Economic credentialing policy struck down by Arkansas high court

Justices rule that the state's largest hospital system was not justified in denying staff privileges to physicians who owned shares in a rival facility.

By Amy Lynn Sorrel — Posted Oct. 18, 2010

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Arkansas' highest court unanimously rejected a hospital system's economic credentialing policy, saying the facility was unjustified in denying staff privileges to a group of physicians with an ownership stake in a competing specialty hospital.

The Arkansas Supreme Court upheld a 2009 trial court decision that found Baptist Health's policy of restricting privileges based on financial concerns interfered with patient-physician relationships and suppressed competition, in violation of state laws.

Little Rock-based Baptist, the largest hospital system in Arkansas, instituted its economic conflict-of-interest policy in 2003, causing 12 staff cardiologists who owned a competing specialty heart hospital to lose their privileges. The physicians sued. The high court's final ruling permanently bars Baptist from enforcing its policy.

"Baptist's motive was to discourage competition by physicians who considered investing in specialty hospitals, and Baptist wanted to force patients to choose between it and [their doctors]," the Sept. 30 opinion stated. "The [plaintiffs'] interest was in patient-physician relationships and continuity of care, which outweighed Baptist's interest in protecting its economic viability because no evidence supported Baptist's purported need for the policy."

The court also rejected Baptist's arguments that the doctors' case was invalidated by a 2008 federal appeals court decision dismissing a separate antitrust lawsuit brought by the physician investors in the Arkansas Heart Hospital.

Representatives of organized medicine say the ruling affirms the sanctity of the patient-physician relationship and helps to promote quality care by encouraging competition and patient choice. Policies like Baptist's serve only to restrict patient care, not protect it, said American Medical Association President Cecil B. Wilson, MD.

"Patients benefit when physicians have admitting privileges at multiple health care facilities," giving patients the option to choose a place that best suits their needs, he said. "The primary factor in credentialing physicians should be competency, not economic factors unrelated to quality."

The AMA and the Arkansas Medical Society joined the case as plaintiffs. The Litigation Center of the American Medical Association and the State Medical Societies contributed to the physician plaintiffs' legal expenses.

Impact of the ruling

The decision is believed to be the first of its kind by a state Supreme Court and probably will guide courts nationwide in deciding the validity of hospital economic credentialing policies, said Jack R. Bierig, who represented the AMA and AMS.

"Other forms of economic credentialing are going to have to be decided on a case-by-case basis as to whether they are consistent with the laws of that state. But this is the first and strongest case that says hospital policies based on economic interests will be scrutinized, and if the hospital goes too far, [the policy] will be struck down," said Bierig, a health law and policy professor at the University of Chicago Law School. "Courts are going to have to look at what is the justification offered by a hospital; is the policy narrowly tailored to meet that justification; and does [the policy] give physicians an opportunity to present their case."

In a statement, Baptist said it had an "absolute right" to have a conflict-of-interest policy, noting that the practice was commonplace in other industries. The hospital system said it is evaluating the ruling to determine its next steps.

Baptist had argued that its policy was aimed at protecting patients from potential conflicts when physicians refer to their own facilities, and that such actions can undermine hospitals' livelihoods when they are left with unprofitable charity care.

"Certainly, patients have a right to be treated where they want," said Elisa M. White, vice president and general counsel at the Arkansas Hospital Assn., which was not involved in the case.

But concerns about the potential for physicians' outside interests to interfere with their treatment decisions have been raised by the health care industry at large, White said. Although the Supreme Court agreed that "society has a strong interest in Baptist's continued viability, the evidence showed that its finances were never at risk. These factors, and others, led to the [trial] judge's ultimate finding that Baptist had acted improperly."

Justices did, however, reverse a portion of the lower court ruling that Baptist's policy violated the state's Deceptive Trade Practices Act.

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