A civil whistleblower fraud lawsuit unsealed last month against Columbia/HCA Healthcare Corp. has again thrown the legal spotlight on the controversial physician syndication strategy pioneered by Columbia and adopted by other hospital companies.
Under the strategy, hospitals or hospital companies sell their facilities to a syndicate in which staff physicians can invest. The goal is to increase physician loyalty to a hospital, aligning their financial incentives. However, depending on how the deal is structured and implemented, it can run afoul of anti-kickback provisions of the Medicare and Medicaid fraud-and-abuse statutes.
The law bars any form of remuneration to induce the referral of Medicare or Medicaid patients.
In her 1995 suit against Columbia, Sara Ortega, a former medical staff coordinator at Columbia Medical Center West in El Paso, Texas, alleged that the company violated the kickback law with a variety of business arrangements with physicians. Those arrangements included limited partnerships in hospitals, medical directorships and free or reduced office rents (May 31, p. 11).
The U.S. Justice Department has joined as a plaintiff in the case, which is pending in U.S. District Court in El Paso.
But while Columbia has nearly extricated itself from the physician joint ventures at a price now exceeding $100 million, other healthcare companies continue to pursue the strategy despite the legal risk highlighted by the whistleblower suit.
The other companies include Quorum Health Group, a Brentwood, Tenn.-based hospital chain; Integris Health, an Oklahoma City-based not-for-profit system; HealthPlus, a Houston-based for-profit hospital company; and Doctors Community Healthcare Corp., a Scottsdale, Ariz.-based investor-owned company.
Quorum spokeswoman Shea Davis said three of Quorum's 21 hospitals-the company manages 230 hospitals nationwide-are co-owned with 271 physicians through joint ventures. They are:
n Mary Black Health System, Spartanburg, S.C., which operates a 189-bed hospital, has 68 doctor-investors.
n Two-hospital River Region Health System in Vicksburg, Miss., co-owned by Columbia. It has three doctor-investors.
n Summit Hospital, a 227-bed hospital in Baton Rouge, La., which has 200 doctor-investors. Quorum acquired Summit, formerly known as Columbia Medical Center, from Columbia last year.
Quorum initiated the joint ventures and didn't inherit them from Columbia, Davis said.
"We look to see what makes sense for the hospital and the community," said Davis, who added that Quorum does not plan to end its physician joint ventures because it considers them a legal business strategy.
Another company that employs physician syndications is two-hospital HealthPlus, a company founded in 1997.
Its president, John Styles, said he is aware of the El Paso suit but hasn't reviewed it yet. Nonetheless, he defended his company's practice of establishing joint ventures with staff physicians at HealthPlus's 80-bed Normandy Community Hospital in suburban St. Louis and 105-bed Doctors Hospital-Tidwell in Houston. Two weeks ago HealthPlus signed a letter of intent to buy 197-bed North Houston Medical Center from Columbia.
Styles said it's unfair to generalize about physician partnerships.
"We feel they're very beneficial to the patients we serve and believe they (physician investments) keep doctors interested in and committed to having a top-notch, quality hospital," he said. "We don't have a bit of a problem having physician investors."
He said about 50 doctors own shares in the company's hospitals.
While other companies continue to pursue physician ownership investments, Columbia has nearly completed its efforts to end its programs and repurchased the joint venture hospital shares.
One month after a series of highly publicized FBI raids in July 1997 on Columbia facilities in six states, the nation's largest healthcare company began unwinding the syndications formed at 45 of its hospitals.
"We just bought them back," said Columbia spokesman Jeff Prescott. "It's not like publicly traded stock that can be reissued."
Only 3,000 of the 90,000 doctors on staff at Columbia hospitals in 1997 participated in the program, Prescott said. Columbia bought out the shares of about 2,800 doctors, leaving about 200 investors.
He said Columbia determined each doctor's investment and offered to repurchase it at market value.
"Whether we'll ever get there all the way is an unknown. Some (doctors) don't want to get out," Prescott said. "All we can do is ask them if they're interested. But the company's desire is to get out."
Columbia's 1998 annual report revealed 1997 costs of $41 million and 1998 costs of $73 million attributable to closing out the syndication deals.
"Before this is over it could cost Columbia close to $200 million," estimated Merrill Lynch stock analyst A.J. Rice, who tracks Columbia's stock.
Rice said the investor community is aware of Columbia's effort to distance itself from the practice. He said Wall Street has known about the El Paso lawsuit and its focus on physician syndications for some time.
FBI agents staged their first raid on Columbia in March 1997 at the chain's hospitals and offices in El Paso, where the company first introduced its physician syndication strategy.
"So there hasn't been much reaction from the investment community to the lawsuit," Rice said.
How does this bode for the future of physician syndication plans?
"My sense is that people are moving away from them, not because they think it's not a prudent business practice, but because government doesn't like it. This is being driven by regulators," he said.
He said with the highly publicized failure of physician practice companies, doctors, too, have soured on the practice.