Written for emergency physicians in their first seven years of practice after residency, this book is a continuation of the Rules of the Road series already available for medical students and residents.
It is an essential guide for new physicians with tips for today, tomorrow, and years to come. Access the multimedia eBook and videos from your cell phone, tablet, or computer.Members: Access the eBook
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Experts from Rules of the Road for Young Emergency Physicians
By: Tom Scaletta, MD MAAEM FAAEM
Profit derived from the delivery of professional services by emergency physicians legally and ethically belongs to the physicians. Fee-splitting is a term used by the Inspector General to describe corporate profiteering as a result of hospital contracting.
To understand how profit can be derived from professional services of emergency physicians, a cursory understanding of the business of emergency medicine is essential.
After emergency physician services are performed, a bill is sent to the patient of his/her insurance company. Payment rates are fixed by the government (Medicare/Medicaid) or via contracts with insurance companies (i.e., fee schedule or a percentage of charges). As a result, the actual collection rate is a fraction of billed charges. These collections are the main source of emergency physician revenue. Secondary sources of revenue include medical director stipends and subsidies from the hospital for indigent patient care. Business expenses include base salaries (for clinical and administrative work), professional liability insurance, coding/billing/collecting, and business management expenses (i.e., attorney, accountant). Revenue remaining after all expenses are paid represents profit. Profits can be substantial, averaging $50,000 or more per fulltime physician per year. In a fair group, this money would be distributed as bonuses to the partners or used to increase staffing.
Exploitative contract holders keep the books of account closed and withhold information about coding/billing/collecting from the physicians. Physicians often do not realize that they can be held responsible for billing errors or “up-coding” even if they are not allowed access to the books. The Centers for Medicare and Medicaid Services has stated that emergency physicians have the right to review what is billed and paid on their behalf.
EmCare (one of the two largest contract management groups) became a public company in 2005 when its venture capital firm owners sold part of their holdings on the New York Stock Exchange. EmCare’s 2005 filing with the Securities and Exchange Commission notes that EmCare’s non-physician CEO received a $12.7 million bonus, stock grants worth $11.2 million (based on $25 share price), and stock option grants worth $37 million (based on $25 share price). Forfeiting these large sums of money to a contract holder rather than to the physicians who are working in the ED amounts to paying above market rates for business management expenses and ultimately hurts patients. This practice encourages understaffing and reduces the group’s ability to attract the best emergency physicians.
In addition to overt profiteering, it is possible to “hide” profits through secret kickbacks and other conflicts of interest. An example would be where founding members of a group professing to be “democratic and fair” silently own the coding/billing/collecting company and charge exorbitant rates. Similarly, a contract holder may grossly exaggerate the value of his or her business know-how. According to the AMA, “ethical aspects of establishing a group’s compensation plan hinge on ensuring that physician rewards reflect professional activity (patient care services) rather than such factors as ownership, longevity or name recognition, which smack of fee-splitting” (AMNews, 4/27/98).
Interestingly, most states prohibit corporations from making decisions that affect patients. Such decisions include deciding exactly who is hired, what the physician (and midlevel provider) staffing levels will be, and whether dangerous utilization rules are permitted. California, Illinois, Pennsylvania, and Texas have the strongest corporate practice of medicine (CPOM) prohibitions. Extinguishing CPOM is the key to abolishing unfair and illegal fee-splitting. To this end, in 2007, AAEM became involved in a monumental lawsuit sparked by TeamHealth’s takeover of 8 Houston emergency departments within the Memorial Hermann Health System, in violation of Texas prohibitions against CPOM.
By: Larry D. Weiss, MD JD MAAEM FAAEM
The American Academy of Emergency Medicine (AAEM) opposes the use of post-contractual restrictive covenants, or “non-compete clauses,” in physician contracts. A restrictive covenant provides that, upon termination of a professional contract, a physician may not work in a defined geographical location for a specific period of time. In such a circumstance, if a contract-holder terminates a professional contract, the physician may have to sell his home and move his family if he wants to continue practicing his profession.
Some contract holders and hospital administrators control emergency physicians through exploitative contractual provisions. These provisions include restrictive covenants that control where emergency physicians may work upon contract termination, violating their professional rights and effectively preventing them from advocating for their patients. The threat of termination from a hospital medical staff, as well as a restrictive covenant, may prevent physicians from advocating for their patients if the hospital or contract holder opposes such advocacy.
