. Consequently, any limits placed upon College activity by law affect the Districts and Sections as well as the national office. Similarly, any action at the local level is attributable to the College as a whole. This makes it particularly important that you consult the College on a number of issues before taking action. State laws confer immunity on most College officers for most of their College related actions, and the College’s liability insurance provides additional broad protection. Nonetheless, it is important to avoid legal difficulties before they arise, whenever possible.
Before signing any contract for goods or services valued over $10,000 you should contact the Financial Service Center that will coordinate with the General Counsel to review the contract.
If you receive any legal papers, such as a subpoena, complaint, or notice of deposition, call the General Counsel. If an attorney calls you in connection with a College matter, you should refer him or her to the General Counsel. Any voluntary participation in litigation, either as a plaintiff or “friend of the court” (amicus curiae) requires the prior approval of the Executive Board. Requests to participate in litigation should be directed to the Executive Board through the appropriate District and the General Counsel. The criteria the Board follows in deciding whether it is appropriate to become involved in a case as an amicus are included in this manual.
The Internal Revenue Service has classified the College as a tax-exempt charitable organization under Section 501(c)(3) of the Internal Revenue Code. This is the same classification given to “traditional” charities, such as the Red Cross, and to traditional educational institutions, such as private universities. There are many other tax-exempt classifications. Most professional medical associations are given a 501(c)(6) IRS classification. This category is used for trade associations, such as the Chamber of Commerce. In general, the 501(c)(3) status is the more desirable one, for the reasons listed below. However, it does place some limitations on College activities that do not apply to (c)(6) organizations.
The College’s activities must be almost exclusively those that promote its tax-exempt purposes. These are given in the Articles of Incorporation and Bylaws as continuing education in the ob-gyn field and the promotion of women’s health care. As a practical matter, almost all activities that the College has wanted to undertake fall within these descriptions, so our tax status has not been a major restriction. However, ACOG cannot engage in too many activities that clearly just promote the business aspects of medical practice. Examples of these would be advisory services about retirement, selling a practice, etc.
All tax-exempt organizations are prohibited by law from engaging in activities that directly benefit their members financially. This is known as the prohibition against inurement. Some examples of inurement are an insurance program that gave cash refunds to participants, or a decision of the Executive Board members to pay themselves hefty salaries. A single instance of inurement is grounds for the IRS revoking an organization’s tax-exempt status.
Advantages of Section 501(c)(3) Status
There are many advantages to the section 501(c)(3) status:
- Contributions to the College are tax deductible to the donor.
- The College is exempt from paying Federal tax on most of its income.
- The College is exempt from paying sales tax in some states.
- State laws make unpaid volunteers and officers immune from liability actions for ACOG activities, in most instances. (The College has insurance coverage for officers, also.)
- Postal rates are lower for 501(c)(3) organizations than for others.
Limitations Upon 501(c)(3) Activities
As a charitable, educational organization, there are certain restrictions upon ACOG’s lobbying activities:
- The College cannot spend more than $1 million annually on lobbying (as the expenditures are defined by the IRS). This is an aggregate of money spent at all levels- section, district, and national – on issues advocacy. This is why keeping track of lobbying expenses is important.
- The College cannot engage in political activity. By this, the law means that we cannot support or oppose a particular candidate for political office.
- We cannot sponsor a PAC (Political Action Committee).
- Lobbying must be confined to issues only.
This is an extremely complex legal area. Federal antitrust laws were originally adopted at the end of the last century to break up large monopolies and to promote economic competition. Since the 1970’s, the antitrust laws have been applied to all aspects of health care. Most states have antitrust statutes that closely parallel the federal ones.
Antitrust laws prohibit concerted, or joint, actions by competitors that are viewed as unreasonably restraining trade. They operate to outlaw certain actions that are legal when taken by an individual. However, court decisions have ruled that membership associations such as the College engage in concerted action for antitrust purposes even when acting alone, because their members are individuals who are in economic competition with each other. For example, an individual physician is free to determine his or her fees. However, if he or she agrees with another physician in another practice on the fees they will charge, that would be illegal price-fixing, because it is “joint action.” If the College prescribes what medical fees should be, it would be also price-fixing in violation of antitrust laws, because “joint action” is deemed to have occurred, even if the College did not take the action in conjunction with another organization. Consequently, we always need to be careful that the College’s activities do not fall within the special unlawful categories established by the courts as “anti-competitive.”
Courts consider an action to be anti-competitive when, on balance, it raises prices or fees or lowers the quality of, or quantity of available goods or services, or when it tends to drive others out of the marketplace. Courts are particularly sensitive about prices and fees. Some activities, such as price-fixing or group boycotts are considered so egregious that if they are found to have occurred, they are anti-competitive on their face and illegal. These are called per se antitrust violations. Other joint actions alleged to be anti-competitive are analyzed by courts under a “rule of reason” analysis to determine if there has been an antitrust violation.
Antitrust laws are enforced both civilly and criminally by the federal and state governments. Private parties may also bring individual actions alleging antitrust violations.