Tuesday, October 27, 2015

The Corporate Physicians' Dilemma - Three Hospital Systems Settle Cases Alleging Pressure on Employed Physicians to Refer Patients Within the System

Physicians are sworn to provide the best possible care to each individual patient.  Yet in the US, physicians increasingly practice as employees of large organizations, sometime for-profit corporations.  Physicians may be in a bind when their bosses pressure them to make patient level decisions so as to increase revenue, regardless of their effects on the patients.

In particular, physicians' oaths may suggest that patients who require referrals for consultation, diagnosis or treatment should go to the professionals and facilities best suited to their particular problems.  However, physicians bosses may want physicians to refer patients within their organizations.

Three recent cases illustrate this sort of bind for corporate physicians.  All cases involved large monetary settlements by hospital systems of allegations that they paid physicians incentives to refer patients within the system, apparently without regard to patients' needs.  They are discussed in roughly   chronological order of media coverage.

Broward Health  (North Broward Hospital District)

The reports of the settlement appeared in mid-September, 2015.

The Actual Settlement

According to the Miami, FL, Sun-Sentinel,

Broward Health, the taxpayer-financed system of hospitals and health care facilities, will pay $69.5 million to settle federal charges that it made illegal payments to staff physicians, using a secret compensation system that rewarded doctors for patient referrals and penalized them for accepting charity cases.

In addition, according to the Miami Herald,

Broward Health Chief Executive Dr. Nabil El Sanadi signed a 46-page Corporate Integrity Agreement with the Department of Health and Human Services (HHS) that requires the district to establish a compliance program. Among other things, the agreement imposes new duties on both commissioners and staff to monitor, report and certify that its financial arrangements with physicians and vendors meet federal requirements.

Note, however, that the Adventist system admitted only to "oversights."

Physicians' Incentives

According to the Sun-Sentinel, the filing by whistle-blower Dr Michael Reilly stated,

the hospital district maintained secret compensation records called Contribution Margin Reports for cardiologists, oncologists and orthopedic surgeons, who collected salaries of $1 million and higher. These records rewarded physicians for referrals to hospital services, such as radiology and physical therapy, and penalized them for taking on low-paying charity cases. Tying compensation to referrals could raise medical costs by generating unnecessary work and could compromise patient care, the lawsuit stated.

In one case, the lawsuit stated, orthopedic surgeons expressed concern about the quality of the hospital district's radiology and MRI services and tried to refer patients to outside providers. But they were pressured by the district's financial officials to keep the referrals within the district.

'Broward Health's scheme to overcompensate physicians in exchange for referrals over the last eight years has been a deliberate strategic plan to boost hospital admissions and outpatient visits for all paying patients, including patients with Medicare and Medicaid coverage,' the lawsuit states. 'Broward Health's financial strategists have personally profited from bonus payments based in part on hospital revenues.'

Furthermore, according to a later Sun-Sentinel article,

The title of medical director brought salary increases to several cardiologists at Broward Health, topping off pay packages that often went north of $1 million.

But according to a whistleblower's lawsuit that led to a $69.5 million settlement with the federal government this week, these doctors did little work for their extra compensation from the tax-supported hospital system.

The medical directors' contracts provided hourly compensation for work done in that position and required them to submit time records. One physician counted his personal exercise routine as his medical director's time, according to the lawsuit. Another double-dipped by counting time spent performing medical procedures that would have been performed anyway. Such 'medical director' jobs, the lawsuit said, were 'largely sham arrangements designed to boost physician compensation with little or no substantive work required in return.'
 Failure of Oversight

Also according to the Sun-Sentinel,

Reilly said he first learned of the compensation agreements when he considered taking a job with the district. When his lawyer saw the proposed contract, he told him to tear it up and stay away from such compensation schemes.

He said he brought up the issue in two public meetings and in a private conversation with the district's then-CEO, and was brushed off. He blamed 'the ignorance that made them interpret the law to fit their financial interests and the arrogance to think they could get away with it.'

Adventist Health System

This case came to light a few days later, as reported by the Orlando Sentinel, and was conceptually similar,

The Actual Settlement

In what's considered one of the largest health-care-fraud settlements involving physician referrals to hospitals, Adventist Health System is paying the U.S. government and four states, including Florida, a $118.7 million settlement.

