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6 Steps to Combat Economic Credentialing
Hospitals are increasingly basing their credentialing decisions on physicians' business interests - but there are ways to fight back.
, Lorin Patterson, Ed Stevens
Publish Date: October 10, 2007   |  Tags:   Credentialing

Instead of focusing on clinical competence when issuing credentials, hospitals are more often taking into account a physician's business interests. Does he have privileges at a competing hospital? Is he employed by or otherwise affiliated with a competing hospital or health system? Does he have an ownership interest in a competing facility, such as an imaging center, ambulatory surgery center or specialty hospital? A physician looking to start or invest in another facility may encounter these common economic-credentialing actions taken by hospitals:

  • requiring physicians to disclose in writing all interests owned in other facilities;
  • revoking or restricting medical staff privileges for physicians who compete with the hospital by investing in another facility;
  • imposing moratoriums on new medical-staff privileges for physicians who are affiliated with competing facilities;
  • establishing high patient-admission standards for active medical staff status; and
  • limiting competitive physicians to lesser privilege categories (for example, courtesy staff privileges, which often come with practice limitations and may preclude participation in managed-care networks that require active privileges at a hospital).

Hospitals are also restricting competition by securing exclusive participation agreements with local payers, exerting influence over referral sources friendly to the hospital and recruiting physicians in the same specialty who will be directly employed by the hospital. Your response to any economic-credentialing actions will be driven by your particular situation; here are six actions you may want to consider.

Be a model citizen
If medical staff privileges are threatened, you should be on your best behavior, complying with medical staff bylaws and the obligations imposed by them. The hospital should not be given an excuse to terminate privileges because of a performance-related issue. In the Walborn case (see Bad News From the Courts '), the court noted that the physicians who were contesting the hospital's rescission of their privileges had frequently failed to follow hospital protocols (such as proper completion of charts).

Analyze the situation
Before you react, carefully analyze what the hospital's policy is really attempting to accomplish. If what you're facing is economic credentialing, you have to determine whether you can live with it. And if the impact is material, look first for a compromise, such as an agreement to sign and adhere to confidentiality agreements protecting the hospital's strategic information. If you follow this approach, the physicians will be able to participate in the separate venture while retaining staff privileges, and the hospital will safeguard what it claims it really cares about - while both avoid the costs of a legal battle.

Bad News From The Courts...

Though economic-credentialing cases have yet to fully play out and give us a sense of where the law stands on the issue, a pair of high-profile cases may reveal some clues:

  • In Mahan v. Avera St. Luke's, a group of orthopedic surgeons in Aberdeen, S.D., developed an orthopedic specialty hospital, and the local non-profit acute-care hospital sought to suppress the growth of this new facility by closing the hospital's medical staff to new applicants for orthopedic privileges. An orthopedic surgeon who subsequently joined the specialty hospital's practice was denied privileges and sued the hospital, claiming it failed to adhere to medical staff bylaws that delegated authority for privilege determinations to the medical staff. The state Supreme Court held the hospital could close its medical staff without approval from or participation by the medical staff. In reaching this conclusion, the court characterized the staff closure as a business decision within the purview of the hospital's governing board instead of a clinical decision delegated to the medical staff under the bylaws. The court largely decided this based on the hospital's perceived right to do what it felt was necessary to maintain its financial viability.
  • In Ohio, Walborn v. UHHS/CSAHS-Cuyahoga, Inc., a hospital affiliated with a regional health system adopted a credentialing policy that would restrict a physician's privileges if the physician held a "material financial relationship" with a competitor or other "material conflict of interest." Several affected physicians sued the hospital, alleging that Ohio medical staff privilege determinations could not be based on economic considerations. The hospital won when a trial court ruled the hospital was justified in protecting its business interests. The physicians and hospital agreed not to pursue the case further.

- Lorin E. Patterson, Esq., and Ed Stevens, Esq.

Determine the effect
A hospital could have a much tougher time imposing a policy that applies to only some of its physicians. If, for example, physicians who own competing facilities and who constitute large referral sources for the hospital are untouched by the policy, the hospital could be viewed as giving a kickback (in the form of continued privileges) to those physicians. Under such circumstances, physicians may argue the hospital's selective imposition of its policy violates the Anti-Kickback Statute.

Consult state credentialing statutes
Some state statutes impose virtually no meaningful limitations on a hospital's right to remove privileges for economic reasons. Others, such as Texas, limit the economic factors that can be considered when credentialing decisions are made; the Ohio statute reviewed in the Walborn case practically granted the hospital carte blanche in its credentialing activities in a manner different from the laws of many other states.

