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Special Report

Special Report

Hospitalists, Emergency Physicians, and Cross-Subsidization

Shaw, Gina

doi: 10.1097/01.EEM.0000530438.62507.44

    In early November, Memorial Network, which operates two hospitals in the western Illinois towns of Bellevue and Shiloh, announced that it would switch from CEP America to TeamHealth for its emergency department contract. The Belleville News-Democrat reported that Memorial told CEP America that it would not renew its emergency department staffing contract on Nov. 6, and three days later, CEP responded by terminating the hospital's contract for hospitalist and intensivist services, effective Feb. 8.

    This development may be part of a growing trend in which emergency medicine is cross-subsidizing hospitalists as hospitals resist paying for hospitalist services, which are essential to maximizing inpatient revenue and enticing physicians to admit to a particular hospital, experts said. Having a hospitalist program has become essential for a hospital to maximize its overall inpatient revenue, but the hospitalist program usually does not actually pay for itself, necessitating substantial subsidies from the hospital, they said.

    The 2016 State of Hospital Medicine report from the Society for Hospital Medicine estimated that the average hospitalist program must be subsidized by $157,500 per doctor per year more than what they bill and collect. ( Emergency medicine, on the other hand, typically generates enough revenue to be entirely self-supporting—in fact, it is usually profitable, sources said.

    “Without a subsidy, most hospitalists are not able to bill enough to cover a reasonable salary,” explained Mark Reiter, MD, MBA, the residency director at the University of Tennessee-Murfreesboro/Nashville emergency medicine residency, a partner in Middle Tennessee Emergency Physicians, and the immediate past president of the American Academy of Emergency Medicine (AAEM). “Procedural and surgical services are reimbursed much more highly than cognitive services, which is almost all of what hospitalists do. Emergency physicians provide cognitive services but also plenty of procedural services, and have learned to be effective at increasing our productivity.”

    Why is emergency medicine targeted for these package-deal, cross-subsidization contracts? After all, other procedural specialties are even more profitable. Dr. Reiter said that for hospital-based specialties like emergency physicians, radiologists, anesthesiologists, and hospitalists, patients generally choose their preferred hospital, and then are seen by whichever emergency physicians are working at that time.

    Physician Preference

    The emergency physician group will typically have an exclusive contract with the hospital or will be employees of the hospital, Dr. Reiter said. Non-hospital-based specialties, on the other hand, such as primary care, surgery, and cardiology, typically do not have exclusive contracts with the hospital, and may have a choice of several hospitals for admitting their patients or performing procedures and operations, he said. Many patients will select a particular physician, and then obtain their medical care at the hospital their physician prefers.

    “As a result, hospitals need to aggressively cater to the needs of non-hospital-based physicians to maximize their admissions and procedures,” Dr. Reiter said. “If the hospital were to insist that a cardiology group subsidize the hospitalist group, the cardiologist group could easily respond by bringing all of their patients and services to a competing hospital. However, since only one emergency physician group will hold a contract at a hospital at a time [typically for many years], the emergency physician group would have more difficulty severing ties with their hospital and then simultaneously obtaining another exclusive contract at another nearby hospital,” which would need to have a similar emergency department volume to be able to support all of the emergency physicians.

    AAEM first called attention to the cross-subsidization issue a few years ago in an article by Dr. Reiter. At the time, Tenet Health, one of the largest hospital networks in the country, had recently put the contracts out for bid at 11 of its hospitals in California to replace their emergency medicine, anesthesiology, and hospitalist groups. “According to some of the local groups involved, Tenet made it clear to the large contract management groups (CMGs) it is soliciting that it is looking for a no-subsidy arrangement for all 27 contracts,” Dr. Reiter wrote. “Essentially, Tenet wants the profits from the emergency medicine contracts to cover its losses on the hospitalist and anesthesiology contracts.” (Common Sense, Sept-Oct 2014;

    AAEM wrote to Tenet suggesting that the arrangement may have been a violation of federal fee-splitting rules and of California corporate practice of medicine laws, which prohibit non-physician lay corporations from owning or controlling physician practices due to the potential for abuse when a corporation's fiduciary duty to its shareholders is in conflict with a physician's duty to his patients. Whether it was due to the negative publicity, the legal warnings, or something else entirely, Tenet ultimately shelved the plan.

