As Columbia/HCA Healthcare Corp. Chairman and Chief Executive Officer Richard Scott stands by his company's physician-ownership strategy, some of the company's supporters wonder if it's necessary.
In an exclusive interview with MODERN HEALTHCARE, Scott said patients would suffer if federal laws were changed to force his company to unravel what have become controversial physician partnerships.
"If they change the law, we will change," Scott said. (But if they do), "the person that gets hurt is the patient."
Scott said the partnerships are more about getting physicians and hospitals together as the company builds integrated healthcare delivery systems across the country. The partnerships, known in the industry as syndications, allow physicians to invest in a Columbia subsidiary that runs the hospital.
While Scott's company believes physician-ownership stakes result in higher quality and better service to patients, some supporters in the investment community want the company to get away from such deals as others in the industry have done.
Attention has recently been focused on Columbia's physician-ownership strategy by a federal investigation into its El Paso, Texas, operations. El Paso is where Scott began the company nine years ago and pioneered the strategy of selling ownership interests to physicians.
In the interview, Scott wouldn't discuss the federal investigation, but he spoke of the partnerships and their importance in getting key players together to move his company forward.
Many Columbia observers have speculated that the physician partnerships are at the root of the El Paso investigation. They also believe criticism by Rep. Fortney "Pete" Stark (D-Calif.) is to blame for triggering the March raid on the company's facilities there.
Stark, who authored several pieces of legislation banning physician self-referrals of Medicare and Medicaid patients to certain healthcare facilities, has been pushing HCFA and HHS to investigate patient-referral patterns at Columbia hospitals.
One of Stark's bills, passed in 1993, bars physician self-referrals to inpatient and outpatient hospital services, but HHS has yet to publish regulations implementing the law.
Columbia's supporters on Wall Street are beginning to think the Nashville-based company should simply unravel the physician partnerships and be done with them before an investigation or new regulations forces the company to do it.
"Ultimately it would be cleaner for everybody if you didn't have any of the partnerships," said Jeff Villwock, a healthcare analyst with Robinson-Humphrey Co.
All the syndications have buyout clauses that allow Columbia to unravel the deals with physicians by purchasing their stakes. Columbia has said only 4% of physicians affiliated with the company's hospitals have an ownership interest.
Some Columbia observers wonder if the strategy is outdated or even necessary in the late 1990s. Times have changed, and physicians and hospitals have better relationships than they did 10 years ago when Columbia was starting its growth. "Docs are likely earning an extra $10,000 to $20,000 a year by participating in ownership (of Columbia facilities)," Villwock said. "That's not a significant amount."
Physician ownership has existed for decades, dating back to when doctors owned hospitals. Long before he bought his first hospitals, Scott worked as an attorney for Republic Health, which popularized the physician-ownership strategy in the 1980s.
Republic, which later became OrNda HealthCorp, eventually unwound most of its syndications. OrNda was acquired earlier this year by Tenet Healthcare Corp. of Santa Barbara, Calif.
In Tenet's annual 10K report filed with the Securities and Exchange Commission, the company said it makes sure its business practices stay within the "safe harbors" spelled out in a set of 1991 regulations issued by HHS. The regulations outline nine specific business arrangements that won't violate the kickback provisions of the fraud statutes. They don't address physician referrals to hospitals in which they have an ownership stake.
"Because Tenet may be less willing than some of its competitors to enter into business arrangements that do not clearly satisfy the safe harbors, it could be a competitive disadvantage in entering into certain transactions and arrangements with physicians and other healthcare providers," the 10K states. "Business arrangements of healthcare providers that fail to satisfy the applicable safe harbor criteria, however, risk increased scrutiny by enforcement authorities."