Thus, courts in other states may - or may not - follow Walborn if the matter goes to court. We have been involved in several cases in which a hospital's counsel has referred to case law decided in another state to support a hospital's action - so it's best to arm yourself with knowledge of whether other case law would apply in your state.

...But Maybe Good News Elsewhere

It's important to note, though, that the courts aren't holding all the influence on this topic. The American Medical Association (AMA) has been extremely vocal in its opposition to economic credentialing, and the federal government may follow suit.

The AMA's position is that economic credentialing implicates the federal Anti-Kickback Statute. For instance, when a hospital conditions the granting of something of benefit to physicians (medical staff privileges) on the physicians' referral of patients to the hospital, instead of one of the hospital's competitors, the privileges could be construed as a kickback given in exchange for these referrals. Accordingly, the AMA has requested that the Health and Human Services' Office of Inspector General (OIG) prohibit certain practices under the anti-kickback law.

In December 2002, OIG solicited feedback from interested parties on economic credentialing. Based on the way OIG phrased this solicitation, we believe OIG may take the position that

  • medical staff privileges generally constitute remuneration, which implicates the Anti-Kickback Statute, and
  • hospitals are more likely to violate the Anti-Kickback Statute when they inconsistently apply conflict-of-interest policies to physicians participating in competing ventures.

In other words, when the hospital's determination is based on the volume of referrals that could be taken to the competing facility, the OIG may view the practice as particularly suspect. Beyond that, it's not clear exactly what form (such as an advisory opinion or safe harbor) the OIG guidance will take. While this guidance is not expected before the fall of 2004, physicians need not wait to the play the kickback card in their litigation with hospitals over privileges.

- Lorin E. Patterson, Esq., and Ed Stevens, Esq.

Check medical staff bylaws
Certain provisions of the medical staff bylaws may spell out whether the hospital's actions are permissible. We have seen several situations in which hospitals failed to follow the procedures plainly set forth in the bylaws when adopting certain policies. Your stance should be that the bylaws provide the concrete rules governing the relationship between the hospital and its physicians that cannot be altered at the hospital's whim. In several states, such as California and Illinois, bylaws are treated as enforceable contracts between a hospital and its medical staff. A hospital's failure to adhere may thus expose it to breach-of-contract charges.

Consider legal remedies
Any legal actions will be determined by the facts of each situation. With that caveat, here are six causes of action and/or strategies you may consider in economic-credentialing disputes.

  • Injunctive relief. To obtain an injunction from a court, which maintains the status quo until the matter is settled, the physicians must demonstrate they will suffer irreparable harm without the order and that the harm cannot be completely addressed by money damages later. This can be a high standard to meet. However, since some policies are imposed precisely to quash a competing venture, injunctive relief may be appropriate in many cases.
  • Anti-kickback claims. There is increasing recognition that the granting or withholding of privileges falls within the coverage of the federal Anti-Kickback Statute and its state counterparts (see ' But Good News Elsewhere). This could lead to enormous liability for a hospital. Much of the enforcement leverage behind the Anti-Kickback Statute is that any improperly induced Medicare or Medicaid referrals may be deemed false claims under the federal False Claims Act, which imposes triple damages. Court decisions support the argument that even accurate claims (for procedures) can be false claims if they violate the Anti-Kickback Statute.
  • Violation of state licensing or credentialing statutes. In states where economic credentialing is limited by statute, a claim for breach of these statutes may exist.
  • State and federal anti-trust claims. A hospital seeking to impose a particular policy may possess a dominant market presence and the policy may have an anti-competitive effect in the market. Such factors may result in considerable exposure under federal and state anti-trust statutes.
  • Breach of contract. In states that recognize medical staff bylaws as enforceable contracts, a policy's failure to satisfy the bylaw's requirements may give rise to a claim for breach of contract.
  • Tortious interference with contracts and business relations. The imposition of a credentialing policy may impact existing or prospective contractual or business relationships that the physicians or their facilities have with third parties. Examples of such agreements include contracts by other physicians to invest in a facility or the physicians' relationships with insurance company panels. In cases where economic credentialing hinders these agreements, a claim for tortious interference may be appropriate. A significant point to keep in mind for such claims is that punitive damages may be awarded in addition to any actual loss suffered.

Be prepared
Future government-issued guidance may clarify whether economic credentialing is permissible or in what forms it may be imposed. Until then, physicians in competitive outpatient ventures must become aware of what economic credentialing entails and consider how to address it.

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