Historically, faculty at academic health centers (AHCs) have been underpaid compared with their colleagues in private practice. In many fields, particularly procedural specialties, it has become more difficult to retain some of these faculty members because of salary disparities. Indeed, some studies cite salary-related issues as the cause of physician dissatisfaction and problems with retention.1–3
A parallel, and possibly fortuitous, development has been the growth of certain entrepreneurial activities on the part of AHCs, such as the construction and purchase or lease of clinical facilities and/or major equipment that are usually owned by the practice plans or other entities affiliated with the AHC and its faculty and are dedicated to medical offices and other service- and patient care-related activities. Examples include ambulatory surgery centers, dialysis centers, imaging centers, radiation therapy facilities, and endoscopy suites. This phenomenon has given rise to the potential for investment in such sites and equipment. These investments, whether by the individual faculty members, the practice plan, the academic department, or the academic institution itself, provide an opportunity for additional remuneration for physicians that might make AHC practice more financially attractive, since the return on such investments could be used to supplement AHC physicians’ salaries. Also, the increased revenue has the potential to benefit the University's academic missions by helping to pay for teaching and research responsibilities.
However, these investment opportunities create the potential for conflicts of interest at multiple levels, from the individual faculty member to the medical school. Conflicts of interest may arise due to the opportunity for self-referral (sending a patient to the non-AHC facility could be in the physician's financial interest) and the conflicts of duty and time (spending more time at and putting more personal resources into the new facility would likely earn greater financial return). These potential conflicts will hold true even when the regulations against self-referral4 and kickbacks5 in the Ethics in Patient Referrals Act (commonly known as the Stark Act after Rep. Fortney H. Stark, who authored the federal legislation), and other legal issues have been addressed and satisfied. The Stark Act, which prohibits a physician from referring Medicare patients to a facility in which the physician has a financial interest, specifically excludes situations where the physician (or another physician belonging to the same group practice) sees patients at the facility. In addition, the Stark Act only covers 11 specific categories of services and does not include primary care services; therefore, depending upon the specific nature of the new facility, it is possible that the Stark Act might not apply at all.
Whether the conflict is actual or perceived is less important than the ethical issues that arise for faculty who invest in such arrangements and the community in which such arrangements might be realized. Conflicts of interest are becoming a focus of increased public debate. Universities and other organizations labor visibly to create workable conflict-of-interest policies to manage industry sponsorship of clinical research6,7 and pharmaceutical company gifts,8 but the matter of faculty ownership of facilities also warrants careful consideration.
In this article, we present the process at the Indiana University School of Medicine (IUSM) for addressing faculty ownership of medical facilities and the prospects for evaluating future arrangements of this kind. In reporting this experience, we hope to engender additional interest and discussion in the academic and private medical communities and in the general public.
The Case: Faculty Ownership of Medical Facilities
Indianapolis is home to IUSM, the second-largest medical school in the United States,9 to a major pharmaceutical corporation, and to many other health care-related entities, including insurance companies, centralized clinical laboratories, and device manufacturers.
In early 2001, Clarian Health Partners, Inc., the parent organization that includes Indiana University Hospital and some of its affiliates (James Whitcomb Riley Hospital for Children and Methodist Hospital of Indianapolis), announced its intention to develop several new medical facilities, including two additional hospitals on the city's west and north sides. These facilities were established in response to a number of factors, including competitive pressures within the overall health care market, the deterioration of the payer mix in the downtown Indianapolis market, and the trend toward faculty ownership of facilities, e.g., specialty hospitals taking paying patients away from the main downtown facilities. These new hospitals were to be for-profit and allowed faculty co-ownership.
These developments prompted the dean of IUSM to request that the school's Conflict of Interest Committee form a special ad hoc subcommittee to address any potential concerns that might arise from faculty, departmental, or practice plan ownership. The subcommittee included representatives from the standing committee plus various stakeholder groups, including faculty members from several departments and divisions involved in the new facilities, leaders of several practice plans, faculty members without any potential fiduciary or other interest in such undertakings, and outside “friends” of the university. The subcommittee met four times to discuss the issues and develop its response to the dean.
