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American Academy of Emergency Medicine

Emergency Medicine and the Physician Practice Management Industry: History, Overview, and Current Problems

prepared by Robert M. McNamara, MD FAAEM, President, American Academy of Emergency Medicine

Introduction and Overview

The specialty of Emergency Medicine (EM) represents one of the most important aspects of the American health care system. This importance has been steadily increasing given the multitude of treatment and diagnostic advances that allow earlier intervention in critical illnesses such as stroke, myocardial infarctions, and trauma. Additionally, in many communities the emergency department serves as the safety net for those with inadequate access to health care. Great strides have been made in the speciality of EM and the field currently attracts top medical students who seek the challenge of this demanding practice. Unfortunately, there are major problems within the specialty that have little to do with the practice of medicine and are largely centered around the business of medicine.

The physician practice management (PPM) industry is at the core of these problems. The issues threaten the integrity of the specialty, the career satisfaction and longevity of its practitioners, and ultimately the quality of care delivered to emergency patients. The issues that are of importance can be summarized as follows:

  1. The PPM industry dominates the EM marketplace.
  2. The working emergency physician is routinely denied access to review what patient care services are billed and paid on their behalf.
  3. Attempts by emergency physicians to gain access to this information can result in termination.
  4. Emergency physicians are not able to fulfill their role as a check on deceptive and fraudulent billing practices as expected under the reassignment statutes.
  5. Lack of access to the books of account also places the emergency physician at risk for unwitting involvement in prohibited fee-splitting arrangements.
  6. The quality of care in EM is threatened by the PPM industry as their business methods have disillusioned the physicians. Additionally, PPM companies do not necessarily seek to hire the most qualified emergency provider as this may affect the profit margin.
  7. The PPM industry has created a spillover effect into the rest of EM practice such that closed books and fee-splitting occurs even among single hospital physician-owned EM practices.
  8. Despite the recent well-publicized troubles of the PPM industry, the future outlook for EM likely involves expansion of this industry.

Historical Aspects

The EM PPM industry is a byproduct of the rapid increase in emergency department utilization by the public in the 1950s and 1960s. Hospitals were confronted with the need to provide 24 hour physician coverage of ever busier emergency departments. The use of unsupervised interns and residents in the off hours and on weekends to supplement daytime attending physician coverage was recognized as compromising patient care. In the early 1970s a cottage industry arose that helped solve this dilemma for hospital administrators. Physician-created emergency department staffing agencies such as Coastal and Spectrum appeared on the scene and quickly became popular and profitable because of their promise to provide an emergency physician to the hospital around the clock.

In the 1980s the success of the emergency department staffing agencies created the desire for further expansion and increased profits. Several of these groups became publicly-traded companies or were acquired by publicly-traded companies. The staffing role expanded beyond scheduling to include what was known as "contract management" services which often included comprehensive coding and billing services. The staffing agencies of the 1970s have become central parts of the modern PPM industry.

Current State

Estimates regarding the extent of the PPM industry, including large publicly-traded corporations and smaller regional PPMs, place 50% or more of the nation's emergency departments in the hands of this industry. One company, EmCare, currently lists on its website that it employs 4,500 emergency physicians. This represents 15% of the estimated 30,000 emergency physicians practicing in the United States.

Certain geographic markets are so dominated by the PPM industry that they essentially control the only jobs available to graduating EM residents. Such areas include: Florida, Texas, Michigan, New Jersey, and Washington, D.C. It can be difficult to track exactly which company is where as many of the smaller PPM firm that have been acquired by the larger corporations continue to use their original name. The major publicly-traded players and some of their subsidiaries are listed below:

  1. EmCare: owned by Laidlaw Industries.
    Major subsidiaries: Spectrum, MEPA, Synergon, Coordinated Health Services.
  2. Team Health: recently owned by MedPartners, sold to venture capitalists.
    Major subsidiaries: Fischer-Mangold, Northwest Emergency Physicians, Emergency Physicians Associates of New Jersey, InPhy Net.
  3. Sterling Emergency Services: recently owned by FPA Medical Management, sold to Coastal as part of bankruptcy proceedings.
  4. Coastal Emergency Services.