    Since then, AAEM has received more and more calls from emergency medicine groups saying that similar contract negotiations are happening in their institutions, according to Robert McNamara, MD, a professor and the chair of emergency medicine at the Lewis Katz School of Medicine at Temple University in Pennsylvania and the chief medical officer of the AAEM Physician Group, which supports independent physician-owned practices. “We've heard a lot from Texas, and it's also been reported in Virginia and Florida. It's an issue of economics. The big investor-owned companies are looking for more business, and one of their angles is saying to the hospitals, ‘You give us the lucrative ED contract, and we'll cover your losses on the hospitalist program.’ That's very attractive to the C-suite.”

    ACEP Investigates

    The American College of Emergency Physicians (ACEP) has also been hearing from its members about the issue, enough that it led ACEP President Paul Kivela, MD, MBA, the managing partner of the Napa Valley Emergency Medical Group in California, to put it on the agenda for ACEP's most recent board retreat in early December. “We discussed it, and concluded that there's not a lot of exact information available right now on the scope of the issue and what we're facing right now,” he said. “There are definitely reports of cross-subsidization, and I think it's no secret that hospitalist compensation is probably inadequate to support their services. ACEP hasn't yet taken an official position, but we will be putting together a group tasked with developing more information and informing any next steps on this issue.”

    Dr. McNamara said the trend represents a threat to the specialty of emergency medicine. “First, it creates further growth of these large corporate-owned groups, which AAEM believes is not in the best interest of patients,” he said, pointing to reports like the 2012 60 Minutes segment, “Cost of Admission,” in which current and former employees of Health Management Associates said they were pressured to admit patients, whether they needed hospital care or not, to increase revenue. “It's well documented that corporate influence on medicine and emergency medicine, in particular, can negatively impact patients,” he said.

    Dr. Reiter said many hospital staffing contractors save money by reducing physician coverage or by decreasing reliance on qualified, board-certified emergency physicians, using instead non-board-certified physicians and more midlevel providers. “This decreases their costs, but it also diminishes the ability to recruit and retain the best people,” he said. “You've taken a high-performing emergency group that owned their own practice, benefitted from their own success, and invested their profits into both the community and their physician group, and you've made that group employees or independent contractors of a large out-of-state corporation, where a significant share of the profits go to non-physician investors, such as private equity firms and stockholders.”

    The cancelled Tenet plan in California suggests that it's possible for independent emergency physician groups to stave off a corporate bid that packages emergency and hospitalist contracts together, Dr. McNamara said. One option may be legal and regulatory challenges; these can be complicated and costly, but it's possible that simply raising the issue could have an effect, he said.

    AAEM's 2014 letter to Tenet leadership noted that federal fee-splitting laws “prohibit any portion of the physician professional fee from being distributed to any entity in excess of the fair market value of any services provided. “Concern for violation of federal fee-splitting laws is raised in situations when the profit from the physician professional fee is being distributed to a hospital or a physician staffing company. If an emergency physician's professional fees were to go toward subsidizing other hospital specialists or to increase profits for a for-profit corporation, this would appear to be a violation of federal fee-splitting laws.”

    Hospitalists and emergency physicians can also work together to preserve their practices, Dr. McNamara said. “You need to size up your situation and consider if this is an area of vulnerability in your contract,” he said. “It may be in your best interest to team up with the hospitalists and incorporate them into your group. That's a model that's already being pursued in some areas. There are physician-owned groups in emergency medicine who have basically partnered with the hospitalist program or taken it over for their institution.”

    He cited Florida's Brevard Physician Associates Emergency Medicine Division, a joint venture between what was formerly known as Brevard Emergency Services and Space Coast Emergency Physicians, which works in the county's nonprofit HealthFirst community health system. The partnership between the emergency group, led at the time by Marty Brown, MD, and the hospitalist group, prompted AAEM to give its 2014 Administrator of the Year award to HealthFirst CEO Steven Johnson. “You can either undertake such an effort yourself as physician groups or work directly with hospital management,” Dr. McNamara said.

    Dr. Kivela of ACEP concurred that closer relationships between hospitalists and emergency physician groups can benefit both parties. “I think there's a way to work collegially with everybody. I'm a big bridge-builder. We have to look at what the market pressures are and what's in the best interests of patients,” he said.

    TeamHealth did not respond to multiple requests for comment from Emergency Medicine News. Tenet and another leading emergency physician and hospitalist staffing and management group, Best Practices, an Envision Healthcare Company, declined comment through a representative.

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