A large portion of the settlement amount — $47 million — is based on allegations involving Florida Hospital Medical Group, which is owned by Adventist, and nearly three dozen Florida Hospitals in the state. That includes the Florida Hospitals in Orlando, Altamonte, Apopka, Celebration, east Orlando, Kissimmee and Winter Park.

Physicians' Incentives

Again from the Orlando Sentinel,

The complaints allege that Adventist initiated a corporate policy that directed its hospitals to purchase physician practices and group practices or employ physicians in their surrounding areas in order to control all patient referrals in those locations.

'To convince doctors to sell their practices to Adventist hospitals or to become hospital employees, Adventist hospitals allegedly provided excessive compensation, perks and benefits to the physicians,' according to the Phillips & Cohen complaint. 'The hospitals were willing to pay doctors more compensation than considered fair market value and absorb persistent losses in those deals because of the revenue the doctors' stream of referrals generated for Adventist from government healthcare programs and elsewhere.'

The complaint listed a number of ways Adventist allegedly rewarded doctors, including leasing a BMW and a Mustang for a surgeon; a $366,000 base salary for a family physician because of his high level of referrals for X-rays and blood tests; and a bonus of $368,000 for a dermatologist who worked only three days a week.

 To conceal this and avoid refunding payments, the health system then falsely said that the services identified in its annual cost reports were in compliance with the federal law, the lawsuits allege.

Failure of Oversight

Sherry Dorsey, who joined Adventist in 2012, was a corporate vice president whose responsibilities included oversight of physician compensation, and she found widespread problems with how the nonprofit health system compensated doctors who referred patients to Adventist hospitals, according to a statement by Marlan Wilbanks of Wilbanks & Gouinlock in Atlanta who represented Dorsey.

She complained to top health-system officials 'to no avail,' said Wilbanks.

More details  about the goings on at the local Adventist owned Park Ridge Hospital were reported by the Asheville (NC) Citizen-Times,

Hospital executives knew about serious billing and miscoding problems on Medicare and Medicaid cases, as well as overcompensation of doctors, and one executive even expressed concerns about possible jail time, terming as 'insane' the amount of money Park Ridge would owe the federal government if overbilling came to light.

Tuomey Healthcare System

This case has been in the works for years, but an apparently final outcome was announced in October, 2015.

The Actual Settlement

 As reported by the Charleston (SC) Regional Business Journal,

The Justice Department said it has resolved a $237 million judgment against Sumter-based Tuomey Healthcare System for illegally billing the Medicare program for services referred by physicians with whom the hospital had improper financial relationships.

Under the terms of the agreement, the United States will receive $72.4 million....

Unlike the other two cases, this one involved a jury finding of guilt,

On May 8, 2013, after a month-long trial, a South Carolina jury determined that the [hospital's contracts with physicians]  ... violated the Stark Law. The jury also concluded that between 2005 and 2009 Tuomey had submitted 21,730 false claims to Medicare with a total value of $39,313,065.

On Oct. 2, 2013, the district court trebled the actual damages and assessed an additional civil penalty under the False Claims Act in favor of the United States for a total of $237 million.

The United States Court of Appeals for the Fourth Circuit affirmed the judgment on July 2.

Having to pay the $237 million fine would force it to file for bankruptcy, Tuomey officials said.

The Physicians' Incentives

 The case arose from a lawsuit filed on Oct. 4, 2005, by Michael K. Drakeford, an orthopedic surgeon who was offered, but refused to sign, one of the illegal contracts.


 The government argued that Tuomey, fearing that it could lose lucrative outpatient procedure referrals to a new freestanding surgery center, entered into contracts with 19 specialist physicians that required the physicians to refer their outpatient procedures to Tuomey and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey received from Medicare for the referred procedures.

Failure of Oversight

The government argued that Tuomey ignored and suppressed warnings from one of its attorneys that the physician contracts were 'risky' and raised 'red flags.'


In the US, physicians increasingly practice medicine as employees, often of large organizations, rather than as individual professionals or within professional groups.  Such employed practitioners must answer to leaders who are now usually generic managers rather than health care professionals.

