Fighting back: How to win the war against economic credentialing

Knowing the ins and outs of your hospital's rules and regulations can arm you for battle against the restriction of privileges for economic factors.

By Katherine Vogt — Posted March 28, 2005

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Carl Berasi, DO, and his colleagues knew they could be headed for trouble when they decided to build their own hospital near Columbus, Ohio.

The physicians had been negotiating with OhioHealth, a nonprofit hospital system, to create some sort of joint venture in orthopedic care. But Dr. Berasi said that after roughly two years, no agreement could be reached. So the orthopedic surgeon and nearly 30 other physicians decided to build their own musculoskeletal specialty hospital, the New Albany Surgical Hospital.

"They had made it very clear to us that if we attempted to do anything that competed with them, they would do everything they could to kick us off staff," he said.

In the end, many of those physicians did lose their privileges at OhioHealth's three Columbus-area hospitals. The system's board in July 2002 voted to kick out any physician who had invested in a competing facility, and at the time, OhioHealth representatives were explicit about saying the move was needed so it could protect itself again nonprofit competitors.

Some observers say the situation was a textbook example of economic credentialing, which is generally defined as hospitals granting privileges based on financial decisions instead of other qualifications. It also serves as an illustration of the different ways in which physicians can fight back in similar situations.

Experts say that although economic credentialing situations can be warded off by using the right prevention tactics, physicians should be aware of how hospital appeals procedures work and what legal action entails in case the occasion arises.

And although there has been mixed success in such efforts, knowing how such battles work could give physicians an advantage.

For Dr. Berasi and his colleagues, the situation worsened when OhioHealth's board adopted a resolution allowing the hospital system to restrict the privileges of any physicians who invested in competing, for-profit inpatient hospitals. OhioHealth leaders said the resolution was necessary to prevent conflicts of interest and insisted that it was not a case of economic credentialing.

There were numerous discussions between attorneys for both sides as the dispute escalated, Dr. Berasi said, but the talks were fruitless.

The hospital system ultimately held a hearing about revoking the physicians' privileges, but the doctors sued, alleging that they didn't get due process, among other things. But the physicians later dropped the action.

"We dropped the case only because we could win the battle and lose the war," said Dr. Berasi, board chair of New Albany Surgical Hospital, which opened in late 2003. "We decided we would be better suited making our hospital better with our time, energy and money than using it in court."

"Despite losing their privileges, [the doctors] are extremely positive and enthusiastic about their current prospects," he added.

What happened to the New Albany physicians is just one example of the type of circumstances that physicians would view as economic credentialing by hospitals. Economic credentialing could surface in a wide range of scenarios, although often it involves a situation in which a physician is perceived to be competing with a hospital.

"There is a whole continuum of scenarios ranging from those big-ticket activities like building an ambulatory surgery center to a doctor who has a very small lab in his office," said Bruce Johnson, a consultant with MGMA Health Care Consulting Group and a health attorney in Denver.

Hospitals have defended their right to policies excluding physicians who they feel are in competition with their facilities, arguing that such measures are necessary to protect themselves from competition and conflicts of interest. Along these lines, the American Hospital Assn. has said in court filings that hospital boards should have the ultimate authority over the governance of hospitals because they bear the responsibility for the business.

But just because physicians have competing business interests doesn't mean they will automatically lose privileges at their hospitals. Steve Messinger, a consultant and principal with ECG Management Consultants in Arlington, Va., said that is an extreme and rare measure.

"What we are seeing is an evolutionary process of hospitals trying to figure out on what grounds they are willing to let physicians compete with them," he said.

Some hospitals have enacted conflict-of-interest policies that require physicians to disclose potential competing interests.

Jeff Ellis, a health attorney with Lathrop & Gage in Overland Park, Kan., said that even though such policies have been around for years, they are now being eyed with some skepticism. "Now doctors are seeing that as the first step on a slippery slope to economic credentialing," he said.

And although some hospitals don't have strict economic credentialing policies for physicians on the staff, Johnson said, they might have policies preventing physicians with competing interests from serving in leadership positions.

Having a good understanding of policies and bylaws could help physicians prevent an economic credentialing situation, Johnson said, because "if you don't know what the rules are, you don't know when they are not being followed." He also recommends getting familiar with state law, which in some places could specifically ban economic credentialing.

Ellis said physicians also can prevent credentialing disputes by working with hospitals to develop guidelines about what financial disclosures are necessary and appropriate. "It behooves both parties to get it right," he said.

Good relationships key

One of the surest ways physicians can avoid trouble is by maintaining a good relationship with hospital leadership, said health attorney Francis J. Serbaroli, a partner with Cadwalader, Wickersham & Taft in New York.

"Try to collaborate with the hospital and not just go butting heads with them from step one. I think it's worth exploring with a hospital whether they would be interested in a joint venture. Or at least give the hospital, as a courtesy, a heads- up and do the politic thing and see what the opportunities are," he said.

