Your medical staff has elected its chief of staff and is ready to follow his lead. But the hospital administration won't recognize his authority, and it summarily adjourns meetings of the staff he calls - because he owns a small part of a competing surgical facility.

What do you do? The medical staff at Community Memorial Hospital of San Buenaventura (CMHSB) in California sued the hospital administration, and ultimately a state law was passed to circumvent future occurrences. In the last couple years, this particular form of economic credentialing - hospitals using outside business interests to determine clinical decisions - has moved from the ORs to the courts, and now it's off to the legislatures. California Gov. Arnold Schwarzenegger recently signed Senate Bill 1325, establishing self-governance rights for medical staffs. (See "Can the Rift Be Healed? One State's Prescription.")

Contradicting recent high profile court decisions, this law seems to bode well for physician owners and hospital medical staffs. So what does this self-governance law mean in practice, and what kind of precedent does it set?

A little bit of history
The law capped a situation at CMHSB that had finally boiled to a head: Hospital administration wouldn't recognize the elected chief of staff, John Hill, MD, because of his 1.25-percent ownership of an off-site ASC. Other tensions existed between administration and staff, including a contentious medical staff code of conduct, contracts that reduced the radiology department to one doctor, and the administration's summary adjournment of meetings called by Dr. Hill. After the medical staff sued the hospital, the California Medical Association and then the American Medical Association got behind them.

Other high-profile lawsuits in South Dakota (Mahan v. Avera St. Luke's) and Ohio (Walborn v. UHHS/CSAHS-Cuyahoga) have found in favor of the hospital administrations based on a protection-of-business-interests justification. The CMHSB suit was settled, but not long after, Sen. Sheila Kuehl (D-Los Angeles) introduced the self-governance legislation.

Protection or ignition?
As usual, money is at the root of the controversy: Physicians consider the curtailing of their status or privileges over outside business interests economic credentialing; the hospital views the physician as having a conflict of interest.

As a result, some think the law is pouring gasoline on an already-incendiary relationship. Others, including the AMA, view it as an important shield for physicians who want to be allowed to practice medicine in what they consider the best interests of patients.

Detractors point out that hospital administrators and staff have mostly worked well together. The AMA and other supporters say if hospital administrators are given a chance to run roughshod, patient care will suffer, and the bill is necessary to balance the bargaining position.

However, while the U.S. Office of Inspector General has criticized credentialing practices that involve contracts with staff that provide substantial payments to the hospital (as was the case with the radiology department at CMHSB), it has also stated that a credentialing policy that refuses privileges to physicians with significant conflicts of interest would not implicate anti-kickback prohibitions in most situations.

Passing the buck
Therefore, it's likely economic credentialing will play out in the courts and the states.

California, Idaho, Colorado, Illinois, the District of Columbia, Massachusetts, Rhode Island, Tennessee, Virginia, Texas and Louisiana restrict using economic factors in credentialing decisions, but Florida, Georgia, North Carolina, New York, Maryland, Kansas, Iowa and Indiana permit it. Given the different approaches, this may continue to be jurisdiction-specific in the form of state laws. If the OIG eventually issues a safe harbor to hospitals on this subject, however, it's unlikely that state laws could close that off.

Besides, because of the myriad ways economic credentialing may manifest, a single statute specific enough to prohibit one act might be circumvented, and a general statute might be void for vagueness or subject to broad interpretation. That's why, until there's a federal ruling, you should watch the courtrooms, especially in still-undecided states; case-by-case nuances and differences, and subsequent judgments of prohibited and permissible conduct by doctors and hospitals, will likely define the boundaries of economic credentialing.

Where to go from here
Interestingly, before it passed, the hospital and the medical staff amicably resolved their dispute. Staff officers must now disclose any business conflicts with the hospital before taking office and must abstain from voting on matters involving their interests. Failure to abide by the conflict-of-interest policy, now part of the hospital bylaws, may result in corrective action. Perhaps, rather than viewing the law as a model, it might be better to look at the settlement agreement as one.