When Placentia-Linda Hospital, a Tenet-owned facility in Placentia, CA, awarded a contract for managing and staffing its emergency department to Glass Beach Medical Services, a business controlled by Envision Physician Services, Placentia Linda Emergency Physicians (PLEP) and the American Academy of Emergency Medicine Physicians Group, Inc., (AAEM-PG), which provided practice management services to the ED, lost their contract.
That loss, however, prompted AAEM-PG to sue Envision, alleging that the private equity-owned corporation violated California's ban on the corporate practice of medicine. “After it acquires a practice and at all other times, Envision exercises profound and pervasive direct and indirect control and/or influence over physicians' practice of medicine,” said the suit filed Dec. 20.
It also noted: “California is the state in which defendants violated California's prohibition on the corporate practice of medicine, offered unlawful kickbacks in exchange for patient referrals, employed physicians on the condition they execute illegal restrictive covenants, and committed unfair business practices including false advertising. Plaintiff was injured by conduct occurring in and emanating from California.”
Robert McNamara, MD, the chief medical officer of AAEM-PG and a founder and a former president of AAEM, said the group had been looking to file these actions. “In most cases, it is up to the doctors who are harmed to step up and file suit,” he said. “In today's medical environment, they are afraid of being blacklisted if they do so.”
No Monetary Damages
The Placentia-Linda Hospital ED was part of AAEM-PG, giving it standing to file suit, Dr. McNamara said, but AAEM-PG is not asking for monetary damages. “We want to establish the principle that lay companies cannot run as a professional medical institution,” he said. “AAEM, to its credit, has voted to back this effort fully, to spend the resources and reserves needed to take it to its final conclusion.”
AAEM-PG was established to encourage independent practice by providing administrative and business services to emergency physician groups that staff emergency departments. They do not influence how medicine is practiced in the departments, Dr. McNamara said, but is in competition with larger contract management groups. “The essential issue here is lay control over the practice of medicine. It is all about the interests of the patients,” he said.
California, as do many other states, bars lay entities from owning physician practice groups, and the suit said Envision's business model and practice is to purchase, control, and create a separate legal entity for each hospital emergency practice or group of practices it controls. “The subsidiaries are managed and operated by people who are employed or directly connected to the parent corporation, Envision,” according to the suit. “A medical director of the physician entity is appointed, and the choice is made by Envision. Decisions are not made by the medical directors.”
One such group controlled by Envision is Glass Beach Medical Services, formed in 2016 by a physician practicing in Hawaii, according to the suit, which said none of the corporate officers listed on Envision's 2019 statement of information is licensed to practice medicine. That is the group that won the contract over AAEM-PG, the suit said.
“Envision exercises profound and pervasive direct and indirect control over physicians' practice of medicine,” the suit stated. “Such control diminishes physician independence and freedom from commercial interests, in violation of California's corporate practice of medicine ban.”
The suit noted that Envision decides how many and which physicians will be hired, their compensation, and their work schedule as well as establishing terms of employment, hours worked, staffing levels, number of patient encounters, and working conditions. The decision to terminate physicians' contracts rests with Envision, and the physicians are denied the right to appeal such decisions, the suit said, adding that Envision negotiates payor contracts with health insurers, but physicians do not know the terms of the contracts and must assign to Envision the rights to the proceeds of medical billings.
David Millstein, JD, the attorney for AAEM-PG, said Envision intruded on physicians' independence by controlling every aspect of it—billing, hours, pressuring to practice by benchmarking or other purportedly evaluative systems. “It also involves the acquisition of hospital contracts by cross-subsidization,” he said. “In our case, the hospital gave the contract from Placentia-Linda for the emergency department to Glass Beach while at the same time Envision agreed to provide a Tenet hospital with anesthesia services without a stipend.
“Contracts are supposed to be awarded to a group that does the best job, not only the one that helps the hospital defray costs,” Mr. Millstein said, noting that the suit also challenges the restrictive covenant in the Envision contract that limits the ability of departing physicians to bid for an Envision contract for one year. “That year may be critical to their ability to earn a living or remain in the same locale,” he said.
Dr. McNamara said it was particularly worrying that Envision had been acquired by the private equity firm Kohlberg Kravis Roberts, known as KKR. “It is clear that in order for private equity to obtain a 20 percent return on its investment, it has to maximize profits,” he said. “To make a lot of money in emergency medicine, you have to acquire more contracts. In addition, physicians may find themselves making less money and giving a shift a week to the private equity firm.”
Mr. Millstein said the suit asks for a judicial declaration that the Envision model is inconsistent with California law and cannot operate in this fashion now or in the future. “We hope this will establish a judicial precedent in California that other states will pay attention to,” he said, noting that several states have laws against the corporate practice of medicine, but in most cases, state attorneys general are unwilling to pursue such cases.
A spokesperson for Envision Healthcare said, “The company does not comment on pending litigation.” Its webpages make no mention of the corporate practice of medicine or of the practice groups that staff emergency departments. “The healthcare delivery system is changing,” it says on its webpage. “We know better than most because we're on the front lines of that change. As a partner who helps navigate the constantly evolving landscape of healthcare delivery, we are vigilant in working with you to identify opportunities to better serve our communities.”
The website continues: “Envision Physician Services is a problem-solving organization that understands how to improve quality while enhancing operational efficiency and managing cost. Our expertise enables our teams to respond to the needs of our hospital and health system partners. Our solutions can be tailored for any community and any challenge. In this way, we've become the preferred national medical group for clinicians and the health solutions partner for hospitals and health systems.” (https://bit.ly/3qFlrtZ.)
Ms. SoRellehas been a medical and science writer for more than 40 years, previously at the University of Texas MD Anderson Cancer Center, The Houston Chronicle, and Baylor College of Medicine. She has received more than 60 awards, including the Texas Human Rights Foundation Award. She has been a contributor to EMN for more than 20 years.