Hire Authority: TMA Opposes Hospitals Hiring Physicians

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Legislative Affairs Feature - September 2009  


Tex Med. 2009;105(9):15-18.  

By  Ken Ortolon
Senior Editor  

Rio Grande City family physician Antonio Falcon, MD, says the dearth of physicians in rural counties along the Texas-Mexico border is becoming desperate.

"We're experiencing a severe manpower shortage, and it appears that it is going to get much, much worse in the near future," Dr. Falcon said.

That's why he supported House Bill 4670 by Rep. Ryan Guillen (D-Rio Grande City) that would have allowed hospitals in counties of fewer than 100,000 residents that border Mexico to hire physicians.

Representative Guillen's legislation was one of nearly two dozen bills filed during this year's legislative session that would have allowed hospitals in rural and underserved counties to employ physicians directly. Those bills and a broader measure that would have allowed rural hospitals across the entire state to hire doctors prompted considerable debate within organized medicine. While Dr. Falcon and other rural physicians supported those efforts, the Texas Medical Association raised concerns that such employment could endanger the sanctity of the patient-physician relationship.

Family physician Stefan Walker, MD, of Refugio, says employment might work out fine with a "benevolent" hospital administrator who cares about patients . "But what happens when you get a real jerk, which inevitably is going to happen someday, who doesn't care about patients, just about the hospital's bottom line?" he asked.

Throughout the legislative session, TMA, the Texas Organization of Rural & Community Hospitals (TORCH), the Texas Hospital Association, and other interested groups were engaged in negotiations on Senate Bill 1500 that would have allowed direct employment of physicians in underserved areas, while providing strict safeguards to prevent interference with an employed physician's clinical autonomy. That bill ultimately failed but a revised version was added to HB 3485 by Rep. Garnet Coleman (D-Houston) and passed late in the session. The language amended into HB 3485 would have limited the ability to directly employ physicians to government-owned hospitals in counties of less than 50,000 population.

However, Sen. Robert Duncan (R-Lubbock) added a last-minute amendment - that had neither been discussed with TMA or vetted at any public hearing - that would have severely weakened the 2003 medical liability reforms that TMA fought hard to achieve. Under existing law, the damages cap for medical liability lawsuits against government-owned hospitals would generally be $100,000 or $250,000 for each person, depending on the type of governmental entity involved. With the proposed amendment, the total cap on damages would typically be $100,000 per person for the rural hospital and $250,000 for each physician defendant.

The precedent of the proposed per-defendant cap formula, as included in the bill, would have potentially placed in jeopardy the $250,000 cap on noneconomic damages for nongovernmental entities, which is based on each claimant. Under the 2003 tort reforms, a "claimant" clearly encompassed the claims of all potential plaintiffs claiming damages for a particular injury. Thus, any attempts to stack or multiply the claims by the number of potential plaintiffs or defendants are precluded under current law.

In addition, according to Donald P. "Rocky" Wilcox, JD, TMA general counsel, the bill did not prevent the hospital or its insurer from seeking indemnity for any payments or expenses incurred as a result of a professional liability claim. The proposed amendment also would have exposed small government-owned hospitals to tort risks way beyond those of larger facilities, TMA President William H. Fleming III, MD, said in urging Gov. Rick Perry to veto the bill. The governor agreed and vetoed the bill on June 19.

While TMA applauded that veto, the association also promised to work with lawmakers and rural hospital representatives to address physician shortages in rural Texas.

"TMA will continue to work with state leaders to craft a consensus plan for the 2011 legislative session that more effectively addresses the problem of underserved areas and protects patient care and access," Dr. Fleming said. 

Employ Me  

Organized medicine and rural hospital officials agree on the need to attract more doctors to underserved areas. Texas, as a whole, has fewer physicians per 100,000 residents than the national average, and the ratio in rural counties is even lower than the Texas average. Roughly 14 percent of the state's population lives in rural areas, but only 7 percent of its physicians practice there.

Josie R. Williams, MD,   immediate past president of TMA and director of the Rural and Community Health Institute at Texas A&M University Health Science Center, cites several reasons for physician shortages in rural Texas, beginning with a bad payer mix.

"The issue is that in rural Texas the pay source for both physicians and hospitals is primarily no pay, Medicare, and Medicaid," Dr. Williams said. "And as those programs get squeezed more and more, everybody's having a harder time covering their overhead."

Don McBeath, director of advocacy for TORCH, says rural hospital administrators see direct employment as an enticing solution to the problem, not because they want to hire doctors, but because many of the physicians those hospitals are trying to recruit actually want to be employed.

"What was happening was more and more physicians were telling the hospital and telling the community leaders who were recruiting them that they want to be an employee of the hospital," Mr. McBeath said.

He says there are two major reasons for that trend. First, many of those physicians were recruited from other states where direct employment of physicians is allowed.        

The second reason is that more young physicians don't want the hassles of running their own practice. "They don't want to be bothered by the issues that go with running a practice or take the financial risk, but rather they want a fixed paycheck and insurance and retirement, defined benefits," Mr. McBeath said. "Their attitude is basically let me come and treat patients and you pay me."

TORCH and proponents of physician employment often refer to a survey conducted by the West and East Texas Area Health Education Centers (AHECs) in support of the proposition that physicians desire employment. However, a closer look at the AHEC survey indicates that 75 percent of family and internal medicine residents "would prefer to be an employee of a hospital or other health facility" and that 64 percent would prefer "a group practice arrangement," a decidedly more traditional and accepted form of physician employment.

This viewpoint is supported by Texas' broader physician workforce. In a statistically valid survey of physicians done by TMA in April, 89 percent said maintaining the current prohibition against direct employment of physicians by hospitals or other nonphysicians should remain a TMA priority.

