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Legal Update
The Straight Scoop on Economic Credentialing
Kathy Poppitt
Publish Date: December 1, 2008

Economic credentialing may put the physicians who do cases at your facility — as well as those whose cases you seek to attract to your ORs — in an uncomfortable or even an untenable position. Here's what you and they may be up against.

Power of the purse
There are three types of economic credentialing:

  • Physician profiling. This is when hospitals consider criteria unrelated to professional competence or quality of care, such as case costs, OR utilization and overall reimbursement, in making their credentialing decisions. Those with more favorable billing and claims data will see more favor in the credentialing process. Physician profiling originated alongside Medicare's Prospective Payment System in 1983 and has steadily gained in popularity since that time.
  • Exclusive contracts. Hospitals often enter into exclusive contracts with physicians for hospital services, including surgery, anesthesia services and radiology. Retaining exclusive contracts with one group of physicians has the effect of excluding other physicians. While it's up to a hospital's medical staff bylaws to address the possibility of conflicts between physicians or practice groups regarding exclusive contracts, those physicians or groups should be aware of the impact that a later-terminated contract will have on their staff memberships or privileges.

A closely related concept to exclusive contracts is requiring physicians to dedicate their practices to a specific hospital or health system, which may appear as a pre-application "loyalty clause." Such a provision often aims to oppose the physician's involvement in an ASC or specialty hospital.

  • Conflicts credentialing. This is becoming more and more common as an increasing number of physicians gain ownership interests in outpatient facilities, especially those not associated with the hospital. Some hospitals have reacted by instituting policies that deny or revoke physicians' memberships on hospital staffs if the physicians develop investment stakes in facilities to which they may refer patients. Such policies are considered the purest form of economic credentialing, because the decision is based solely on economic factors.

Legal challenges to credentialing policies
About 20 states and the District of Columbia have enacted laws that address whether and how hospitals can consider economic information in making credentialing decisions, according to an American Medical Association report examining the issue.

While the laws are varied in their approaches, it's interesting to note that not one state has imposed an outright ban on the practice. Some states' statutes give hospitals a wide latitude in their credentialing decisions. Others limit the use of economic information without actually banning it. Still others are simply too vague or ambiguous to represent a strong state policy on economic credentialing. Even though many states still haven't taken a firm stand on the permissibility of conflicts credentialing, certain applicable state laws still govern whether their practices are within the law.

Hospitals' economic credentialing policies are frequently challenged in court. Some courts have blocked hospitals and health systems from enforcing economic credentialing policies that aimed to bar physicians with direct or indirect financial interests in competing surgical facilities on grounds of "tortious interference with a business expectancy."

In the 2008 case of Madonna v. Satilla Health Services, from Georgia's Court of Appeals, two physicians sued a medical center claiming unreasonable discrimination. While they were bound to an exclusive cardiology agreement, the hospital let as many as 11 cardiologists unaffiliated with this "exclusive provider" practice in the hospital. The appellate court held that a hospital must comply procedurally with its own medical staff bylaws in considering the implementation of an exclusive agreement.

Whether a hospital has followed its bylaws in drafting or enforcing economic credentialing policies is often a key factor in legal challenges to these policies. Another common legal claim is that economic credentialing violates state or federal antitrust laws. Under the federal Sherman Act, contracts, agreements and conspiracies in restraint of trade are prohibited. But antitrust laws don't forbid all competitive conduct, only that which adversely affects the market — and not just the individual (as seen in the 1993 federal case of Spectrum Sports, Inc. v. McQuillan).

In most antitrust cases against economic credentialing, the courts have held that the actions complained of, usually exclusive contracts, are not anti-competitive for the overall marketplace, even when individual physicians have been negatively affected.

Still, the law governing economic credentialing is far from settled. Hospitals should proceed with caution and consult their applicable state laws and medical staff bylaws before drafting or enforcing any such policies. Physicians facing credentialing policies should likewise make sure that those policies have been applied uniformly and fairly.