Mediate, Don't Litigate: Hospital, Physicians Avoid Courthouse Showdown

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Law Feature - November 2006  

By  Crystal Conde
Associate Editor  

Dragging your hospital administrators to the courthouse to resolve a dispute may be tempting, but it may be more trouble, not to mention expensive, than it's worth. Aside from the astronomical costs of a lawsuit, you'll have to contend with an increasingly tense relationship with administrators and board members, lose time caring for your patients, and face the unpleasant possibility that you have a case the meanest lawyer couldn't win.

Jumping into litigation, however, isn't always necessary. Physicians and administrators at the Brazosport Regional Health System (BRHS) in Lake Jackson chose mediation over litigation to resolve a dispute. The flash point was the conflict-of-interest policy the hospital adopted after some BRHS doctors opened their own surgery center. Both sides now encourage other health care professionals to follow their lead. 

Thorn in the Side  

In 2006, a group of physicians opened Brazoria County Surgery Center, a physician-owned outpatient surgical facility that has 10 physicians and specializes in urology, neurosurgery, orthopedics, general surgery, and pain management, about 10 miles from BRHS. That prompted the hospital's board of directors to hire an attorney to help clarify the hospital's conflict-of-interest policy.

The existing policy prohibited investors in a competing facility from serving on the hospital board or in a leadership position on the Medical Executive Committee. Thus, nine physicians who owned a stake in the surgery center could not be departmental chairs or chair the Medical Executive Committee.

Lake Jackson otolaryngologist Bruce Meyers, MD, and other hospital physicians weren't at all happy with the prohibition. Dr. Meyers is not an investor in the surgery center, but he is a member of the BRHS Joint Conference Committee that reviews quality assurance issues involving the medical staff and acts as an intermediary between the board and the medical staff.

"When the board adopted that policy, the medical staff said, 'This is not a viable position. We do not want to exclude our busiest, hardest-working physicians from leadership positions,'" Dr. Meyers said. "We took a stand that remained a thorn in both of our sides for a number of months. Because we couldn't resolve this, the hospital board appointed a committee of three administrators, and the medical staff appointed a committee of three physicians to get together to try to work out our differences."

In hopes of avoiding legal action, Dr. Meyers turned to the Texas Medical Association for advice. Donald P. Wilcox, JD, TMA's general counsel, suggested working with a mediator to resolve the disagreement.

An Acceptable Outcome  

Dan Buche, president and chief executive officer of BRHS, hired The Greeley Company, a Massachusetts-based mediation company. Richard Hoerl, PhD, senior consultant, and Mary Hoppa, MD, MBA, physician consultant, interviewed hospital officials, the physicians involved with the surgery center, and the medical board over three days in July. In addition, they conducted a seminar about both sides' common interests and what they could do to resolve the matter.

The mediators recommended excluding competitors from the hospital board, but said there was no reason to keep them out of leadership positions so long as they excused themselves from financial and long-range planning discussions.

"That was a good compromise for the board and for the medical staff," Dr.  Meyers said. "We may not have gotten everything we wanted, but it's a policy we could live with."    

The revised policy allows investors in surgical, diagnostic, and acute care facilities within the BRHS service area to hold leadership positions as long as those positions don't result in automatic promotion to membership on the board of directors. All parties also agreed that physicians with an ownership interest in a competing facility can serve on department committees and as department chairs, but must recuse themselves when issues of conflict arise.

"Mediation stressed the common goals the medical staff and hospital board have," Dr. Meyers said. "There's a huge difference in our last two board meetings and the amount of cooperation between the medical staff and hospital board. We're much more willing to cooperate on issues. It really was an exercise in building teamwork. That wouldn't have happened with arbitration or a lawsuit."

Mediation not only opened the channels of communication for BRHS, but it also was far less costly than litigation. According to Mr. Buche, the hospital paid The Greeley Company about $50,000. 

Pressure to Succeed  

How much authority hospitals have to limit participation on executive committees or boards by physicians who own competing facilities is a matter of debate.

Texas Hospital Association (THA) General Counsel Charles Bailey, JD, says state law prohibits hospitals from restricting physicians' privileges just because they might have privileges at another facility. TMA supported the law, Mr. Wilcox says, after a case in which a medical group practice faced the threat of having to break up because it provided hospital-based medical services to competing hospitals in the same community. 

The law, however, doesn't address situations in which physicians have privileges at a community hospital and own an interest in a competing facility. Mr. Bailey says ambiguity over physician ownership in the law leaves an open question: Could a hospital exclude, through its conflict-of-interest policy, physicians on its staff who own an interest in a competing hospital?

As hospitals increasingly feel pressure to compete with physician-owned facilities, doctors encounter challenges to their ability to operate a successful institution. And not all hospital systems and physicians are able to reach a resolution. 

For example, in June, two groups of physician investors filed a lawsuit in state court against Memorial Hermann Healthcare System. The physicians allege Memorial Herman pressured insurance companies not to contract with physician-owned Houston Town & Country Hospital. After operating for less than one year, Town & Country had to close early this year due to financial failure. The trial is scheduled to begin in late January. 

Rules of Fair Play  

According to THA, as of March 2006, Texas was home to 58 physician-owned hospitals, with approximately 25 proposed or pending. Nationwide, the number of physician-owned specialty hospitals nearly doubled from 46 in 2002 to 89 in 2004, according to the Medicare Payment Advisory Commission (MedPAC).