AAEM joins other professional organizations in taking this position. The American Medical Association strongly discourages the use of post-employment restrictive covenants in physician contracts,1and both AAEM and ACEP prohibit the use of post-employment restrictive covenants in emergency physician contracts.2,3
Many emergency physicians assume that contract holders use restrictive covenants to prevent competition. However, preventing competition is not a legitimate business interest.4 Legitimate business interests supporting the use of restrictive covenants include the protection of trade secrets, referral sources, and confidential information. Of all medical specialties, post-contractual restrictive covenants have the least applicability in emergency medicine. Despite their common use, restrictive covenants have no legitimacy in emergency medicine because (1) when emergency physicians move to another hospital, they do not take patients with them, (2) emergency physicians almost never learn “trade secrets” from contract-holders, (3) emergency physicians do not have referral lists to take to another hospital, (4) as hospital-based physicians, emergency physicians learn how to practice during their residencies, and do not learn office-management from employers, (5) in emergency medicine, contract-holders almost always use restrictive covenants for the illegitimate purpose of restricting competition, and (6) contract-holders use restrictive covenants as a means of controlling and exploiting emergency physicians and effectively prevent emergency physicians from advocating for their patients.
Violation of Public Policy
The use of post-contractual restrictive covenants violates the professional rights of physicians. Article IV of the U.S. Constitution, as interpreted by the U.S. Supreme Court, guarantees all citizens the freedom of travel.5,6,7 Coincident with that right is the right to practice one’s trade or profession. Three states have laws specifically banning restrictive covenants in physician contracts,8,9,10 four states have near-absolute bans,11,12,13,14 and one state has a Supreme Court opinion banning restrictive covenants in most physician contracts.15
Courts in the remaining states use the “rule of reason” to decide whether to uphold post-contractual restrictive covenants. These courts reason that a party to a contract may compromise its legal rights under certain circumstances. These courts balance the public interest against the parties’ freedom to contract. Thus, even though a physician signs a contract which includes a restrictive covenant, courts may decide to not enforce the restrictive covenant.
In states that use the “rule of reason,” courts enforce restrictive covenants if the employer/ contract-holder has legitimate business interests, and the time and territorial restrictions are reasonable, and no greater than required for protection of the employer/contract-holder. How much time is reasonable? A restrictive covenant may apply only long enough to allow the employer a reasonable amount of time to overcome the loss (i.e., to recruit and train another physician).4 Therefore, if an employer/contract-holder replaces a physician within two weeks, then the duration of the restrictive covenant cannot reasonably extend beyond that time.
Courts generally disfavor post-contractual restrictive covenants because they exist as a narrow exception to Constitutional rights. Therefore, courts may strike down restrictive covenants for a number of other reasons, including the creation of a monopoly,16,17 illegal restraint of trade,18 and a general violation of the public interest.15 However, when applying the rule of reason, courts will apply relevant state laws. Depending on the state law involved, courts may uphold the restrictive covenant, requiring the physician to cease the practice of medicine or move to another locality.19
A reasonable “non-interference with contract” clause does not compromise the practice rights of emergency physicians. AAEM recognizes the right of contract holders to expect the loyalty of physicians working in their emergency departments. Certainly, emergency physicians have the right to file complaints and disagree with emergency department policies. However, emergency physicians should not conspire to control the emergency department management contract while working with other parties to whom they have contractual obligations. Likewise, the emergency physician should not conspire with other parties to assist them in obtaining the emergency department management contract. Therefore, AAEM does not oppose the use of reasonable “non-interference with contract” clauses.
The use of post-contractual restrictive covenants in physician contracts violates public policy and medical ethics. Often, restrictive covenants violate the law, either because of state laws that ban restrictive covenants in physician contracts, or because the restrictive covenants serve an illegitimate business interest such as the restriction of competition. AAEM condemns the use of post-contractual restrictive covenants in physician contracts.
- Code of Medical Ethics, § E-9.02, American Medical Association, 2007, Chicago
- AAEM Mission Statement, 1997; AAEM Position Statement on Restrictions on the Right to Practice, 2005, American Academy of Emergency Medicine, Milwaukee
- Emergency Physician Rights and Responsibilities, American College of Emergency Physicians, 2001, Dallas
- See, e.g.: Valley Medical Specialists v. Farber, 982 P.2d 1277 (Ariz. 1999).
- U.S. Constitution, Art. IV, §2.
- Shapiro v. Thompson, 394 U.S. 618 (1969).
- U.S. v. Guest, 383 U.S. 795 (1966).
- Colorado R.S. 8-2-113(3).
