Some states still prohibit hospitals from hiring doctors; physicians want to keep it that way

California and Texas are among states with bans. Hospitals want the right to hire doctors to address rural shortages, but physicians fear loss of autonomy.

By — Posted Aug. 3, 2009

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Medical associations in California and Texas have been battling legislation that would allow rural hospitals to directly hire doctors -- a move some physicians say threatens to undermine their independent medical judgment and hinder patient care.

Most states allow for direct hospital employment of physicians -- a growing trend in recent years as doctors increasingly seek more financial stability. California and Texas, however, are among only a handful of states that generally prohibit hospitals from employing doctors, under long-standing laws aimed at preventing corporate interference with the practice of medicine.

Hospitals have sought the right to hire doctors in the Golden and Lone Star states, saying the changes are necessary to recruit doctors to underserved areas.

The California and Texas medical associations don't dispute the need to address shortages. But they say there are other ways to recruit doctors without thwarting medical independence, such as reducing medical student debt and increasing residency slots.

The employment legislation proposed in California would do nothing to alleviate physician shortages, said Brett Michelin, California Medical Assn. associate director of government affairs. "It just changes the economics."

Instead, doctors on a hospital's payroll would be subject to administrators' rules on admissions, tests and referrals, rather than being free to make decisions based on patients' needs, he said.

"Physicians' sole interest is ethically to their patients. They don't have a legal duty to make the hospital money, and that's what we want to avoid," Michelin said.

If hired doctors are required to perform certain procedures at their respective hospitals, outside competition and patient choice may suffer, he added. And without adequate protections, hospitals may unfairly terminate nonemployed physicians' privileges to push a hired arrangement.

The CMA successfully lobbied for provisions that would prevent privileged doctors from being supplanted under a bill to create a pilot project allowing certain rural hospitals to hire up to five physicians for 10 years. But the CMA remains opposed to the overall measure, which cleared a state Assembly committee in July after passing the Senate a month earlier. Two other bills would have annulled the ban and allowed various rural hospitals to hire physicians and surgeons, but those measures failed.

In Texas, a hospital employment measure was defeated because it would have undermined the state's 2003 liability reforms, according to Gov. Rick Perry's veto of the bill in June.

The legislation would have permitted publicly run hospitals in counties with fewer than 50,000 residents to hire physicians. An undebated, last-minute amendment, however, threatened to increase those doctors' liability risks beyond the state's damage caps.

While generally opposed to the bill, the Texas Medical Assn. successfully lobbied for protections of employed doctors' clinical independence, as well as for due process safeguards for hired and nonhired physicians.

Concerns lingered that broad language in the bill would allow hospitals to justify employment beyond underserved areas. The CMA expressed similar apprehension to the proposal in its state.

Roughly 80% of Texas counties have fewer than 50,000 residents, said Dan K. McCoy, MD, chair of the TMA's legislation council.

"We recognize that rural Texas is really hurting. But putting corporations in control of the doctor-patient relationship is not the right answer," he said. "The local community's medical staff should be involved in determining whether there's actually a need for this."

But hospitals in Texas continue to lose physicians, particularly younger ones, to surrounding states that allow employment relationships, said Jennifer Banda, Texas Hospital Assn. senior director of government affairs. Because rural areas have fewer physicians, it's often difficult for them to meet the requirements to contract as a group.

Exceptions to the California and Texas bans allow teaching hospitals and federally qualified health centers to hire doctors. Physician groups also may contract with hospitals for services in quasi-employment arrangements.

The difference, said Dr. McCoy, is "doctors are still in control and there's a separation of that corporate power."

Issues include patient access to care

Hospitals and some physicians say allowing direct hospital employment not only would ease strains on access to care, it also would help relieve doctors of some of the financial and administrative burdens that keep them from focusing on patient care.

California Hospital Assn. spokeswoman Jan Emerson called California's prohibition outdated. The proposed changes don't "force doctors to do anything. This just gives them an option if they want to have a sustainable income, pay their debt, have their medical malpractice insurance covered and not deal with insurance company billings."

Emerson added that competition in rural areas is virtually nonexistent. "This is about access to care."

California hematologist and oncologist John Rochat, MD, runs his clinic out of Mendocino Coast District Hospital, where he was hired under a smaller pilot project launched in 2003. Working for the hospital is the only way he can afford to stock the chemotherapy drugs his clinic patients need, as well as pay for his own family's health insurance coverage. He dismissed the notion his administrators dictate how he practices.

If the proposed legislation fails, he will be out of a job next year, and the small rural hospital in northern California will lose its only cancer specialist.

"I would have to send patients hours away, they would have to stay in a hotel overnight, and [their] drivers not going to work that day. So the cost of that health care is phenomenal," Dr. Rochat said.

Financial pressures continue to drive more doctors to opt for hospital employment, said Medical Group Management Assn. President and CEO William F. Jessee, MD. But many still choose urban or suburban areas over rural regions.

Elizabeth A. Snelson, a Minnesota-based lawyer who represents medical staffs around the country, said hospital employment continues to affect the role and dynamic of the medical staff.

"There is a legitimate concern over the amount of influence the hospital can have over physicians, not just in the direct practice of medicine, but in the decision-making of the medical staff organization," she said. Staff bylaws should ensure that such authority is not limited to hospital employees and that hired doctors can exercise their votes without fear of getting fired, she said.

James Bentley, a senior vice president at the American Hospital Assn., said employment contracts help clearly define both the hospital's and physician's goals and expectations. He acknowledged that "no matter what the arrangement, getting physicians and hospitals to work together can create tension. But clearly, we are all being pushed to be more efficient and more effective, and that collaboration, sometimes to the point of employment, is changing relationships."

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