Billing Issues/Closed Books

At the core of the PPM industry is the practice of shielding the employed or independent contractor emergency physician from what is being billed and paid on their behalf. The essence of this was revealed in 1996 when the Health Care Financing Administration (HCFA) uncovered the fact that independent contractor emergency physicians were improperly reassigning their billings and payments to the Emergency Medicine PPM companies. HCFA essentially stated that the payments would have to go directly to the physician. The uproar created in the PPM industry by this possibility raises the obvious question as to why they view keeping the physicians "in the dark" as so essential. The PPM industry vigorously protested the HCFA ruling and even attempted to change the Social Security Act to allow reassignment to them. When these actions failed the second strategy was to create "sweep accounts" in the physician's name requiring the physicians to sign papers denying access to such accounts. When this was uncovered, a widespread conversion of the emergency physician's status from independent contractor to employee was undertaken by the PPM companies. It is no coincidence that this conversion to employee status, which has long been resisted by the Emergency Medicine PPM industry, occurred when HCFA stood firm on the issue that independent contractor emergency physicians would have to have full access to what is billed and paid on their behalf.

Despite the HCFA opinion and a subsequent letter from HCFA saying that employed emergency physicians have the same right to see what is billed and paid in their name, the status quo in EM has remained much the same. The PPM industry, via exclusive contract arrangements with hospitals, routinely deny physicians due process. The standard PPM contract states the emergency physician can be terminated without cause. Requesting information on what is billed and paid in one's name, in practical terms, means the physician will soon be out of a job. It is common knowledge among graduates of EM residencies that asking if the "books are open" will, in most cases, close the door on a job opportunity in EM.

The most disturbing feature of this de facto standard practice in EM is the inability of the individual physician to know if deceptive or fraudulent billing practices are taking place. This is particularly distressful in EM given the recent high profile cases of such illegal activity in the field (Emergency Physician's Billing Services in Oklahoma, up to $1 billion dollars in damages sought by the Department of Justice).

Again, the obvious question is why does the PPM industry view denial of information to the physician on billing and payment as so essential? Certainly, limiting physician oversight of billing is one possibility, however, AAEM believes an equally compelling reason is to allow the PPM industry to extract excess profits from the physician fees. If the physician is unaware of the figures they will also be unaware of any illegal fee-splitting as discussed below.

Fee-Splitting/Corporate Profit

The PPM industry by its very nature has many mouths to feed with the physician fee. These include the stock holders and the highly-compensated executives of these companies. In EM, the PPM industry operates on relatively simple principles. The predominant source of income is the emergency physician professional fee and the number one expense item is the emergency physician's salary. Other expenses are limited to items such as malpractice insurance and the effort needed to create a physician schedule. The PPM company does not incur costs for nursing staff, hospital clerical staff, medical equipment and the like given the hospital-based practice of EM.

The American Medical Association (CEJA opinion 6.02) views fee-splitting as unethical. The fee-splitting prohibitions at the federal and state level center on the concept of "fair market value" for services rendered. In EM, the practitioners are given the right to see patients in an emergency department (receive referrals) by virtue of signing a contract with a PPM company. The PPM company seeks to maximize its profits for the good of its shareholders. When the emergency physician has no idea of what is paid for their professional services there is the obvious potential for them to be giving up beyond "fair market value" of their fees to the PPM company for services rendered. Thus, the emergency physicians may be an unwitting participant in fee-splitting. Individual accounts of this exist but the most convincing information is from the PPM companies themselves.

In the 1996 EmCare Annual Report the following are reported:

  1. The majority of income is from the emergency physician professional fee.
  2. The profit from 139 emergency departments was $39.8 million representing a profit of 20% of net revenue.
  3. The CEO's compensation package was worth approximately $2.2 million.

When one calculates the profit per physician (estimating 5 FTEs per emergency department) it is approximately $50,000. This amount of money as profit certainly deserves scrutiny as to whether it is beyond "fair market value" for the services provided. With this type of profit it is no wonder that Laidlaw Inc. saw fit in 1996 to pay roughly $38 million dollars to the CEO of EmCare for this company.