- Delaware 6 Del Code §2707.
- Massachusetts G.L.c. 112 §12X.
- Alabama §8-1-1.
- California §16602 Bus & Prof.
- Montana 28-2-703 to 705.
- North Dakota 9-08-06.
- Murfreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674 (Tenn. 2005).
- Statesville Medical Group v. Dickey, 424 S.E.2d 922 (N.C. Ct. App. 1992).
- Iredell Digestive Disease Clinic v. Petrozza, 373 S.E.2d 449 (N.C. Ct. App. 1988).
- Duneland Emergency Physicians’ Medical Group v. Brunk, 723 N.E.2d 963 (Ind. Ct. App. 2000).
- Mohanty v. St. John Heart Clinic, No. 101251, ___ N.E.2d ___(Ill. 2006)
Robert McNamara, MD MAAEM FAAEM
The Corporate Practice of Medicine (CPOM) occurs when a for-profit business entity exerts control over the practice of medicine. CPOM presents a major problem for the specialty of emergency medicine, and for you, the practitioner.
The emergency physician who cares for the patient, toiling at the bedside at all hours, using skills acquired through years of difficult training, and making high-risk decisions critical to the well being of that patient, deserves to receive the physician professional fee that is paid on behalf of that patient. No other person or physician is entitled to a portion of that fee unless the emergency physician has decided they offer something of value. The physician must have the freedom to speak out on issues affecting patient care. A physician who is performing the required professional duties in a competent and professional manner should have job security and not be subject to termination for business reasons.
Do you agree with the above? These statements are the essence of the profession of medicine. Similar language can be found in the ethical canons of all the major professional societies as well as the AMA’s Council on Ethical and Judicial Affairs.
Now, what happens when you try to splice the above with the profit motive of a for-profit business that controls the contract for emergency services at a hospital? Read on.
The Issue in Context
The specialty of emergency medicine (EM) represents one of the most important aspects of the health care system. Great strides have been made in the specialty 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 everything to do with the business of medicine. The physician practice management (PPM) industry, the largest purveyors of the corporate practice of EM, are at the core of these problems.
When a for-profit business controls the ED contract, the professional codes of ethics may not enter the equation. Physicians can become exploited to the point where their job dissatisfaction is profound enough to cause them to leave the specialty of EM. Early burn out of highly trained EM physicians deprives this nation of front line providers. Corporate policies often strip the physician of the ability to speak out on the quality of care and on the patient’s behalf. Business decisions reach the bedside and determine how many patients per hour you must see and whether you or a physician extender will evaluate and manage the patient. The Corporate Practice of Emergency Medicine is the single greatest threat to our profession and the patients we serve.
The issues that are of importance can be summarized as follows:
- The PPM industry dominates the EM marketplace.
- The locus of control is corporate ownership of the ED contract, generally by creating a front professional association or corporation to be the “physician” entity securing the contract.
- The ED contract is the key to the profit stream derived from the work of the emergency physician.
- Any threat to that contract is dealt with in a serious manner. As such, emergency physicians must answer to the corporation and be circumspect in their dealings with hospital administration and the rest of the medical staff. If the nursing staff becomes aware of the tenuous nature of the physician’s position, this may pose additional problems for the physician.
- Concerns expressed by EM physicians about the quality of care implicating the hospital or other members of the medical staff may result in termination of the EM physician. This termination can be carried out efficiently as corporate groups routinely deny their EM physician’s access to the usual due process pathways afforded to other physicians in the hospital.
- The working emergency physician is routinely denied access to review what patient care services are coded, billed and paid on his or her behalf.
- Attempts by emergency physicians to gain access to this information can result in termination.
- Emergency physicians are not able to fulfill their role as a check on deceptive and fraudulent billing practices.
- Lack of “open books” places the emergency physician at risk for unwitting involvement in prohibited fee-splitting arrangements.
- The quality of care in EM is threatened by the PPM industry, as their business methods have disillusioned the physicians.
- PPM companies do not necessarily seek to hire the most qualified emergency provider, and may prefer a less qualified, less expensive alternative.
- 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.
How Did We Get Here? Historical Aspects:
We would not be where we are today if the earlier generation of EM physicians had met this issue head on. As our specialty originated, a new breed of idealistic, patient-focused physicians emerged, that wanted to care for patients found on the streets, abusing drugs, subject to violence, etc. They did not choose EM for dreams of wealth and, unfortunately, were easy marks for another group of physicians, many who were “leaders” in the field, who saw the opportunity to make large sums of money by taking a piece of other physician’s professional fee in return for allowing that doctor to see patients in the ED where they held a contract. The more contracts, the more profit–and the multi-hospital ED contract management group, the PPM firms, were born.