IUSM policy requires that investments such as faculty, departmental, or practice plan investment be reviewed, but, until the subcommittee convened, there were no guidelines for this review. The subcommittee first considered whether these investments should even be permitted, first reviewing arguments supporting and opposing such arrangements. The main argument for permitting faculty participation in such health care ventures is simple: Many AHCs are in financial trouble. The pay differential between physicians in academic and private practice tends to siphon off the best talent to the private sector, particularly in certain subspecialties. Faculty and group ownership and entrepreneurship at IUSM could increase income by giving practitioners additional sources of income (salary and revenue from their investments), making academic medicine more financially rewarding. The increased revenue could support teaching and research commitments, thereby supporting both the objectives of the AHC and the salaries of academic physicians.
Frequently, academic facilities treat large numbers of indigent patients, and reimbursements for these patients may be small or nonexistent. This situation exists in Indianapolis, as well as in other AHCs. In response to shrinking reimbursements, new sources of revenue must be found in profitable markets (which also tend to be competitive markets). Expanding into these new markets with new facilities takes considerable effort, but linking faculty's efforts with financial rewards by allowing faculty to own “shares” of these new facilities acknowledges the additional work required to support expansion of services into competitive markets and provides incentives for the new facility to succeed in new geographic arenas.
The main argument against faculty investment is that AHCs play a unique role in the community and should, therefore, avoid the conflicts inherent in faculty ownership. AHCs are expected to be centers of clinical excellence and medical research and training sites for subsequent generations of private practice and academic physicians. Historically, AHCs have enjoyed the respect of the general public and the generosity of state and local taxpayers, patients, foundations, and businesses. The faculty of IUSM is usually held in high regard by its alumni. Academic medicine has nonfinancial rewards distinct from private practice, including opportunities for research and teaching, which are presumably what draws faculty to an academic career in most cases. Therefore, it might be reasonable for clinical faculty in IUSM to accept this pay differential. In addition, because clinical faculty are typically paid more than are their nonclinical faculty colleagues, increased pay inequities and unequal access to resources have the potential to divide the faculty of a university and generate resentment.
Private practitioners in the tax base might bristle at the competition. Faculty, departmental, or practice plan ownership of medical facilities has the potential for creating negative public relations for Indiana University, IUSM, and the clinical faculty. Creating the appearance of pettiness, greed, and commercialism by behaving in a financially driven manner could damage the good image of the school, the internal distribution of funds by the Indiana University administration, and philanthropic support to IUSM. If this negative image became widespread, it is conceivable that allocations of tax funds by the state legislature could be compromised.
After the subcommittee considered all the pro and con arguments, a unifying principle emerged: While aspects of both positions are compelling, investment can and should occur where IUSM's missions and values intersect with the underlying purpose and intention of pursuing such investment. At hand, therefore, is the notion of striking an appropriate balance between the values and missions of a state-supported AHC and the patient-focused, risk- and reward-based, entrepreneurial ventures that have become integral components of comprehensive clinical health care delivery.
Points to Consider
From these discussions about investment, a “Points to Consider” document was drafted that sought to identify key values and perspectives that could inform decision making. This approach was used for several reasons. As in many morally contested areas, determining the right course of action involves a careful consideration of all facts and values, including, but not limited to, those noted earlier. Judgment, balanced by humility, can serve well, but decisions must be guided by a constellation of factors to which no algorithm can be universally applied. The Points to Consider are an intuitive strategy meant to provide a guide for action and are framed as questions, the answers to which are not predetermined. The points are neither a set of decision rules that mechanistically resolve issues at stake, nor a set of principles the interpretation of which can be manipulated by various parties to support their particular points of view. At the same time, there is (and must be) a principled basis for each of the points if they are to be (and be perceived to be) of value. These points are highlighted below.
Consistent with the Mission of IUSM and the Professional Values of Medicine
The Mission of IUSM is to advance health in the State of Indiana and beyond by promoting innovation and excellence in education, research, and patient care. The values underlying the school's commitment to teaching, research, and service are inextricably linked to the professional values of medicine. The core values of IUSM are excellence, respect for individuals, integrity, diversity, and cooperation; thus, the following questions should be addressed:
- How will participation in the venture promote or enhance patient care, teaching, or research?
- How will revenue derived from participation in the venture be used to promote/enhance patient care, teaching, or research?
- How will participation in the venture enhance the professional values of medicine?
- How will these arrangements enhance (or not hinder) the mission and reputation of Indiana University?
