American Academy of Emergency Medicine

Emergency Physicians Resist Takeover of EPMG

by Robert McNamara, MD FAAEM

You may have read the front page article in EM News about the EPMG deal in California. AAEM has been very active in this issue and has sent the following letter to EM News following that article's publication. It is reproduced here to give you a better idea of what we're doing on your behalf.

To the Editor:

The article in the March 1998 issue regarding the purchase of EPMG by Catholic Healthcare West (CHW) entitled "Vertical Integration: The Newest Wrinkle in EM?" deserves comment. With a bit more exploration of the facts this piece could easily of have been titled "Vertical Integration: Extreme Risk for Emergency Physicians." The article only addresses one side of the issue from the view of Drs. Wong and Fickensher. It is not disclosed that Dr. Wong stands to reap a huge windfall on this sale (several million dollars according to physicians close to the deal). Dr. Fickensher represents the financial interests of CHW. There is no voice of the practicing EPs who will be directly affected by this deal. Those voices have been heard by the American Academy of Emergency Medicine (AAEM) and we have acted on their behalf.

What concerns AAEM is the fate of the independent groups of EPs in the CHW system who are not currently under the control of EPMG. The plan is to force them to join the MSO entity formed out of the EPMG purchase. CHW will essentially be setting up a PPM much like MedPartners and other publicly traded groups with the significant exception that it will be hospital and not investor owned. The deal will likely be for 30 years for more and it will mean that the MSO will extract a percentage of the net professional fees for profit. A typical figure in the PPM industry is 15%. The most dangerous aspect is the inherent potential conflict between what is good for CHW, a hospital system, and what is good for the emergency physicians.

A theoretical example: CHW wishes to secure a large managed care contract in order to increase admissions and improve the hospital bottom line. In order to secure the deal, the pie is sweetened with deeply discounted EM physician fees. Send your patients to our ED and we will save you big time on EM doc costs. Who will protect the EPs in this scenario? Control will rest in the hands of Dr. Wong and a few other administrative-type EPs who sit on a small board with the same administrators who pay their executive salaries. The rank and file EP will only see a bottom line that reflects how poorly they are doing as the rationale to forego a raise in salary. This concerns not only the current independent groups in CHW but also the EPs currently employed by EPMG who are not major stakeholders in EPMG. They are being sold and should be asking what their end of the deal will be.

AAEM has written a letter to CHW outlining several concerns regarding this purchase. Importantly, the Office of the U.S. Inspector General previously released a management advisory report, "Financial Arrangements between Hospitals and Hospital Based Physicians," document number OEI-09-89-00330, that states that hospitals cannot extract professional fees from physicians beyond what is "fair market value" for what is returned. Given that this new MSO will be owned by CHW, the taking of the EP fees in this situation will be subject to examination under the Medicare and Medicaid anti-kickback statute, 42 USC 1320a-7b(b). The hospital already gets paid for its costs of ED care under part A and has no direct claim on the physician fees.

It is likely there will be attempts to subvert this by holding out the MSO's corporate board headed by Dr. Wong to be a professional association entitled to collect physicians fees. The fact that profit from physician fees will go to a hospital will be difficult to hide. The nature of the MSO will likewise be subject to challenge under the California Corporate Practice of Medicine Doctrine (CA Business and Professions Code Section 2400). The California Medical Association has recently reviewed such arrangements (CMA document #0226) and pointed out that decisions in such arrangements, including physician and management pay, are to be determined by practicing physicians and not physician administrators.

According to Dr. Fickensher in a letter dated 2/18/98 to CHW, the California chapter of ACEP and the ACEP Practice Management Committee refused to comment on this as requested by an ACEP member. ACEP considered this a private matter. It is AAEM's belief as exists in our Mission Statement that the professional welfare of individual physicians should be the primary concern of a professional membership society. AAEM responded to the request of its members affected by this action in a vigorous manner. Once again we are the only voice of the practicing EP.

Robert McNamara, MD FAAEM

President, AAEM

Since sending the letter reproduced below, a large group of California emergency physicians have joined forces to resist this corporate takeover. With the full support of AAEM, Affiliated Catholic Healthcare Physicians, based in Los Angeles, has filed a "complaint for declaratory relief, unfair business practices, and injunctive relief" in the California State Supreme Court, seeking protection under the California Corporate Practice of Medicine Doctrine.

This suit has national implications for Emergency Medicine and medicine in general. In this case a large number of currently independent emergency physicians are under the threat of being forced into the position of becoming employees of a corporation that is a wholly-owned subsidiary of a hospital system. If this is allowed to occur, this arrangement will create a corporate level of control that can influence the physician's practice at a level much greater than managed care. Unlike a physician contracting with an HMO, it will not be just a select panel of patients that are affected, but the physician's entire practice.