But when that tactic doesn't work and privileges are on the line, Messinger said physicians should ask themselves whether a fight is warranted. "Physicians need to assess the risk of this," he said. "Not only the business risk, but part of their risk analysis has to be, 'What if this happens to me?' "

For physicians who primarily provide care in nonhospital settings, the privileges might not be worth fighting for, experts say. For others, protecting their ability to treat patients at a hospital is vital to their livelihoods.

If the situation has escalated to the point that privileges could be lost, observers say physicians should first try to negotiate with the hospital. And enlisting legal help could help the effort.

Though hiring an attorney could be a substantial investment, the alternative could be a much greater loss, said George C. Martin, MD, a pediatrician who now serves as a consultant for the Irving, Texas-based health care cooperative VHA.

"If push comes to shove, you could end up spending thousands of dollars for keeping your privileges," Dr. Martin said. "On the other hand, you could end up losing your livelihood if you don't."

Johnson said an attorney could help physicians review bylaws and procedures to check whether the hospital had violated any rules. This also should give physicians an idea of what their appellate rights are under the bylaws.

Ellis said most bylaws spell out the fair hearing process, which he described as "legalistic" in nature.

"There are various legal theories that a physician could apply to argue the validity of the hospital taking action on the information that they have. It may take a lawyer's help to identify the appropriate theory and apply it in the hearing," he said.

But if the hearing process is too intimidating, Ellis said, it might be appropriate to consider alternative dispute resolution involving a third-party mediator, which could take a day or two and often ends with an agreement being worked out at the table.

"Normally, it is less expensive and less time consuming than the hearing process and certainly less expensive than court action, which is ultimately where you may end up," he said.

The last resort might be the courtroom, but it can be an expensive, time-consuming endeavor with no assurances of success.

Indeed, past court cases create a fuzzy picture of whether courts tend to believe that hospitals have the right to engage in economic credentialing.

"It's frankly all over the place. Every state kind of has its own system," Ellis said. Some courts have upheld a hospital's right to revoke physicians' privileges in such cases, and others have ruled to protect physicians' rights to practice at those hospitals.

Johnson said courts historically have ruled that hospitals have the right to base credentialing decisions on business decisions. "For the most part, what the courts have said is that privileges are really not a right, they're a privilege," he said. But physicians also have prevailed, often by challenging whether hospitals followed procedural requirements.

Organized medicine can help

Some legal cases -- as well as some disputes that never made it to court -- have had assistance from organized medicine.

The American Medical Association has a protocol for how it responds to requests for help in such situations, and its litigation center and organized medical staff section have gotten involved in some disputes. The association also is developing guidelines about conflict-of-interest policies for medical staffs.

AMA President John C. Nelson, MD, MPH, said the Association believes physician credentialing should be done by peers using criteria such as the physician's education, training, licensure, certification of practice and quality issues -- not other economic criteria. He said physicians could benefit from uniting in their efforts to combat economic credentialing.

"The AMA recognizes that we're all in this together. An affront to a physician in one community has got to be recognized as an affront to physicians in all communities," Dr. Nelson said.

The issue is likely to grow more heated as physician ownership in health care facilities is more closely scrutinized by the government and as hospitals work to protect themselves under increasing financial pressure.

Johnson said many difficult battles could lie ahead.

"In today's environment, it's a highly charged issue, and as a result of that, it has the potential to be like anything that goes nuclear: There are no winners," he said.

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AMA policies on economic credentialing

  • The AMA opposes the use of economic criteria not related to quality to determine an individual physician's qualifications for the granting or renewal of medical staff membership or privileges.
  • The AMA (1) adopts the following definition of economic credentialing: economic credentialing is defined as the use of economic criteria unrelated to quality of care or professional competency in determining an individual's qualifications for initial or continuing hospital medical staff membership or privileges; (2) strongly opposes the practice of economic credentialing; (3) believes that physicians should continue to work with their hospital boards and administrators to develop appropriate educational uses of physician hospital utilization and related financial data and that any such data collected be reviewed by professional peers and shared with the individual physicians from whom it was collected; (4) believes that physicians should attempt to assure provision in their hospital medical staff bylaws of an appropriate role for the medical staff in decisions to grant or maintain exclusive contracts or to close medical staff departments; (5) will communicate its policy and concerns on economic credentialing on a continuing basis to the American Hospital Assn., Federation of American Health Systems, and other appropriate organizations; (6) encourages state medical societies to review their respective state statutes with regard to economic credentialing and, as appropriate, to seek modifications therein; (7) will explore the development of draft model legislation that would acknowledge the role of the medical staff in the hospital medical staff credentialing process and assure various elements of medical staff self-governance; and (8) will study and address the issues posed by the use of economic credentialing in other health care settings and delivery systems. (H-230.975)

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What to do

Here are a few tips from legal experts and consultants about how physicians can arm themselves against the threat of economic credentialing:

  • Familiarize yourself with any state laws or medical staff bylaws that affect credentialing.
  • Try to maintain a positive relationship with hospital leaders.
  • Assess the risk of challenging the hospital over privileges.
  • Consider hiring an attorney to negotiate with the hospital, help navigate its fair hearing process or weigh the pursuit of legal action.

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