Physicians who buy into investor-owned hospitals with the expectation that they'll keep their admitting privileges at other hospitals might want to examine the plight of more than 50 doctors at Spartanburg (S.C.) Regional Medical Center.
When faced with the prospect that their physicians might have a conflict of interest, Spartanburg Regional trustees created a restricted staff category for the doctors who invested in the competing 226-bed Mary Black Memorial Hospital.
Mary Black is managed and co-owned by Brentwood, Tenn.-based Quorum Health Group.
While other not-for-profit hospitals have considered similar actions, 444-bed Spartanburg is believed to be the first to unilaterally implement a policy change over the objections of its medical staff.
Experts say it would be a mistake for other hospitals to follow Spartanburg's lead. They suggest alternate remedies such as implementing tough confidentiality agreements, which work to limit disclosure of proprietary information or policy matters by threatening consequences such as expulsion from the system or even legal action.
However, Joseph Oddis, Spartanburg's president and chief executive officer, says the board had no choice.
"I trust these physicians, but why put people in an inherent conflict of interest?" Oddis says. "It is a general business philosophy that when you have ownership interest in a competing entity, you are generally not expected to have input on strategic direction and facility development in the entity you don't have an ownership interest in.
"We looked around the country and everybody is struggling with how to deal with this situation," Oddis says. "We believe we took limited action. There comes a point where you have to make a call."
Under Spartanburg's policy, those physicians who own equity in Mary Black and seek reappointment at Spartanburg are not allowed on the regular medical staff. Instead, they must apply for membership in a new subordinate category, the "continuity medical staff."
The new staff category allows physicians to admit patients to Spartanburg, but it prohibits them from serving on medical staff committees, voting or attending meetings. They also are prohibited from attending educational conferences unless prior approval is given from either the hospital's chief of staff or a department chairman.
The medical staff at Spartanburg voted down the policy change last December, but the board unilaterally upheld it. In response, the physicians filed a lawsuit; a trial is expected later this year in U.S. District Court in Spartanburg.
"I need access to meetings to take care of my patients at the hospital," says Gaines W. Hammond, M.D., a urologist and plaintiff in the Mary Black case.
According to the lawsuit, the new policy also calls for physician investors to be monitored for "any indication of inappropriate patient channeling, including, but not limited to, a shift in payer mix."
But Oddis says physicians "would have to be way out of line" before they were stripped of their admission privileges.
Mark Rust, a Chicago attorney who represents medical staffs, says requiring physician investors to sign confidentiality agreements is a good way to protect strategic information.
"That's the way any business would handle these situations," Rust says.
Although confidentiality agreements are not widely used, attorney Karen Rieger of Norman, Okla., says hospitals frequently ask doctors to voluntarily sign conflict-of-interest statements, which include confidentiality clauses. The statements are also used by medical groups, she says.
Rieger says the courts have upheld the right of hospitals to get rid of physicians who violate conflict-of-interest clauses.
Rust believes more hospitals will choose the Spartanburg Regional approach as more investor-owned hospitals offer equity stakes to physicians.
"Hospitals have a lot of money they can spend on lawsuits," Rust says. "A decision favorable to doctors could be years away. The appropriate response is for hospitals to treat physicians like true partners and not wayward offspring."
Physicians choose to buy into investor-owned hospitals for a variety of reasons, experts say.
"What is important to physicians when integrating with hospitals is whether physicians are involved in the decisionmaking process," Hammond says. "We want input into board decisions, equipment (purchases) and nursing. If our own hospital doesn't offer that, we will look elsewhere."
A typical example of physician frustration in a physician-hospital organization occurred in Kansas City, Kan., last year. A group of 26 physicians who were part of a PHO funded by Shawnee Mission (Kan.) Medical Center withdrew from the PHO and formed its own network to contract with payers. The physicians felt Shawnee Mission had too much control over the organization. Nonetheless, they have remained on Shawnee Mission's medical staff.
In Kentucky, an ambitious project to create a statewide joint venture between hospitals and physicians fell apart last year. The final blow came when the doctors became upset because the hospital groups were taking over the once proposed 50-50 venture. Skepticism mounted when, seven months into the network's formation, no doctors had been added to the board, despite promises of shared governance.
PHO arrangements nationwide have poor track records when it comes to generating managed-care contracts and revenues. A 1995 survey indicated only 17% of hospitals that employ physicians make money on their investment, according to the Healthcare Financial Management Association and Sterling Physician Services of America.
Many experts, however, including consultant Jeff Goldsmith, believe the hospital-physician partnership that works best is equity ownership.
"The equity model, where the physician is an investor, is a better model. They are at risk clinically and financially," Goldsmith says. "It is still open for abuse . . . as an incentive to increase utilization."
Nationally, for-profit hospital companies like Columbia/HCA Healthcare Corp. and Quorum are expected to continue to offer physicians ownership interests in hospitals. The intention is to give physicians built-in incentives to delivery higher-quality care at lower costs, experts say.
"Quorum is prepared to do a full merger with medical staffs in most of the communities we operate in," says Gene Fleming, Quorum's executive vice president and chief operating officer. "It gives us a fully integrated delivery system and puts them on our team."
Quorum owns 18 hospitals and manages 250.
"Physicians want a say in how the system gets developed," Fleming says. "They want a say in the economics of how the system works. When we build a medical service organization, we have 50-50 governance."
Larry Tyler, a healthcare consultant with Tyler & Co., Atlanta, says physicians change their allegiances to hospitals for financial and philosophical reasons.
"Physicians change hospitals because they have a high level of dissatisfaction with the mother hospital or the CEO," Tyler says. "Maybe the hospital now is doing procedures the doctors thought they should be doing."
Another reason is financial. "Doctors want to secure themselves financially," Tyler says. "Selling their practices is the safest way, but investing in a profitable hospital operation is another. They have a stake now in the hospital."
Michael Callahan, an attorney with the law firm Kattin Muchin & Zavis in Chicago, says the Spartanburg scenario is more likely to be played out in smaller markets where two or three hospitals compete.
"To start 'offing' doctors because they decided to become a little more loyal to the competitor down the road won't happen in urban hospitals," Callahan says. "It is counterproductive and impossible to do. Their goal should be to build a better mousetrap, not to throw the bylaws out the window."