|SPECIALTY VERSUS GENERAL
AND ECONOMIC CREDENTIALING
ALLAN TOBIAS, MD JD
Recently there has
been a lot of medical press devoted to the current trend of specialty
hospitals. This has gone so far as to have Representative Stark
introduce a bill in Congress to forbid physicians from referring patients
to hospitals in which they own an interest unless the general public can
also buy into the hospital on the same terms. Also, on the Federal level,
the Office of Inspector General has asked for comments by the AMA and the
AHA on whether mandatory referrals to the general hospital constitute
illegal kickbacks. The real issue is what leverage the general hospitals
have over their non-employed medical staff to keep them from investing in
the specialty hospitals. First, I’ll discuss the general problems from
both sides and then the associated economic credentialing issues.
For many years
there have been specialty hospitals in the fields of rehabilitation and
children. Throughout the United States there has been a recent trend for
physicians to partner with private firms to build specialty hospitals.
This is especially true with cardiac, oncology and orthopedic
specialties. The first issue is why this is happening and then what are
the potential problems and fixes. I will start with the premise that the
real reason for the trend is money. The physicians have been caught in
managed care hell with its restricted payments while their expenses
continue to rise. The same is true for hospitals but they hold more clout
with the managed care organizations than the individual physician or small
medical group. With this greater clout and at times, with the hospitals
dictating the terms for how much both they and their medical group get
from the managed care company, they can command a larger percentage of the
pie. Many times the physicians aren’t even allowed into the
Over the course of
time the physicians have finally awoke and realized they and not the
hospitals control the flow of patients. This has led to the physicians
forming their own groups and then negotiating directly with the managed
care organizations. This new physician clout has led to, at times,
disharmony between the physicians and their hospitals. The pie has now
been cut differently even when the pie has enlarged in circumference.
However, the pie is never large enough. Managed care has decimated the
hospital’s nursing and equipment budget. As managed care loosens its
reins, the hospitals want to keep up with the Jones on equipment and need
to hire more nurses which were increasingly scarce. The hospitals and
physicians have also both been caught in the EMTALA non-compensated care
web with both sides losing money.
For years the
hospital execs have always thought of the “docs” as something that gets in
the way of the orderly running of the hospital. They hired consultants
who coined the unflattering phrase “herding cats”. This meant, of course,
that physicians would not just be sheep and allow those who thought they
knew what was best do what they believed necessary. Some doctors even had
the nerve to want a say in the running of the institutions where they
admit their patients. Hospitals attempted to overcome this by making
physicians their employees. This led to disastrous results in almost
every circumstance. The new trend is to get rid of these physician
employee practices that lose the hospital money. In fact, hospitals were
not and are not capable of running medical practices due to a practice’s
unique characteristics and the hospitals uniformity of thought and
physicians also realized that under managed care they would need to become
more efficient in their practices with less time per patient and no time
for sitting around in between surgical or other procedural cases, they
attempted to have the hospital increase the number of cases that could be
done in a given time. The hospitals resisted due to a combination of
unionization and the need to pay significant overtime if cases ran long.
The unionization issues also led to keeping employees who should have been
let go for various reasons. At our hospital this led directly to the
building of a physician owned surgical center across the street from the
hospital. Originally some of the physicians were afraid of the center and
leaving the “safety” of the hospital. However, the physicians that
utilized the center had a much shorter down time between cases and a much
more physician friendly scheduling system. The costs per case for the
facility went down with more efficiency and less operating room time. The
time factor for the physician became more efficient. More physicians
started to use the surgical center and finally the hospital offered to buy
the center. The offer was accepted with the proviso that no unionization
would take place at the center. The center continued to run efficiently
until it closed due to flooding.
With the continued
squeeze on finances between the inability to raise prices and the now
galloping expense increases, especially in the realm of malpractice
insurance, the physicians began again to look for increases in income.
They looked at the Stark and state anti-referral laws. They found that
lithotripsy, ambulatory surgical centers were omitted and so was hospital
ownership. With the positive history of surgical centers behind them, the
physicians usually went to the hospitals to partner in specialized
institutions for cardiac, oncology and orthopedic procedures. The
hospitals were afraid to give up any of the pie and instead started to
build their own specialty hospitals. This did not sit well with
physicians and any remaining loyalty to the hospitals went out the window.
Then the private entrepreneurs saw a new business and they began to partner with physicians to build and potentially manage specialty hospitals. This started with radiation therapy institutions and then spread to cardiac and orthopedic hospitals. Plastic surgeons, due to financial constraints by patients, have been building and using their own centers for years. Gastroenterologists also have put up their own centers where not only did they own the center but they also owned the equipment individually and leased it on a per use fee to the center.
The crux of the
issue for the general hospitals is money and the ability to fund all their
programs. The crux for the specialty hospitals is also money but also
included are the managerial and efficiency issues as well as an increased
quality of care. The general hospitals state the specialty hospitals are
draining the good pay patients as well as nurses. The specialty hospitals
state the increased efficiency allows better use of the physician time to
care for more patients safely and the greater number of procedures that
may be done also increase safety.
