Calif. fault lines

Accusations are flying on all sides at the City of Hope in Duarte, Calif., with the hospital and a medical group suing each other over a plan to form a not-for-profit foundation.

Officials at the 183-bed teaching and research hospital, near Los Angeles, contend that the proposed medical foundation would create better alignment between the not-for-profit facility and physicians. But the medical group counters that the foundation is a sham and a power grab.

The foundation would function similar to those set up by Catholic Healthcare West of San Francisco, Sutter Health of Sacramento, Scripps Health of San Diego and many other California-based hospital systems, according to City of Hope officials. In California, hospitals are not permitted to directly employ physicians because of a ban on the practice of corporate medicine. But since 1980, hospitals have been able to set up subsidiary medical foundations that contract with a multispecialty medical group exclusive to the foundation. Hospitals need at least 40 physicians from 10 specialties to form such a foundation and must operate a clinic.

This type of structure is becoming more attractive to hospitals in other states because of the new federal health reform law, experts said. Under the law, accountable care organizations can enjoy savings by 2012 as part of the Medicare Shared Savings Program. Medical foundations give hospitals more flexibility to develop integrated delivery systems, said Michele Volpe, a lawyer with Bershtein, Volpe & McKeon in New Haven, Conn. Forming a medical foundation is one step in the process of developing an accountable care organization, Volpe said. Last July, Connecticut legalized medical foundations, citing potential quality and cost advantages to this model.

Under City of Hope's proposal, the 187 physicians now employed by the California Cancer Specialists Medical Group, or CCSMG, of Monrovia, would instead work for a new medical group exclusive to the foundation. The medical group's contract with the hospital expires Jan. 31.

But officials at California Cancer Specialists, backed by the California Medical Association vigorously oppose the plan, saying the model would allow the hospital “to exercise undue influence over professional practice decisions to the detriment of patient care, and would expose the physicians to legal risks,” according to its complaint, filed in Los Angeles County Superior Court on May 3.

“They proposed what I consider a hostile takeover,” said Lawrence Weiss, president of the CCSMG. “They are trying to destroy our medical group and destroy our doctors.”

The medical group also is accusing the hospital of trying to seize its free-standing cancer centers established by the physicians and put them on the hospital's license, which would allow the hospital to raise reimbursement rates by between 43% and 103%, according to the medical group. Adding the South Pasadena (Calif.) Cancer Center, for one, to the license would boost hospital revenue by $4 million a year, said Vince Jensen, chief operating officer at the CCSMG. In its legal complaint, the medical group alleges that the hospital's proposed medical foundation is illegal in part because it doesn't have the requisite clinic attached.

Michael Friedman, president and CEO of the City of Hope, called that accusation “an interesting fantasy,” adding the hospital is more interested in aligning goals, integrating electronic health records and offering a more seamless patient experience than gaining control of the medical group's clinics. The City of Hope is building its own ambulatory-care center on campus. “I wish them the best with their little outpatient operation,” Friedman said. “I couldn't care less about that.”

The hospital is seeking to form the foundation now, Friedman said, to take advantage of opportunities under national health reform. “It's an open invitation to having physicians make a more meaningful contribution,” he said.

The hospital filed a countersuit on May 18 over the issue, supported by the California Hospital Association.

City of Hope has been posting losses the past two years. In 2009, the hospital lost $9.1 million on total operating revenue of $485 million. In 2008, it posted $437 million in total operating revenue with $4.2 million in losses, according to the hospital and state records.

Physicians who don't join the new foundation will still be able to treat their patients at the hospital. But, according to the medical group, they will lose research funding. The for-profit medical group has revenue of about $100 million a year, and roughly a third is from research funding, such as National Institutes of Health grants, through the hospital, Jensen said. More than 90% of physicians practicing at City of Hope are part of CCSMG.

Meanwhile, the fight has gone public. The medical group sent a letter to patients on April 27 informing them that the hospital is moving forward with the foundation plan “potentially placing City of Hope clinical and research programs at risk.”

Alexandra Levine, a cancer and HIV specialist and chief medical officer at City of Hope, said she is hopeful that physicians will sign on. Levine is heading up the new medical group, called Oncology Specialists of City of Hope, which will contract exclusively with the yet-to-be-formed foundation. In her private conversations with 60 physicians, only two have expressed disapproval of the proposed changes, she said.

Lawyers for CCSMG sent a letter to Levine in April instructing her to halt these one-on-one conversations, citing noncompete and nonsolicitation clauses in the physicians' current contract with the hospital. On March 24, the physicians approved a no-confidence vote in hospital managements, with 82% of about 120 physicians voting yes, according to the medical group.

Levine said the physicians' input is necessary to ensure success. “I want to explore this and develop this with the physicians,” she said. “This is not set in stone. Let us work together.”