The physician practice management industry was dealt a major blow last month with the affirmation of a Florida state board ruling that struck down a management contract.
A three-judge state appeals court panel said the industry failed to show that the Florida Board of Medicine clearly erred when it ruled in October 1997 that the contract violated a state law against paying for patient referrals, known as fee-splitting.
Meanwhile the board is expected to clarify its views in August with the anticipated approval of another contracting arrangement involving different parties. The board is the state's disciplinary agency for physicians.
No further appeal is expected in the earlier case, for procedural reasons and because the company involved in the case, PhyMatrix, has left the industry. PhyMatrix recently changed its name to Innovative Clinical Solutions and is now based in Providence, R.I.
The contract called for PhyMatrix to receive 30% of the net income of a Tampa, Fla., practice in exchange for providing services-including ancillary services, managed-care contracting and network development-to increase patient volume.
In court, the industry argued that the ruling against the contract attacked its mission of aligning incentives between managers and physicians. Birmingham, Ala.-based MedPartners and a clinic affiliated with Nashville-based PhyCor joined the case as co-appellants.
"The PPM industry, at least in Florida, should be looking to retool or immediately sell thousands of practices back to doctors," said Alan Gassman, a Clearwater, Fla., lawyer who is representing the physician in the case.
But Gary Scott Davis, a partner in the Miami office of McDermott, Will & Emery, said the case sets little precedent, since contracts vary widely. "It doesn't mean every arrangement needs to be totally restructured," he said.
Nevertheless, lawyers for both sides will be looking to the board for guidance in future rulings. Still unclear, for example, is whether marketing activities such as designing an advertising campaign would constitute practice enhancement.
Some guidance could come in a ruling expected in August, when the board is expected to OK a management contract involving a Tampa anesthesiology group and an unnamed management firm. The contract calls for the practice to pay half its net monthly revenues to the management firm, but with a cap of $10,000 per month and no mention of practice-enhancement services.
Some attorneys for physicians have predicted that the PhyMatrix case would lead other physicians to challenge their management contracts in Florida and other states with laws against fee-splitting. The ruling has prompted at least one other action by a Florida physician attempting to negate a contract (June 29, 1998, p. 24).
Gassman said some companies have continued to institute fee-splitting contracts "at great risk to themselves and the doctors."
But industry retrenchment has slowed contracting in the last year, and many new deals have focused on core services such as billing and staffing. Some firms such as PhyCor have voluntarily renegotiated contracts.
State and federal agencies have not intervened to negate contracts, as some physicians might have hoped. "I don't think this has become as big an issue as people thought it was going to be," Davis said.