With all this
lucrative care leaving the hospital along with potential hospital
employees who now only worked 7-5 with no weekends or nights, the
hospitals began to panic. The individual hospitals complained to their
state associations who complained to the American Hospital Association.
The state and federal hospital associations began their lobbying, sending
money to their friendly representatives. These legislators have now begun
to introduce legislation in the state and federal arenas to make these
referrals illegal. According to the recent introduction in the House,
Rep. Stark wants this inability to refer retroactive to 2001. The
physicians then decided they should get busy and utilized the AMA to state
that any law that restricts where a patient may be sent is anti-kickback.
The OIG has asked for comments on this and their report is due soon. In
May, 2003, the Louisiana legislature voted down a bill that would have
required all specialty hospitals to have 24 hour emergency departments.
There are about a dozen specialty hospitals in the state, some of which
have emergency departments. In other communities specialty hospitals have
been denied based on lack of need, after pressure by the community
The GAO in May,
2003, released a report on specialty hospitals. The report was based on a
questionnaire with a 25% return rate. The hospitals were in California,
North Carolina, Arizona, Texas, New York and New Jersey. They found that
the specialty hospitals comprise about 2% of all the hospitals. There
were physician owners in 70% of these hospitals. The report stated that
the specialty hospitals are taking in patients who are less sick than
their general hospital cohorts. The actual percentages were 17% sick in
the specialty hospitals versus 22% in the general hospitals. There is no
mention of the statistical implication of these raw data. The data was
based on Medicare
All Payer Refined-Diagnosis Related Groups. This also changed with the
type of specialty hospital. For example, orthopedic hospitals showed only
a 3% differential.
hospitals had physician ownership in most cases. About half had
individual physician ownership of about 2% of the hospital and single
specialty group ownership of 25%. In about 10% of the specialty
hospitals, physicians owned at least 80% of the hospital. In many
hospitals the physicians owned over 50% of the hospital. There was no
analysis of how many of the physician owners referred all or some
percentage of their patients to their specialty hospitals.
The GAO report
also states that since the specialty hospitals are taking less sick
patients, they should be paid less under the DRG system. This at first
glance is good for the general hospital but would set a dangerous
precedent for all community hospitals. Some, under this type of
arrangement, would see their reimbursement decrease compared to the
tertiary centers or even their neighbors with a higher percentage of
Now, what’s this
economic credentialing? I define economic credentialing as not allowing
someone on the hospital staff based not on their quality but on whether or
not they have any investment in an economic competitor or removing one
from the staff based on the same thing or other economic data such as
ordering too many tests or having a high length of stay. To be fair,
there are many times when the latter factors are also signs of decreased
medical judgment and/or quality. If that is the case then the person
should have his/her quality individually appraised. I personally am also
conflicted as to whether those physicians with split loyalties should be
allowed high positions on the general hospital staff. If they are, they
should sign non-disclosure agreements.
Some of this is
not new. There are states that specifically do not allow economic
credentialing and others that do by statute. The former include
California, Colorado, D.C., Idaho, Illinois, Louisiana, Massachusetts,
Rhode Island, Texas, Tennessee and Virginia. The latter include Georgia,
Florida, Indiana, Iowa, Kansas, Maryland, New York and North Carolina.
Other states are silent on the issue.
attorneys have held up the 2 to 1 South Dakota Supreme Court Mehan v Avera St. Luke’s decision as a rationale for not
allowing physicians with competing interests on the staff. However, this
is not true. In this case the new spinal orthopedic physician was never
given an application not because he was a member of the competing
ambulatory care center, but because the hospital had made a business
decision to close the spinal orthopedic staff in order to entice a
neurosurgeon who does spinal work to the area. The new Orthopod
happened to be with the competing group that formed the ambulatory
surgical center. They did not take away privileges from the remaining
competing physicians. Since that decision, the group has continued to
grow and the new physicians refer any patients needing hospitalization to
their partners who remain on the staff of the hospital. The hospital
continues to lose the outpatient business and I don’t know if they ever
got their neurosurgeon.
In Ohio, some of
the hospitals in Columbus are threatening to remove physicians from the
staff if they join the consortium building competing surgical centers.
The physicians are countering by enlarging the centers to form true
competitive hospitals in order to have a place to practice, a lose-lose
situation dictated by the hospitals. This area seems to be ground zero
for the AHA and the AMA battleground. It also is the area where the not
for profit hospitals have put up their own specialty hospitals, but not
allowed their physicians to participate, a double standard.
Indiana a general hospital was faced with the cardiac physicians building
their own hospital. First one and then another hospital built their own
cardiac hospitals with the physicians partnering in 30% and 50% of the
operation respectively. The other two area hospitals are building or
enlarging their own cardiac institutions without physician partners.
