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American Academy of Emergency Medicine

The Corporate Practice of Emergency Medicine in Texas

prepared by Robert M. McNamara, MD FAAEM

  1. Background

    The development of the specialty of Emergency Medicine was necessitated by the tremendous increase in emergency department visits beginning in the 1950s. With the centralization of ever impressive technology in the hospital and the decline of physician home visits, patients increasingly sought care in the emergency department. The onslaught of patients created a need for physician coverage that many hospitals had difficulty meeting. The need gave birth to physician staffing companies as we entered the 1970s. The staffing companies soon moved into the realm of emergency department contract ownership where they not only supplied the physicians but had exclusive control to do so. Coupled with this was control of the reimbursement paid for emergency physician services. The staffing companies evolved from physician owned entities into larger and more corporate-like firms culminating in their move to Wall Street in the 1990s. Recently, the larger publicly traded contract management companies have been in an active acquisition mode buying up smaller contract groups and other emergency department contracts.

    There have been periodic voices over the years questioning the practices of these contract management groups and in 1993 a new specialty society, the American Academy of Emergency Medicine, emerged in large part due to the perceived physician abuses of these groups. The issues of concern included the siphoning of a large portion of the physician professional fee for what was essentially a scheduling function, the inability of the physician to see what was billed and paid on their behalf, and onerous contract provisions such as non-compete clauses and termination without cause. AAEM has examined the current state of Emergency Medicine practice and believes much of it is suspect under state corporate practice of medicine prohibitions. The California Medical Association has joined with AAEM in fighting this issue related to the Catholic Healthcare West system. Texas, with its clear prohibition on the corporate practice of Emergency Medicine is a state where this issue must be examined.

  2. Texas and the Corporate Practice of Emergency Medicine

    The state of Texas, ironically, occupies a central place in the corporate practice of Emergency Medicine. Dallas is the home of EmCare, the largest of the publicly traded Emergency Medicine contract management groups. EmCare is currently owned by Laidlaw, Inc., which is traded on Wall Street. An examination of the ledgers of EmCare reveals that physician professional fees are going to laypeople including the corporate executives and share holders. The 1996 EmCare Annual Report and the Notice to the Shareholders of the 1997 Annual Meeting detailed the following:

    1. A profit of $39.8 million on 140 emergency department contracts.
    2. The statement that over 90% of the revenue was from the physician professional fees.
    3. Seven of the nine directors and top shareholders were laypeople.

    EmCare is currently well entrenched in the state of Texas. Their website, accessed on October 1, 1999, (www.emcare.org) states EmCare holds 64 emergency department contracts in Texas. The extent of this involvement in Texas further heightens the need to examine this issue. Interestingly, in the aforementioned documents, EmCare reassures its stockholders with the following quote:

    "In certain states the Company's [EmCare's] services are provided in conjunction with the professional associations and corporations owned by Dr. Riggs or another representative of the Company who is a physician (the "PAs"). Under this arrangement, a PA enters into a management agreement with the hospital and engages physicians to provide the necessary medical practice coverage. The Company then provides the non-medical portion of the service under this arrangement pursuant to a management agreement between a Company subsidiary and the PA. For the fiscal year ended December 31, 1996, the PAs paid approximately $33,211,000 to the Company's subsidiaries, which approximated the excess of the PA's revenues over their expenses."

    EmCare is not the only large Emergency Medicine contract management company operational in the state of Texas. PhyAmerica (Formerly Coastal and Sterling) and Team Health currently hold contracts in Texas. These companies claim similar exclusions from the illegal corporate practice of medicine based on the use of the professional association model. The validity of these exclusions must be examined in Texas. Many of EmCare's professional associations are in the name of the CEO, Leonard Riggs, MD, who is a non-practicing physician and certainly does not provide professional physician services at multiple Texas emergency departments. Interestingly, the sham nature of the contract management group PA structure was raised in a legal case, Dallas/Fort Worth Medical Center vs. Aramark Corporation, in the district court of Tarrant County, Texas (case no. 236-168680-97).

    Regardless of the validity of the PA structure, the essential fact remains that profits from Texas physician fees are being diverted to lay executives and shareholders without the consent of the physician who generates that fee. Individual physicians have brought other corporate concerns to AAEM including their reluctance to participate in corporate initiatives to increase profits. An example concern is the working emergency physician being forced to cosign the chart of a physician assistant without being provided the time for adequate oversight. Corporate profiling of physician productivity and the attendant pressures on test-ordering is a common practice of large contract groups.

  3. Summary of Objectives

    In the light of the Flynn Brothers case and the prohibition on laypersons employing physicians and receiving their fees in the Texas Medical Practices Act, AAEM has convened a panel to examine the operations of EmCare and other Emergency Medicine corporate entities in the state of Texas. AAEM is looking to provide its physician constituents in Texas with proper guidance in these matters.