Medical Staff

Looking at mutualism relationship between hospitals and physicians

Medical Staff Affairs Monthly, September 8, 2006

Fall is back to school time. One of my nieces has a biology class in which they are studying what ecologists call "cultivation mutualism." The best example is farming. We till the soil, weed, and fertilize to help plants grow better. In return, the plants provide us with food. This people-plant relationship is not, however, what scientists refer to as an "obligate mutualism." Plants can grow without human help and we can find food other than that which we cultivate.

While I helped her with her homework, I was reminded of the mutualism that characterizes the relationship between hospitals and physicians--one that is becoming less "obligate" every day. In August, a federal moratorium on doctor-owned specialty hospitals was lifted. The opportunity for physicians to develop their own niche institutions has been largely closed off for nearly three years. Will new competitive ventures heat up tensions between hospitals and doctors in the months ahead? Maybe, but increased government scrutiny may put a chill on new entrepreneurial activity. CMS will be requiring specialty hospitals to publicize any investment and compensation arrangements they have with physicians. Failure to do so can be fined up to $10,000 per day. The government will review these arrangements to assure that some referring doctors are not receiving disproportionately high financial returns. If they are, they may not be eligible for exceptions to federal laws against physician self-referral. Furthermore, CMS is trying to reduce the financial incentives for specialty hospitals to skim more lucrative patients by adjusting Medicare reimbursements to reflect a hospital's costs more accurately. They will also be making adjustments to Medicare payments based on the severity of a patient's illness.

Will these actions slow physician interest in new hospital ventures? I am skeptical. Across the country, I am seeing more and more ambulatory surgical centers (ASCs) consider expansion into niche hospitals. Extended stays are becoming more common and many ASCs were built with the potential to convert the facility into hospital space. And the proliferation of new ASCs and imaging centers is continuing apace.

But some of these may run afoul of the complex web of laws which can trip such ventures up. Several states have recently strengthened their own self-referral and anti-kickback statutes to put a damper on what they view as illegal physician referrals to imaging centers. A government report in June estimated that CMS paid a small number of imaging facilities $71.5 million for services that "were not always reasonable and necessary." Doctors use "safe harbors" in the law to justify these centers, but the Medicare Payment Advisory Commission has concluded that many leasing, employment, and compensation deals involving imaging centers are either illegal or need to be further regulated to prevent "financial incentives that may improperly influence physicians' professional judgment."

There is little question that there will be an up tick in federal enforcement of the anti-kickback laws in the months and years ahead.  Several months ago, the OIG Inspector General issued an "Open Letter to Health Care Providers" in which he encouraged self disclosure by health care entities of violations of fraud and abuse laws. It is worthwhile reading for those tracking the complex regulatory landscape governing doctor and hospital options. It can be found at the following link: http://oig.hhs.gov/fraud/openletters.html. Another valuable information source is the CMS website addressing commonly asked questions about the legalities of physician self-referral. This link is http://www.cms.hhs.gov/PhysicianSelfReferral/.

In the face of an aggressive OIG and justice department, many institutions are self-reporting "non-compliance" with federal rules which they have uncovered on their own. These institutions enter into corporate integrity agreements (CIAs) with the government to rectify the offenses, but often avoid imposition of more severe penalties as a result. Organizations that have entered into such CIAs are listed on the OIG website at http://oig.hhs.gov/fraud/cia/index.html.  The list is impressive and diverse. To uncover problems ahead of the government watchdogs, hospitals are more frequently engaging third parties like The Greeley Company to do audits of highly visible, high volume, high risk service lines. Such an audit can confirm that the hospital's internal checks are adequate, or it can reveal a problem that is best self-disclosed to the government. Examples of areas commonly audited are invasive cardiology, spinal procedures, pain management interventions, and bariatric surgery.

Government regulators will be catching in their nets traditional health care institutions as well as new entrepreneurial ventures driven by physician investors. However, don't expect the chilling effect to significantly slow down new projects. The opportunity to make money will continue to drive competition in healthcare even as the environment becomes legally more complex.

Best regards,
Todd Sagin, M.D., J.D
National Medical Director, The Greeley Company

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