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Legal Update
When Hospitals Play Hardball
Wes Cleveland
Publish Date: October 27, 2008

Few events generate as much acrimony between surgeons and hospitals as exclusive credentialing, which is when a hospital revokes, refuses to renew or outright denies operating privileges to surgeons on account of economic criteria unrelated to quality of care. This commonly occurs when a physician has an ownership interest in or is compensated by a competing facility. Here are a few pre-litigation strategies that physician-investors might use to combat or forestall the implementation of exclusive credentialing policies.

1. Defusing cherry-picking. Concerns over cherry-picking underlie most, if not all, exclusive credentialing policies. Cherry-picking is the catchphrase used to accuse physicians of diverting patients with the best coverage who are undergoing the most profitable procedures and suffering from less severe conditions from acute-care hospitals to competing surgical facilities.

Advising a hospital to take note of recent changes in Medicare payment policies is one of the best ways to defuse cherry-picking anxieties. In its 2007 Hospital Inpatient PPS Final Rule, CMS improved the DRG system's accuracy and severity-of-illness recognition to address allegations that physician-investors in specialty hospitals were engaging in cherry-picking. These changes reduced payments to many specialty hospitals by 5 percent. Moreover, CMS continues to adjust its DRG methodology to allay such concerns. In its 2008 Hospital Inpatient PPS Proposed Rule, CMS is proposing further DRG changes that would cut many specialty hospital payments by an additional 4 percent.

Most physician-investors may view the recent revisions to Medicare's ASC payment system negatively, but at the same time they may go a long way toward fostering a d?tente with hospitals and helping to avoid exclusive credentialing.

2. Take an active role. Exclusive credentialing disputes invariably involve bylaw interpretation, but some physicians don't concern themselves with medical staff bylaws until they find their privileges threatened by new credentialing policies and seek protection. Here's how physicians who've been active in developing a hospital's bylaws can maximize their advantage in these disputes.

  • Incorporate protection into bylaws. Anticipating exclusive credentialing disputes may provide a degree of protection that otherwise might not have been available.
  • Gauge political support. Serious discussions of physician financial relationships are a good means of determining the level of political support that other staff surgeons might provide in the event that you consider or engage in a competitive venture. A lack of support might pose a significant challenge for physicians seeking to oppose a hospital's exclusive credentialing policy.
  • Get it out on the table. Discussing physician financial relationships as part of larger medical staff concerns is a proactive, politic and appropriate way of raising exclusive credentialing-related issues with hospital lay governance. Both the hospital and surgeons benefit from such an upfront discussion, as it clarifies both sides' expectations concerning physician competition and may render exclusive credentialing policies unnecessary.
  • Know whether a hospital is playing by the rules. You can know whether a hospital violated medical staff bylaw provisions when it implemented its exclusive credentialing policy. It might benefit the physician to hire a lawyer for assistance in reviewing bylaws for compliance and appellate rights. While this increases expenses, it may be well worth the cost if early legal involvement resolves an exclusive credentialing dispute, prevents recourse to litigation and avoids the loss of privileges. As a practical matter, "our way or the highway" may be the extent of the exclusive credentialing policy's appeals process, but it's critical that physicians know their rights to appeal and exhaust them before pursuing legal action, in which you'll want to be able to show you used up all of your other options.

3. Know when the law's on your side. Although legal challenges to exclusive credentialing policies have so far met with mixed results, opponents have successfully employed several legal arguments.

  • Antitrust grounds. Doctors frequently assert that exclusive credentialing policies are anti-competitive and some courts have let plaintiffs challenge exclusive credentialing conduct on antitrust grounds, especially where the hospital holds market power. Potters Medical Center v. The City Hospital Association, 309 F. 3d 836 (5th Circuit, 2002) held that a 39-bed hospital's antitrust claims against a 279-bed city hospital - arising out of an exclusive credentialing policy - survived summary judgment.
  • Physician-patient relationships. In Arkansas Supreme Court case Baptist Health v. Murphy, MD, the court upheld a preliminary injunction that blocked the enforcement of a hospital's exclusive credentialing policy because the policy interfered with physician-patient relationships and violated public policy by potentially reducing hospital beds for specialty services.

Not without power
Physicians aren't powerless against exclusive credentialing because the policies risk the relationships essential to efficient hospital operations.