When asked to rate various types of physician employment arrangements, an overwhelming majority preferred employment in an established physician practice with a subsequent option to buy in to ownership. Half of the respondents said employment by a hospital was least desirable, and only 4 percent said it was the most desirable option.      

Texas law actually offers hospitals an existing mechanism for employing physicians through a nonprofit health corporation (formerly known as a 5.01(a) corporation). A nonprofit health corporation is a not-for-profit organization authorized under the Medical Practice Act that must have a physician board of directors. Hospitals and other organizations may be "members" (i.e., owners) of a nonprofit health corporation. The nonprofit health corporation may, in turn, directly employ physicians if certain other requirements are met that are designed to ensure that the clinical aspects of the practice are controlled by physicians licensed in Texas.

While a number of hospitals and hospital districts have set up such corporations, Mr. McBeath says that option is too expensive for some districts, while some communities do not have enough physicians to meet the requirement that at least three physicians sit on the corporation's board of directors.

However, in a March 16 letter to Sen. Royce West (D-Dallas), chair of the Senate Committee on Intergovernmental Relations, Austin health care attorney Ivan Wood, JD, said the cost of creating a nonprofit health corporation was only about $7,500, including a review fee charged by the Texas Medical Board (TMB).

TORCH also argued that TMB rules governing nonprofit health corporations prohibit hospitals that set up such not-for-profit entities from offering similar pension and health benefits to physicians that they provide to other hospital employees.

Mr. Wood had opined that physicians generally prefer a differently tailored set of benefits than are generally provided by hospitals. 

Keep It Sacred  

Even if a growing number of physicians see hospital employment as an attractive alternative to running their own practice, Dr. Williams sees huge potential for harm to the patient-physician relationship.

"If an employer is paying me, then my duty of loyalty to my employer can conflict with my fiduciary duty to my patients," said Dr. Williams, who testified on behalf of TMA during legislative hearings on these bills. "It's an issue of clinical autonomy and the ability to really take care of patients."

She says she has seen firsthand through her work with rural hospitals here in Texas, as well as with the Joint Commission and other organizations, how hospital administrators can pressure physicians.

"It happens all over this country where there is tremendous pressure from your employer to do what's best for the facility rather than what's best for the patient in front of you," she said. "We have to keep the physician-patient relationship sacred and prevent that undue influence."

In the April TMA survey, 82 percent of physicians either strongly agreed or agreed that independence of medical judgment is at risk when nonphysicians employ physicians. And, 81 percent said hospitals can engage in unfair price competition with other physicians in the community and drive independent physicians out of business.

"Of course, if the hospital owns the practice or employs the physician, it is incentivized to make the medical practice a success, both economically for the practice and economically for the hospital. This preferential treatment can include referral policies, priorities for operating room scheduling, leadership positions on the medical staff, exclusive contracts for employed physicians or owned practices, and other benefits," said Mr. Wilcox.

Acknowledging these issues, TMA worked hard in negotiation with TORCH and others to build safeguards into SB 1500, a version of which was subsequently amended onto HB 3485. The language would have allowed only government-owned hospitals in counties of less than 50,000 population to employ physicians. The amendment language also included some measures to protect physicians' clinical autonomy and subjected any questionable decisions by hospital administrators that interfered with that autonomy to review by TMB.

While Dr. Williams says although she was not "wholly satisfied" with the negotiated language, she could have lived with many of the negotiated terms until the anti-tort reform provision was attached.

TMA was generally satisfied with the bill's protections for clinical autonomy but was concerned that it extended employment to a number of larger facilities. TMA would have preferred that the bill be more narrowly drawn to target the smallest hospitals - 50 or fewer beds - in the smaller communities or those facilities and communities most in need of attracting additional physicians.

Mr. McBeath also says TORCH was not totally happy with the measure. "What we were concerned with was creating a situation where there were so many rules and regulations and oversight that it was so onerous that it would just die under its own weight, that it would be too complicated and cumbersome for the average rural hospital to deal with," he said. "But we also felt like if that would give the Texas Medical Association and physicians a higher comfort level, we were certainly willing to look at those." 

Going Forward  

On the heels of the governor's veto of HB 3485, Dr. Fleming promised that TMA would work with other stakeholders to address rural physician shortages. One measure that should help is the expansion of the Physician Education Loan Repayment Program approved by the legislature this year (see "Relieving the Debt").

The expanded program will pay off up to $160,000 of a physician's medical school debt in return for four years of practice in rural and underserved areas. That program could bring as many as 225 physicians each year into rural Texas, according to the Texas Higher Education Coordinating Board.

In any event, Dr. Walker of Refugio says there are other arrangements that could help rural counties attract doctors that don't involve direct employment. He practices under a contract with the Refugio County Hospital District that pays him a stipend on top of what he bills paying patients and their insurance carriers. The arrangement, he says, lets him maintain his clinical autonomy while maintaining a viable practice that is heavily Medicaid and Medicare patients.

"I think my arrangement is one that could be emulated across the state rather than going to direct employment," he said. "I think that would be a dangerous trend."

Dr. Williams says the "long-range" solution is to train physicians "who want to live and practice in a small town."

Medical educators have suggested that medical schools need to target students from rural areas who would be more likely to return to a rural area to practice.

Mr. McBeath says TORCH welcomes further discussions on the issue.

"It's an issue that needs to be revisited in the next legislative session," he said. "Hopefully in the meantime, all interested parties can begin to better understand the problem and potential solutions."

TMA also is looking at other steps, including exploring regulatory options with TMB, initiating discussions with lawmakers and hospital administrators, and creating a blue ribbon committee of physicians on both sides of the issue to study potential solutions. 


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