In three recent legal cases, there was evidence that a hospital system provided financial incentives for employed physicians to refer patients within the system, apparently without regard to the appropriateness of such referrals to individual patients.  In several cases, hospital management ignored physicians' protests, or lawyers' or even their own middle managements' warnings.  In one case, hospital middle managers seemed to acknowledge the problematic nature of physician's incentives, but seemed powerless to protest to higher managers.   In one case, there was a jury finding of violation of US law.

These three cases, all announced within a few weeks, suggest that US hospital system management may frequently push employed physicians to keep referrals within the system , regardless of  individual patients' conditions or needs.  The reason may be to increase system revenue, and sometimes to increase the managers' own compensation.

This is another reason to think that the corporate practice of medicine, which was once banned in the US, is an increasing threat to physicians' values and an increasing cause of health care dysfunction.

Dr Arnold Relman reminded us that physicians used to shun the commercial practice of medicine (look here).  Physicians and other health professionals who sign on as full-time employees of large corporate entities have to realize that they are now beholden to managers and executives who may be hostile to their professional values, and who are subject to perverse incentives that support such hostility, including the potential for huge executive compensation

Neoliberals promised us that treating health care like a business, and an unregulated one at that, would lead to a new golden age.  The age has been golden, but mainly for the top managers of corporate medicine. 

The recent flurry of cases alleging that corporate physicians may be pushed by management into inappropriate referrals to make more money for their employees is another reason to rethink whether corporate practice of medicine should again be banned


Bernard Carroll said...

You could call this gaming the system by treating patients as commodities.

Anonymous said...

Widespread strategy of the hospital system behemoths who have purchased practices.

Anonymous said...

I can tell you that this is common practice in Pittsburgh, birthplace of corporate medicine. Look at the shameful battle of titans there now, made possible by years of preying on the populace under the watchful eyes of both political parties.

Judy B said...

I despair for the medical profession. What once was a noble calling has become another (corrupt) big business whose main mission is to extract everything of value that they can from the poor slobs who get caught in their nets.

How do the physicians who have sold their practices extract themselves from the current situation? It is a difficult situation as I am sure that their contracts have non-compete clauses which will prevent them from quitting and then, reopening a private practice.

Sean Orr, M.D. said...

There is no extracting yourself from such an arrangement, it's a Faustian bargain. Once you are sucked in, the only way out is for it to blow up in everyone's face. And blow up it will.

Hospital administrators lure doctors into such arrangements, believe it or not, with promises of doing a better job for the community, not by the simple appeal of money itself. This carrot is also accompanied by a sizeable stick - if you stay out there on your own, outside of the protection of the hospital, you will be battered about by the third party payers, the malpractice carriers, the plaintiff attorneys, and the regulators. Alone, a doctor has about as much protection as a raft caught in a hurricane - there are no hatches to batten down. So best to take shelter on the mother ship, where you'll be protected.

Except that there is no protection. The mediocre mid-level managers play you for a fool and use you, a highly skilled physician, as cannon fodder in their petty battles. You get treated like a functionary, a cog in the wheel, a cat to be herded. And God help you if you should try to actually institute strategies that introduce real value into the system. Quality divided by cost? Not in their playbook.

So when the Government enforcers come calling - and they will - be prepared for all of your gallant efforts to be intentinally misconstrued in one big, horrible miscarriage of justice. Your attempts to reduce costs and optimize the system will be thrown back in your face and used as leverage to obtain a settlement. After all, someone has to subsidize this new Medicaid expansion, why not the doctors?

And of course, these settlements must be publicized widely, for this is how the bureaucrats earn their props. Never mind that you, a physician, a steward of the community, are opened now to the pitchfork-wielding mobs. Only these days, pitchforks would be preferable to the effects of social media. Attacks on Twitter, Facebook, front page headlines, local television news, your front yard, and even national prime time news which, naturally, shame you into submission and damage your career beyond repair, cripple your social life, and all but eliminate your family from society.

Working as a hospital-employed physician is a sure way to end up getting spit out of medicine. I would not recommend it for anyone. Not even for the doctors I don't like.

Anonymous said...

Doctoring is becoming like lawyering preying on those who find themselves in unfortunate circumstances. There vultures are like the antithesis of community.

Anonymous said...

were any of these physicians personally liable for breaking the law? That's the way to end this..when it hurts their pockets.