For-Profit Enterprise in Health Care (1986) / Chapter Skim
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8 Physicians and Entrepreneurism in Health Care
8 Physicians and Entrepreneurism in Health Care
Pages 151-170
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From page 151... ...
as objects of institutional marketing or cost-control efforts in which economic incentives are used, and (3) as entrepreneurs who assume the economic risk of investing in health care businesses outside of their own practices.
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From page 152... ...
The second area of fiduciary responsibility, examined in Chapter 9, is in assuring patients that other professionals or organizations to which the physician entrusts or refers them are worthy of their trust. ECONOMIC INCENTIVES AND ETHICAL OBLIGATIONS The expression of the physician's ethical obligations to the patient has long been seen as subject to influence by economic and organizational arrangements.
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From page 153... ...
In particular, physicians' investments in health care organizations and bonus incentive arrangements designed to influence physicians' decisions in organizations in which they practice may have the potential to bias physician decision making in ways that may not serve patients' interests.2 These two types of arrangements involve economic rewards that are affected by patient care decisions, although separate from the income derived directly from the services provided by the physician. Until recent years, this would have run afoul of a provision in the AMA's ethical principles that held that "a physician should limit the .
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From page 154... ...
Nevertheless, it must have been relatively common in the past, because it was addressed by and found acceptable by the largest professional association, the American Medical Association, whose ethical standards have Tong permitted physician ownership of pharmacies, hospitals, nursing homes, and laboratories.3 Undoubte~y such investments were sometimes motivated by the promise of economic returns and sometimes by the physicians' intent to meet the community's need for facilities or services that would not have been available without such investment. One form of physician investment that had potential for influencing patient care decisions seems to have declined over the years the direct ownership of hospitals by physicians.
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From page 155... ...
- - ~ · Incentives created by third-party payers for shifting services from inpatient to less expensive outpatient settings ~ Changes in technology that made some services (e.g., cataract surgery) more feasible on an outpatient basis · The increasing economic complexity of medical practice, making it more important for physicians to operate in a businesslike, economically calculating fashion · Tax law changes and sophisticated tax advisers, which have undoubtedly stimulated physicians' interest in certain investments · The removal, under pressure from the Federal Trade Commission, of many restrictions on truthfi~T advertising in the profess~ons · State laws against the corporate practice of medicine that have given physicians an advantage over other entrepreneurs in establishing certain kinds of facilities5 ~ Economic pressures resulting from the growing supply of physicians, which have undoubtedly stimulated interest in new sources of income and in organizations over which physicians, as owners, can have substantial control · Competitive conditions that make health
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From page 156... ...
Finally, by making open entrepreneurism by physicians less unusual, the growth of physician entrepreneurism may itself have stimulated more such activity. Incentive Bonus Arrangements The possibility for secondary gain from patient care decisions also arises from bonus arrangements established by health care institutions to encourage staE physicians to make treatment decisions that are favorable to the institution's financial interests (Capron and Gray, 1984; Tatge, 1984a; Adams and Klein, 1985~.
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From page 157... ...
Nor is anything systematic known about the positive or negative effects on patients that might result. THE PROBLEM: ISSUES AND OPTIONS Several arguments can be offered in favor of physicians' economic linkages with health care organizations that are outside of their own practices and that provide them with secondary sources of income from their own patient care decisions.
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From page 158... ...
The Evidence Empirical studies do not yet exist on the impact on patient care decisions of the new forms of physician entrepreneurism or of incentive bonus plans for DRG patients. However, studies on laboratory and X-ray use show a direct relationship between physician ownership and utilization.8 A study of FOR-PROFIT ENTERPRISE IN HEALTH CARE the use of X-ray by physicians caring for aged persons under a medical assistance program in California in 1965 showed that nonradiologists who provided "direct X-ray services" to patients (i.e., using their own equipment)
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From page 159... ...
Policy Options The problem of investments or incentive arrangements that enable physicians to derive secondary income from their patient care decisions can be approached through three types of policies: (1) policies to require disclosure of such arrangements, (2)
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From page 160... ...
. · Third-party payers can establish rules against paying for the wholesaling and retailing of testing, as in Bailey's suggestion regarding the overuse of laboratory testing: "moving the physician out of the financial transaction in testing via direct billing laws-is the only workable means of discouraging testing based on economic incentives" (Bailey, 1979~.
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From page 161... ...
There seems to be less uncertainty about the application of this fraud and abuse statute to the mode of distribution of profits 761 Tom joint ventures. The fraud and abuse law is seen as prohibiting the distribution of profits according to the amount of business generated through referrals, but not prohibiting the distribution of profits according to percentage of ownership of the venture (American Hospital Association, 1985~.
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From page 162... ...
Although there is a paucity of data on the effects of these arrangements on medical clecision making, the committee believes bonus incentive arrangements and physician investments could pose greater problems for physicians' fiduciary role under several conclitions:23 · The more direct the link between the physician's patient care decisions and the rewards of the incentive bonus arrangement or investment. (One hospital company's practice of sharing operating room revenues with surgeons is an example of a very direct link between decisions and payoffs; arrangements in which revenues are shared with large groups of physicians, who make distributions to individual physicians in equal shares is an example in which the relationship between a patient care decision and the benefit is rather remote.)
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From page 163... ...
The trend toward arrangements whereby physicians are given an economic inducement to make particular referral decisions is to be deplored and should be rejected in strong terms by professional associations, in state medical practice laws, and in conditions of reimbursement of third-party payers.24 These inducements include, but are not limited to, arrangements where physicians are given or sold an ownership share in a facility to which they make referrals. Such arrangements are inconsistent with the physician's fiduciary responsibility to patients, and they are inconsistent with the ethical and moral stance that society is entitled to expect of the medical profession.
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From page 164... ...
Bonus incentive plans under which physicians receive a share in surplus revenues generated by an organization in which they practice pose a danger to the physicians' obligation of primary fidelity to the patients' interests, except when patients are a party to the agreements. In the absence of prohibitions on incentive bonus arrangements, it is essential that disclosure standards be developed to make certain that patients, referring
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From page 165... ...
. One of the smaller investor-owned hospital companies proposed sharing operating room revenues with surgeons who use the facility and another has proposed a profit-sharing plan based on splitting surplus revenues, if any, derived in the care of Medicare patients for whom revenues are fixed under the DRG prospective payment systems (American Medical News, 1985~.
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From page 166... ...
Rosoffs recent analysis of the corporate practice of medicine doc FOR-PROFIT ENTERPRISE IN HEALTH CARE trine notes that most states still have laws prohibiting the practice of medicine by a lay corporation, but that the enforcement of these laws has declined because of exceptions that developed in the employment of residents and interns, because of an exception built into the 1973 Federal HMO act, and because of the development and growth since the 1960s of professional corporations. Nonetheless, Rosoff contends that "state laws against corporate practice pose a significant threat to innovation in health care practice.
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From page 167... ...
Regarding incentive bonus arrangements whereby physicians would share surpluses (or losses) generated by hospitals under Medicare diagnosis-related groups (DRG)
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From page 168... ...
Health Care Financing Administration (1985) HCFA Background Paper ton Medicare Prospective Payment System Monitoring Activities]
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From page 169... ...
Simler, Shelia (1985) Development Company Plans to Use Joint Ventures to Build Surgicenters Modern Healthcare 15January 4:22.
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From page 170... ...
Hospitals' Joint Ventures, Incentive Plans May Violate Fraud, Abuse Laws. Modern Healthcare 15January 49:23-24.
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