After neurosurgeon Steve Cathey invested in the Arkansas Surgical Hospital — a private, for-profit 16-bed specialty hospital designed for orthopedic and neurosurgical spine care — his wife, gynecologist Janet Cathey, was threatened with revocation of privileges at Baptist Health Hospital in Little Rock. According to American Medical News, this action was possible because Baptist Health System’s board had “adopted a policy that mandates denial of initial or renewed staff privileges to any practitioner who, directly or indirectly, acquires or holds an ownership or investment interest in a competing hospital” and had extended the restriction to the immediate family members of anyone who invested in a competing hospital.
| Physicians should advocate for a hospital credentialing process that establishes priviledges based on patient interests. |
JCAHO further asserts that the credibility of the credentialing process requires cooperation between the hospital governing body and medical staff through its appointed designees. The medical staff leadership designees make recommendations to the hospital governing body regarding a physician’s appropriateness for credentials and privileges. The hospital governing body must act on these recommendations and report back to the medical staff regarding its decisions and the underlying rationale.
Thus, hospital credentialing and privileging are a medical staff function. As such, physicians who participate in this process are guided by the American Medical Association Code of Medical Ethics, Opinion 4.07:
The mutual objective of both the governing board and the medical staff is to improve the quality and efficiency of patient care in the hospital. Decisions regarding hospital privileges should be based upon the training, experience, and demonstrated competence of candidates, taking into consideration the availability of facilities and the overall medical needs of the community, the hospital, and especially patients…. Physicians who are involved in the granting, denying, or termination of hospital privileges have an ethical responsibility to be guided primarily by concern for the welfare and best interests of patients in discharging this responsibility.
The inclusion of this opinion in the Code of Medical Ethics underscores the integral role credentialing fulfills in the professional social contract to ensure patient access to appropriate, safe and quality care. The AMA, as it notes in a recently adopted Council on Medical Service report, additionally has several existing policies that oppose loss or restriction of privileges based solely on economic factors. Despite the alignment of the JCAHO goals with the professional medical code of conduct as well as AMA policies opposing economic credentialing, the legal system has allowed healthcare delivery organizations to use credentialing to address market concerns over patient interests.
Some hospitals have adopted policies to limit or effectively prohibit perceived competitive behavior by credentialed physicians. Targeted physician behaviors include failing to sign loyalty oaths, perform a defined percentage of procedures at a hospital, or admit a specific percentage of their patients to a hospital; referring patients out of an integrated system; accepting staff privileges or leadership positions at a competing hospital; and having financial interest in a competing healthcare delivery entity. These “competitive behaviors” have resulted in denial or revocation of physician hospital privileges.
Legal Challenges to Economic Credentialing
Hospital policies involving economic credentialing have been met by legal challenges on several grounds.
In Mahan v. Avera St. Luke’s, the South Dakota Supreme Court stressed that the “continued economic viability of the hospital” is sufficient reason to deny privileges to physician applicants, and that such denials may be based on “any reasonable basis,” including “the common good of the public and the hospital.” This decision allows the credentialing process for physician hospital privileges to be used to erect barriers to competition, impeding function of competitive market forces and raising anticompetitive behavior concerns. Challenges to such behavior under Section 1 of the Sherman Act on balance have failed to prevail because it is difficult to demonstrate a conspiracy. This is due in part to the prevailing judicial philosophy that the stakeholders in the hospital credentialing process (that is, the medical staff and hospital governance) are a single entity.
Claims of willful acquisition or maintenance of monopoly power under Section 2 of the Sherman Act also have been unsuccessful in providing relief to physician plaintiffs. Such claims have been complicated by the fact that exclusion of physicians from a medical staff via the credentialing process could diminish rather than enhance hospital revenues. The impact of corollary claims of intimidation and adhesion contracting to control market competition is yet to be vetted in the judicial process.
The courts have been less permissive when hospital privileges are denied based on claims of conflict of interest, such as staff privileges at competing organizations, ownership in competing entities, or failure to attain admission or procedure volumes. In Potters Medical Center v. City Hospital Association, the court found that restricting a physician’s ability to practice at competing facilities for reasons of conflict of interest may constitute monopolization. In Miller v. Indiana Hospital, the court found that hospital privileges were unreasonably terminated when a surgeon opened a competing healthcare delivery facility.
A common defense theme for hospitals when accused by physicians of anticompetitive behavior based on conflict-of-interest rationale for denial or revocation of privileges is that of “cherry picking” patients for the physician-owned facility to the detriment of the hospital. In Blue Cross v. Kitsap Physician Service, the court substantially weakened this claim when it found that financial interests are a fundamental motivation in a free market and necessary for rational healthcare delivery in such a market.
In addition to insulating hospitals from competitive market forces, the courts have supported credentialing for physician hospital privileges as a mechanism to protect and enhance hospital revenues. In these instances, the economic impact of physician admissions, treatment plans, and procedure performance is seen as a sufficient basis to deny or revoke hospital privileges, and the courts have upheld such decisions. In general, economic criteria used to adjudicate credentialing must be explicitly characterized in the organization’s bylaws. The bulk of legal arguments have centered on contract law, and in general, the courts have deferred to “reasonable” management discretion for hospital governance.
Public policy law also has helped shape the legal debate regarding the appropriate denial of hospital privileges to physicians. A hospital’s nonprofit status is statutorily defined in the Internal Revenue Service Ruling 69.545. This rule outlines the necessary preconditions for a hospital to claim nonprofit status and explicitly requires such a hospital to maintain a medical staff that is open to all qualified physicians. In the event of an investigation, the burden of proof falls to the hospital to demonstrate that the underlying purpose of the restrictive credentialing policies and decisions is beneficial to the community and consistent with a nonprofit mission. Because it is difficult for a hospital to develop substantive, demonstrable arguments for community benefit that override a statutory obligation to credential all qualified physicians, physician challenges to the nonprofit status of hospital organizations are the most effective approach to challenging credentialing policies.
However, the courts have been sympathetic to hospital boards that cite a fiduciary rationale to place organizational, economic considerations above patient interests. This is due in part to a common but questionable judicial philosophy that for-profit governance principles are appropriate in the nonprofit sector. Broad management discretion under the business judgment rule may well be inappropriate in the nonprofit sector because of lack of public reporting, transparency of decision making, and public accountability.
Overall, the courts have supported the use of credentialing to shield hospitals from market competition and protect established revenue. The impact of the legal system has been to place patient quality and safety as a necessary but insufficient basis for physician hospital privileges in opposition to the professional ethical code which guides physicians who are willing to represent the medical staff in the credentialing process.
Credentialing Should Protect Patients
The divergence of professional ethical opinion and the legal adjudication of hospital credentialing for physician privileges calls for physicians involved in the medical staff credentialing process to effect change.
Physicians should advocate for a hospital credentialing process that establishes privileges based on patient interests and in accordance with the Code of Medical Ethics, which clearly places patient interests above market and financial considerations. Perhaps this is best accomplished by physician advocacy for public access to the hospital institutional bylaws and medical staff bylaws. Physicians further can support revisions to these documents as necessary to maintain credentialing on the basis of physician competency and quality. Model medical staff bylaws to accomplish these goals are available through the AMA.
These physician actions would restore credentialing to its proper position as a safeguard to society for accessible and excellent healthcare rather than a mechanism that shields hospitals from competitive market forces.
Patrick W. McCormick, MD, FACS, MBA, is a partner in Neurosurgical Network Inc., Toledo, Ohio.