The amount of the physician fee taken by the PPM varies but is generally in the order of 20% to 30%. Physicians are typically paid an hourly rate for working and any collections above this amount are used for costs and profit. The fixed hourly wage for the physician likely encourages efforts by the PPMs to maximize billing and collections for each patient.

It is argued by the defenders of the Emergency Medicine PPM industry that this is just business and the physicians can work somewhere else if they do not like it. Unfortunately, the market domination often makes this choice impossible. As to the excess profits, it would seem that those paying for healthcare including the federal government, employees, and individuals intend for the "physician payment" to be mainly for the phsycian and not for the executives and shareholders of the for-profit PPMs.

Quality of Care

The modern emergency physician is not the itinerant emergency physician of the late 1960s and early 1970s. By and large the new breed are career committed to EM and want to establish roots in a community to raise their families. The modern emergency physician is not happy with the PPM industry. There is a great deal of dissatisfaction with the standard business practices, the closed books and lack of job security. Job security is threatened not only by termination without cause provisions but also restrictive covenants which force the physician to leave the hospital if the PPM company loses the emergency department contract. Disturbingly, 75% of board certified emergency physicians have felt financially exploited at some point in their career and 49% have considered leaving the field due to unfair business practices (Plantz S. Am J Emerg Med 1998;16:1-4). Given the inherently stressful nature of EM practice, this added stress from business issues creates the possibility of high attrition among its practitioners. This loss of experienced providers will compromise patient care.

The PPM industry must satisfy the bottom line. As mentioned, the number one expense for the PPM company is the physician salary. There is substantial evidence that the PPM industry will not seek to hire the most qualified emergency physician, the board certified emergency physician. The Coastal staffing manual speaks of "weeding out" physicians with high salary demands shortly after identifying board certified emergency physicians as high priced. The job ads for the PPM firms routinely seek non board certified emergency physicians. In 1994, the Josiah Macy Jr. Foundation decried the excess use of "moonlighters" in EM. The PPM industry, looking to hold its physician costs down, are heavy users of such moonlighting physicians.

Spill-over Effects

The negative business practices of the Emergency Medicine PPM industry and their market domination has created aberrancies in the rest of EM practice. Justifying their means as much better than the PPM companies, it is common for smaller physician-owned groups to also deny the non-owner physician access to what is billed and paid on their behalf with the same threat of job loss if the issue is pursued. Prolonged paths to equal partnership or the outright denial of such an opportunity constitute the small group variations on the fee-splitting schemes of the PPM industry. The repercussions of the practices of the PPM companies are thus not limited to the emergency departments they operate.

Future Perspectives

Many in medicine are breathing a sigh of relief with the bankruptcy of FPA Medical Management and the poor performance of MedPartners and other PPM companies. Unfortunately, in EM no relief is in sight. The poor performance of this industry is generally rooted in their inability to manage office-based physician practices. In EM where the equation is simpler with no "office" to run, the PPM industry is doing quite well. For instance, Sterling, the EM arm of FPA Medical Management, was viewed by the bankruptcy reorganizers as the jewel of FPA. Coastal is now refocused on EM and on the road to recovery after doing poorly with ventures into office practice management.

Summary

At the core of the problem with PPM companies in EM is the complete reversal of the flow of the physician professional fee as opposed to what happens in other specialties. In EM, the PPM company controls the billing, collects the payment, and decides how much the physician will be paid. An industry that, in theory, should be a service to the physician much like an accounting firm is, in fact, in control of the physician. Lost along the way is the emergency physician's ability to serve as a check on deceptive or fraudulent billing practices and their inability to avoid suspect fee-splitting arrangements.

Possible Solutions

  1. Emergency physicians must be given full access to what is being billed and paid on their behalf. This can be accomplished by giving a direct accounting to each physician bypassing the need for them to ask the PPM company for such information.
  2. Alternatively, the PPM industry could be required to provide such information and physicians given clear guidelines on how and where to confidentially report denials.
  3. Termination of an emergency physician because they seek such information must be prohibited and subject to appropriate penalty.
  4. The PPM industry should be held to the standard of "fair market value" for services rendered to emergency physicians.
  5. Onerous contract clauses such as termination without cause and restrictive covenants should be eliminated in EM.