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 in the ED around the clock.
In the 1980s, the success of the emergency department staffing agencies led to 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 had become central parts of the modern PPM industry.
EM is not the only specialty with the problem of one physician exploiting another. In other specialties, private group practice owners may deny partnership to younger physicians keeping them as employee status. What makes EM unique is that the major professional society, ACEP, sat by and allowed the unchecked growth of corporate EM, rather than guarding the interests of the practicing physicians. There were major conflicts of interest, as several ACEP Presidents were themselves corporate owners who made huge profits from these arrangements. For example, a former ACEP President made approximately $38 million dollars when he sold EmCare, his PPM, to Laidlaw, Inc. in 1996.
The influence of this generation of leaders is best evidenced by the methodical stripping of any ability of ACEP to intervene on the issue of the corporate practice of medicine. The original ACEP bylaws supported the practicing emergency physician against profiteers, stating “in the practice of medicine, a physician shall limit the source of his income to medical services actually rendered by him to his patients. He should neither pay nor receive a commission for referral of patients.” There was also a specific statement against CPOM: “the Emergency Physician shall not associate himself in any fashion with any institution which permits medical practice by other than a physician.”
Attempts to rouse the specialty to action were evident in a series of letters to the editor in the Annals of Emergency Medicine. However, in 1984, the ACEP Council Speaker wrote that ACEP could not “protect the little guys from the big guys.”1 A new round of attempts in the early 1990s by several of the founders of AAEM to convince ACEP to take action against the CPOM culminated in ACEP passing an anti-trust policy in 1994. ACEP’s new policy effectively paralyzed the organization from taking any action against the CPOM, stating ACEP could be threatened with $10 million dollars in fines (http://www.acep.org/practres.aspx?id=29112). Dr. Robert Simon predicted in a 1983 letter to the editor of Annals of Emergency Medicine,2 that the failure of any meaningful attempt on the part of ACEP to address the CPOM issue would lead to the rise of a new specialty society that would finally do so. AAEM was founded in 1993.
Estimates regarding the extent of the PPM industry, including large publicly traded corporations and smaller regional PPMs, place more than half of the nation’s emergency departments in the hands of this industry. The two largest PPMs, EmCare and TeamHealth, employ over 4,000 emergency physicians each, representing ~ 30% of the estimated 30,000 emergency physicians practicing in the United States. Certain geographic markets (such as FL, MI, TX, NJ, DC) are so dominated by the PPM industry that they essentially control the only jobs available to graduating EM residents. It can be difficult to track exactly which company is where as many of the smaller PPM firms that have been acquired by the larger corporations and continue to use their original name, as described below:
Publicly traded on the NYSE (ticker: EMS). Venture capital firms are the largest shareholders.Major subsidiaries: Spectrum, MEPA, Synergon, Coordinated Health Services.Recent History: In February 2005, an investor group led by Onex Partners purchased AMR and EmCare from Laidlaw for $828.8 million. The company completed an initial public offering and was listed on the NYSE in December 2005.Both the CEO and President are non-physicians.The CEO was given a $12,691,032 bonus for assistance with the sale of the company from Laidlaw to Onex. The president was given a $2,270,002 bonus. The executive leadership has stock shares and stock options worth tens of millions of dollars.
Owned by the Blackstone Group, formerly a private equity firm that became a publicly traded company in 2007.Major subsidiaries: Fischer-Mangold, Northwest Emergency Physicians, Emergency Physicians Associates of New Jersey, Emergency Coverage Corp, Emergency Professional Services, InPhyNet, Daniel and Yeager, Northwest Emergency Physicians, Southeastern Emergency Physicians, Team Health West, Spectrum Healthcare.
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 of emergency physicians is 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 what has become standard EM business practice, such as closed books and lack of job security. Job security is threatened not only by termination without cause provisions, but also by restrictive covenants that force the physician to leave the hospital if the PPM loses the ED 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.2 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. The greatest line item expense for the PPM is the physician salary. Some PPMs are reluctant to hire the most qualified emergency physician, the board certified emergency physician, since they can hire a less qualified physician (or midlevel) for less. The staffing manual for Coastal, a PPM, identified board certified emergency physicians as high priced and encourages “weeding out” physicians with high salary. The classified job ads for many PPM firms routinely seek non-board certified emergency physicians.