Critics of physician-owned specialty hospitals often claim that the facilities neglect to provide charity care and that Medicaid patients are sent to community hospitals. Physicians have even been accused of cherry-picking better-paying patients and referring them to the hospitals in which they have an ownership interest.

"Cherry-picking certainly has to be addressed as a concern," said Arlo Weltge, MD, a Houston emergency medicine physician and chair of TMA's ad hoc committee on physician-hospital issues. "However, the evidence isn't clear that it's being done. Secondly, there are a variety of reasons why different patients go to different places," he said.

The MedPAC study found that specialty hospitals do treat smaller shares of Medicaid patients than their competing community institutions. Three percent of patients discharged at physician-owned heart hospitals and 2 percent of those discharged at physician-owned orthopedic and surgical hospitals received Medicaid coverage. Competitor community hospitals in the same markets held a 13-percent share of Medicaid patient discharges.

The study does provide a possible reason for the difference in Medicaid patient share, stating that some community hospitals may draw more Medicaid patients because they offer services specialty hospitals may not provide, such as obstetrical care.

THA's Mr. Bailey recognizes that it's difficult to know why a physician may choose to send charity care or Medicaid patients to community hospitals.

But Dr. Weltge says physician-owned hospitals have an opportunity to meet the needs of underserved areas and are able to provide equitable care to patients, regardless of their insurance status. He cites Austin Heart and the Heart Hospital of Austin as examples of Texas physician-owned facilities that reach out to surrounding communities. (See " Hospitals, Physicians Take Community Outreach to Heart.")

Mr. Bailey says THA doesn't oppose physician ownership, but it is concerned with potential conflicts of interest when a physician owns a facility and then makes referrals.

TMA advocates responsible physician ownership and believes physicians should fully disclose any interest in a facility to which they refer patients. TMA's policy states physician-owned entities should adhere to all state and federal regulations; provide appropriate credentialing of physicians, clinical, and support staff; perform systematic, ongoing monitoring of utilization and quality; and adhere to relevant TMA and American Medical Association ethical guidelines including adhering to responsible ownership policy.

State hospital licensing rules also apply to physician-owned facilities. (See " Physicians Required to Disclose Hospital Ownership Interest.")

Dr. Weltge says that as long as appropriate business rules and disclosures occur, the owner of the facility shouldn't be the concern. Instead, the concern should be whether resources are appropriately used in the community's best interest.

"Physicians started hospitals. Physicians understand patients' needs," he said. "Physicians, in many respects, are in the best position to understand what their patients need and are really in the position to provide the service to the patient. But it does need to done fairly and equitably."

Crystal Condecan be reached at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email at Crystal Conde.  


Physicians Required to Disclose Hospital Ownership Interest

The Texas Administrative Code requires a hospital to provide, upon initial license application and license renewal:

  •  The name and Social Security number of the sole proprietor, if the applicant is a sole proprietor; 
  •  The name and Social Security number of each partner who is an individual, if the applicant is a partnership; 
  •  The name and Social Security number of any individual who has an ownership interest of more than 25 percent in the corporation, if the applicant is a corporation; 
  •  The names and license numbers of any physicians licensed by the Texas Medical Board who have a financial interest in the applicant or any entity that has an ownership interest in the applicant, if the applicant is a niche hospital. 

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Hospitals, Physicians Take Community Outreach to Heart

Physician-owned hospitals often get a bad rap when it comes to providing charity care and serving the Medicaid population. But physician-led institutions can and do pledge resources and commit their services to assist underserved residents.

Founded in 1998, four years after the merger of Austin Cardiovascular Consultants and Austin Heart Associates (AHA), the Heart Hospital of Austin has been rated the No. 1 overall cardiac program in Texas for four consecutive years by Health Grades Inc.

The hospital and its physicians reach out into Central Texas communities through volunteer efforts.

AHA physicians donate their services each year at the Heart Hospital's Championship Hearts program to screen high school athletes to identify heart irregularities. In addition, the hospital coordinates blood pressure clinics and holds free heart attack education courses for the Austin-Travis County EMS Department.

With offices and clinics set up throughout Central Texas, AHA physicians practice in many rural communities. AHA President Matthew Phillips, MD, for example, drives 60 miles twice a week to practice at the Lampasas clinic.

AHA invested $10 million in overhead costs associated with salaries, office space, and services purchased last year in rural Texas communities. Dr. Phillips says the practice can make such an investment only because of its affiliation with the Heart Hospital of Austin.

And that partnership allows physicians in rural areas to provide 24-hour service with rapid transfer of patients to the Heart Hospital of Austin, which has a fully functioning 24-hour emergency room.

"Physicians never ask, 'Does the patient have insurance?' They only ask, 'What does the patient weigh for the helicopter, and what room is the patient in?'" Dr. Phillips said.

According to Heart Hospital of Austin President and Chief Executive Officer David Laird, the hospital has averaged $5.1 million the past five years in uncompensated care, bad debts, and charity care. Mr. Laird says the hospital's contribution to the community is even greater when factoring in the $1.5 million in property taxes paid this year.

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Last Updated On

June 09, 2016

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