Which hospitals will get the most cooperation from its medical staff?
How can physicians
and hospitals work together? The first is to have the CEO personally go
to the physician leaders in the specialties to make overtures of
cooperation. This means to allow the physicians meaningful input into the
running of the hospital. This can be done by the use of the hospital
revolving around their service areas and not the traditional areas of
nursing, professional and support systems. This change would allow
physicians to become managers within their service area and increase
efficiency of the area. The managers should also be paid by the hospital
like any other manager on a fair market value basis. This type of
arrangement may keep the physicians from looking outside the institution
for the efficiency they crave.
Another method is
the use of a joint venture between the physicians and the hospitals. A
new hospital is built or carved out in the existing structure that could
be run efficiently by physicians. This also keeps the two parties
interests aligned. It is imperative for the hospital to work
cooperatively with the physicians even if they lose some money and there
is not a perfect fit with the hospital culture. These joint ventures may
be structured in the service line co-management area, equity joint
ventures, under arrangement where the physicians supply the equipment,
staff, supplies and management and participating bond transactions. The
latter was recently done at Lafayette General Hospital in Louisiana. They
are building a new cardiac hospital and selling $2 million of tax exempt
participating bonds to the physicians to help with the financing. This
will cost the hospital some extra money in interest payments but will help
retain the physicians. However, this does nothing to help with the
efficiency physicians crave.
In some states the
use of a MSO type arrangement to get tax deferred money to physicians may
be useful. This is the IRS 457 (b) for employees of 501 (c) (3)
organizations. The hospital and physicians must be leery of the joint
venture that allows nonusers of surgical centers to participate in the
venture. This may, under OIG Advisory Opinion 03-5, lead to sanctions.
The one thing
hospitals should not do is to follow the advice of the hospital biased
Eastern law firm and discipline its medical staff due to conflicts. The
biased Eastern law firm in a White Paper extolling their position, sets up
the hospital for conflict and the need for the firm’s legal services.
This firm makes its money from these fights. It is interesting that at
the end of its White Paper, the Eastern law firm states that it is
reasonable to condition hospital privileges on the amount of procedures
done. This is a well established quality concept but no one states that
these procedures have to be done at only one hospital. This also is the
reason why specialty hospitals are so sought out. They get to perform the
procedures more often and can become much more efficient and economical by
trying innovative approaches to improve safety and lower costs. The legal
firm has gone so far as also stating the physicians should not perform
office procedures that may be in conflict with the hospital, a quick way
to a law suit, loss of physician loyalty and more business for the law
If the hospital
truly wants to work with the physicians, they will allow true physician
self-governance with no loyalty oaths. The local hospital should be able
to develop its own physician cooperation, not limited to the corporate
office dictates which does not understand the local politics. The
hospital should begin to look at paying all its physicians for call and
for service to the hospitals in their committee work. The hospital can
not stand behind their corporate bylaws and state it is the duty of the
physician to do these things. These past concepts lead to friction and
the seeking of autonomy.
The Board does
have a right to close part of the hospital for business reasons and/or to
use exclusive contracts. These also are well established principles. The
problems come when the Board believes that the physicians are there to
serve them. Indeed, there is no automatic right to hospital privileges
but nothing can damage a hospital and make a CEO lose his/her job faster
than an all out fight with the medical staff. The resultant publicity
over the law suit is deadly to the perceived quality of the hospital. The
old adage is true; one can catch more flies with honey than with vinegar.
There is currently a fight in a Southern California hospital over signing
of loyalty oaths and no one will win. The hospital will lose their
physicians and patients and the physicians and patients will lose their
hospital. Hopefully the Board and Administration will come to their senses
I will now get off
my soapbox and ask that you consider how the two entities, physicians and
hospitals, in your community can work together. I hope that this gives
you some areas for discussion and consensus building.
that the AMA recommends that ALL hospital medical staffs have their own
attorney for any item in which their may be a conflict of interest with
the hospital. This article shows one such area. Others are the medical
staff bylaws and peer review in hospitals especially where the medical
staff is controlled by the administration. External peer review is the
best option. Recently HIPAA has caused potential strife between hospital
commandments and Medical Staff autonomy. This needs to be reviewed at
your hospital before a physician loses privileges over something he/she
I believe the whole physician-hospital conflict may be summed up by a statement by Monte Clark, the former Detroit Lions’ coach. He said “the key to this whole business is sincerity. Once you can fake that, you’ve got it made”. Please remember this if you are a medical staff leader and get picked to go to a seminar put on by a Massachusetts consulting firm and their hospital biased attorneys. No hospital will ever pay to send someone to a meeting to learn how to think independent of the hospital.
DISCLAIMER: Although this article is updated periodically, it reflects the author's point of view at the time of publication. Nothing in this article constitutes legal advice. Readers should consult with their own legal counsel before acting on any of the information presented.
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