The Rise and Role of AAEM
In 1992, James Keaney, MD, published “The Rape of Emergency Medicine” which detailed the unscrupulous inner aspects of the PPM industry, focusing on quality of care issues. The book was followed by two 20/20 specials on national television. Hundreds of emergency physicians throughout the country contacted Dr. Keaney, noting similar abuses, and began plans to create a new EM organization that was willing to support the individual emergency physician. In 1993, AAEM was formed to promote fair and equitable practice environments and to advocate for ABEM/AOBEM board certification. Dr. Keaney served as AAEM’s first President.
The premise is simple and pure. AAEM believes that the best form of practice for the patient, physician and the specialty is one in which the working physicians are the owners in an equal partnership. This is not a radical view, as virtually every state has prohibitions on for-profit corporations employing physicians. Ironically, one of the states with the strongest case and statutory law against CPOM is Texas, the headquarters of ACEP. A 1986 case from Texas, the Flynn Brothers matter states:
“Management contract and oral partnership agreement between medical services contractor and partner (lay entity, the Flynn Brothers, Inc.) of contractor, which gave partner 66.67 percent of profits of contractor’s medical practice despite lack of medical license by partner, which gave partner right to trade and commercialize on medical license of contractor, which gave partner right to select medical staff to work in hospitals under contract, and which allowed partner to encourage hospitals to contract with contractor, violated statute which prohibits aiding practice of medicine by any person, partnership, or corporation not duly licensed to practice medicine and, therefore, were illegal.”
(Vernon’s Ann. Texas Civ.St. art. 4495b, §§ 3.07(f), 3.08(15))
AAEM has clearly cut a different path for EM with the simple concept that the best form of practice for the patient, physician and the specialty is one in which the working physicians are the owners in an equal partnership. An excellent discussion of the need to strive for this status is found in an article by Fisher (3) and the title, “Future of the Emergency Physician: Subject or Citizen?”
AAEM has had many recent successes in combating the CPOM. In the summer of 2001, AAEM helped achieve a major victory by preventing one of the largest hospital systems in the country, Catholic Healthcare West, from creating a large emergency medicine PPM. In 2003, AAEM helped a group of California emergency physicians who were being sued by TeamHealth for continuing to work at their hospital (rather than leaving their job and their community) after TeamHealth lost the contract to another group. In 2005, AAEM helped emergency physicians in Rhode Island and in Indiana who were being sued in similar cases regarding unfair restrictive covenants.
In 2004, AAEM helped an emergency medicine group that had been serving a Minnesota hospital for 35 years from losing their contract to EmCare (in violation of Minnesota CPOM laws). In 2005, AAEM assisted 200 emergency physicians who were essentially left without any malpractice tail coverage after the bankruptcy of PhyAmerica, one of the largest PPMs (whose bankrupt assets (i.e. ED contracts) were bought by another PPM, Sterling). Currently, AAEM is engaged in two court cases against TeamHealth in the state of Texas related to the illegal CPOM. These efforts are supported by donations to the AAEM Foundation. For more details, visit the AAEM website at www.aaem.org.
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 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. As small EM groups model unethical business practices from the large PPMs, the repercussions of the practices of the PPM companies have extended beyond the emergency departments they operate.
At the core of the problem with the corporate practice of EM is the complete reversal of the flow of the physician professional fee as opposed to what happens in other specialties. In much of EM, a business corporation 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 actually in control of the physician. The emergency physician loses his or her ability to serve as a check on deceptive or fraudulent billing practices and to avoid suspect fee-splitting arrangements.
AAEM was founded on two main issues, the importance of board certification and restoring ownership of the physician’s practice to the physician. The young emergency physician must understand the history of CPOM and the ramifications of corporate control on their future.
AAEM needs the resources of a growing membership to effectively advocate for the individual emergency physician working all night to help his or her patients. AAEM membership with support of the AAEM Foundation is important, and I strongly encourage you to take an active role in the Academy.
- Crowell RD. The Organization Is Us (letter). Ann Emerg Med 1984;13:981.
- Simon RS. Entrepreneurism in Emergency Medicine (letter). Ann Emerg Med 1983;12:722.
- Fisher BA, Wittlake WA. Future of the Emergency Physician: Subject or Citizen? Am J Emerg Med 2000:18:102-107.
- Plantz SH, Kreplick LW, Panacek EA, et al. A National Survey of Board-Certified Emergency Physicians: Quality of Care and Practice Structure Issues. Am J Emerg Med 1998;16:1-4