For the reasons discussed earlier, AHCs have a unique role in their communities and are expected to behave in an ethical fashion. Particularly in the case of publicly supported universities, this standing in the community means that faculty at IUSM should be accountable for their actions. The following question should be considered:
- Are mechanism(s) needed to provide the Indiana public with the assurance that any such ownership relationship will advance the mission of the school in the eyes of the public to which it is accountable?
At IUSM, transparency in all transactions is of paramount importance, so the following questions should be considered:
- Should the nature of the relationship be transparent to anyone who has an interest in it?
- Should patients be aware of this relationship (e.g., a building owned by faculty partnerships should indicate its relationship to IUSM in some fashion)?
IUSM considers other strategies by addressing the following questions:
- What other strategies have been considered to achieve the same results without financial participation in the venture?
- Has the proposed participation been evaluated from compliance and legal perspectives?
The subcommittee also dealt with questions concerning the appropriate level of ownership, the scope of the Points to Consider document, and how investment arrangements should be reviewed.
Level of Ownership
If evaluation of the proposed ownership interest satisfies the factors we have identified here, the question of the appropriate level(s) of ownership remains. The subcommittee concluded that the ownership interest may not be held at the individual level; rather, it may be held at the level of an existing administrative unit (e.g., department, section, division, or practice plan) or by a defined group of individuals with the approval of the appropriate chair(s) and the dean. The subcommittee concluded that IUSM faculty should not be able to independently constitute a group for the sole purpose of engaging in ownership arrangements.
Group ownership is advantageous because it potentially improves efficiency and competitiveness, increases the probability that revenue will be reinvested, lessens the motivation for physicians to engage in unethical behavior, and avoids the practical problem of losing “pieces” of facilities when individual faculty members leave IUSM for another institution.
Scope of the Points of Concern
The Points to Consider document did not address all types of faculty investments and ownership interests. Existing university policies and procedures indicate that faculty may pursue outside activities, which can include investment and ownership interests within certain parameters. IUSM's conflict-of-interest policies and procedures (as well as those applicable to the university as a whole) recognize that faculty may hold stock and other equity, investment, and ownership positions. IUSM policy states, “any activity … that threatens the public trust in the activities of the faculty will not be permitted. On the other hand, careful judgment must be applied so that excessive sanctions are not imposed.”10 That “careful judgment” is the challenge that the Points to Consider document is intended to address. The document is not intended to address all such interests, but rather only those investments in a health care-related enterprise that will involve the active participation and/or management of IUSM faculty, fellows, residents, students, or staff. Given the rapidly evolving nature of the health care-delivery process, providing an exhaustive list of such ventures is not feasible. The following list, therefore, should be viewed as guidance on the types of ventures that fall within the scope of the Points of Concern document: hospitals, medical office buildings, infusion centers, imaging centers (e.g., MRI, CT, x-ray), dialysis units, rehabilitation facilities, pain clinics, nursing homes, outpatient laboratories, outpatient diagnostic centers, outpatient surgery centers, and radiation therapy facilities.
Review of Investment Arrangements
Faculty groups seeking to invest in medical buildings, resources, equipment, or related entities will be required to complete the brief questionnaire. Responses will be reviewed by a committee appointed by the dean of IUSM that will make recommendations to the dean. The dean will have final authority to approve or disapprove of any such activities.
The process we describe here is only one approach to addressing the issue of faculty ownership of medical facilities. The process focuses on transparent decision making, rather than on a stipulated set of permitted and prohibited activities. We believe that faculty acceptance and compliance will be more likely using such an approach, especially in an area where consensus has yet to be reached. The appropriate next steps are to implement the policy and evaluate its impact and effectiveness. These steps will be accomplished by the creation of the dean's review committee indicated above dissemination of information to the faculty, and analysis of the types of proposals brought to this committee and its and the dean's actions. With the passage of time, the policy will be refined, and much should be learned about the policy and its use.
The authors would like to thank Joseph M. Scodro, JD, D. Craig Brater, MD, Mervyn D. Cohen, MD, Michael C. Dalsing, MD, John N. Eble, MD, John F. Fitzgerald, MD, Marilyn F. Graham, MD, Paul B. Nelson, MD, Stephen B. Trippel, MD, Stephen A. Valerio, Eric A. Wiebke, MD, Eric S. Williams, MD, and Robert D. Yee, MD, for their contributions to this effort. The authors also would like to thank Lois Wells for her secretarial support, and Ujjal Basu Roy and Karen Salmon for additional assistance.