Tuesday, March 8, 2011

GETTING AROUND THE CORPORATE PRACTICE ACT

Hospitals may hire physicians to manage specialized departments. These physicians aren't hired to practice medicine since in California so doing violates the state's prohibition against the corporate practice of medicine. The purpose of this prohibition is to prevent hospitals from controlling doctors and to prevent doctors from being under the thumb of corporate hospital interests. An example would be hospitals that push doctors to discharge patients too soon to increase utilization and enhance the bottom line. Such complaints are taken seriously and may lead to investigation. Some hospitals have come under the gun for allowing unindicated and unnecessary surgeries to be done.

On the other hand, it is not a violation of the corporate practice act to hire a doctor to manage a group of specialists. The stated purpose is to make sure that staffing is covered around the clock, to make sure that the most highly qualified doctors are hired, and to optimize patient care by retaining professional management. That's the theory.

Here's what we've heard as a variation on the theme.

Hospital X hires a physician manager. His job is to hire as many specialists as he judges necessary to cover the hospital's promise of service to the community. His allocation or budget for this administrative job is, let's say, $100,000 per month or a total of $1,200,000 per year. This amount is not his take-home pay. He in turn is supposed to form a specialty group and hire the doctors who'll actually provide service. Let's say the administrator hires a group of doctors whose combined pay is $50,000 per month or $600,000 per year. The administrator is then entitled to the other $600,000 for himself.

Let's say the administrator-doctor judges that he'll need 6 doctors. He knows that he's allotting a total of $600,000 to pay for their services -- so that's $100,000 for each of the hired doctors. Now the trick is to hire them at less than the allotted $600,000. If the administrtor-doctor can hire them at $75,000 each, saving $25,000 from each one of them, he can pay himself $150,000 more than the $600,000 originally envisioned. He now gets $750,000. The actual treating doctors get $450,000. They are not hospital employees. They are employees of the owner or founder of the group. There is no violation of the corporate practice act.

There's nothing illegal in this arrangement. Since the hired doctors are unlikely to be skilled in collective or even solo bargaining through unions, they're easy prey. When they find out that they can unionize, they'll be afraid to make the move. Fear is key. Some doctors retained for this administrative role understand better than others how to hire doctors who'll be less likely to complain about hours, working conditions, or pay -- the tricks of the trade include understanding ethnic, gender, and family differences. In some cases the key to getting hired may be how little one will accept in payment or how much overtime one may be willing to contribute. Credentialing becomes secondary.

"Medical Red-lining, Economic Credentials for Physicians," is the title of my op-ed from the San Francisco Examiner, 12 January 1995. It tells one way that corporate entities select doctors -- by determining which ones spend the least on diagnostic testing and therapeutic options for their HMO patients. This piece was reprinted in The Congressional Record, Vol. 144, # 118, 9/9/98. The trouble is that hospitals have learned how to act like HMOs.

The Los Angeles Times in its edition of 5 March 2011 published this story by Sam Allen: "State controller finds more big public employee salaries, including $875,000 for hospital chief." Nancy Farber, CEO of the Washington Township Healthcare District with its major hospital in Fremont, is reported to have been paid total wages in 2009 of $873,598.

The next step should be to review departmental expenses to learn how each department's budget was distributed. This effort would require prying into what some recipients might consider private business. It could be discomforting. It should be done.

"As They Consolidate, Hospitals Get Pricier," by Julie Appleby, produced by Kaiser Health News in collaboration with The Washington Post, 9/26/10, tells us in the title what we need to know. Are some administrations paying out so much to executives that there's not enough left for actual medical and surgical care? On the other hand, if "pricier" is connected to "better," there would be less room for complaint.

"State Report: Even fewer bypass surgery deaths," by Tom Abate, San Francisco Chronicle, 4/08/09, points out that the average mortality rate for this surgery in California was 2.65 percent but that Washington Hospital in Fremont reported a mortality rate of 5.83 percent for one of its surgeons. The trouble is that statistics don't take into account individual variation on a case-by-case basis. The rub comes when one asks the inevitable question, namely, was quality of care sacrificed on a monetary altar of greed so that executive compensation could be raised?

San Francisco Chronicle, 3/09/11, states that one of the "biggest winners" in health care, "No. 1 on the list is Nancy Farber, the CEO if Washington Township Health Care District in Fremont, who took home $873,598 last year." Washingon Hospital has 339 beds. This piece then states that "by comparison, Mark Laret, who heads UCSF's 690-bed hospital system, was paid $748,616."

People need to know how the health care dollar is distributed. Are hospital CEOs more valuable to hospitals than their physicians, surgeons, and nurses? One may reasonably ask if there's any relationship of administrative compensation to contracted out services that skedaddle around the corporate practice act.

2 comments:

  1. We saw how the country became in mired in economic crisis created by Fat Cat Bank executives. It seems that the unjustifiable fat executive compensations is creeping into nonprofit healthcare sectors.
    The salary escalation for Washington executives started in 2007. I did protest it in the public board of directors meeting in January of 2007 . The news item was carried by ARGUS the local newspaper. My public prediction in the meeting that this was a bad example and will lead into copycat imitation in other hospitals proved to be true. Several nonprofit hospitals raised the salary compensation to its healthcare executives. on this new threshold point .
    It is well known in this area that there are several firms in the nation who specialize in setting new thresholds and are in demand by the nonprofit hospitals. It seems to be self perpetuating business for these consultants. More compensation they suggest there is more demand for this consultation business
    The central question and issue is whether healthcare profiteers should be rewarded on the basis of revenue generated than on service to the public. Service to public entails Accessibility , Accountability and Affordability of healthcare to public.We seem to have given wrong incentives and wrong messages to executives in non profit hospitals. More you charge, more you restrict access to ordinary paying consumers . more you set up boutique speciality practices, more profit you generate more rewarding compensation you get.
    One of the board members of Washington Hospital district is a bank executive. Has he imported Norms in financial sector to non profit healthcare sector?
    DR Rao

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