February 15, 2022

Physician Practice Litigation: What Doctors and Hospitals Should Know

Physician Practice Litigation: What Doctors and Hospitals Should Know Physician Practice Group

Value-based care has the potential to increase the size and scope of litigation between physicians and hospital systems. This is because the economics of value-based care reward the use of lower cost and more efficient settings for delivery of care. In many ways this is the opposite of traditional “fee for service” arrangements, which traditionally financially rewarded higher cost and more complex care settings.

Physicians, by their training, education, and licensure, in consultation with patients, have the power to determine what kind of care patients receive, and where they receive it. Thus, physicians are critical to the delivery of care and the operation and health care systems that rely on them for patients. Changing the incentive from fee-for-service to value-based care can significantly impact physician behavior, particularly as physicians focus on services that can provide equivalent outcomes in a lower-cost setting.

Insurance companies also understand the importance of physician incentives in controlling how and where health care dollars are spent. For example, as of January, there were 483 accountable care organizations (ACOs) providing care to 11 million Medicare beneficiaries. In 2021 the Blue Cross Blue Shield Association created the Blue High-Performance Network (HPN) which is available to 185 million members in 65 markets nationwide (including the top 10 U.S. cities). HPN is a narrow network model dedicated to value-based care that includes only “the best physicians.” Many other commercial insurance companies are offering benefit plans with tiered physician and hospital networks that include premium and copay incentives for using value-based providers. In short, the aim of all of these activities is to incentivize physicians to increase the amount of value-based care patients receive.

As the Centers for Medicare and Medicaid and the insurance industry move to value-based care, hospitals will be increasingly challenged because they have evolved to thrive in a fee-for-service environment that provides complex and expensive care. Most physicians hired by hospital systems were brought on under agreements that rewarded them for caring for patients within the hospital system.

As a result of the way value-based care impacts reimbursements, many hospital-based physicians will see their income potential decline. At the same time, doctors will find they can make more money providing and directing care outside the hospital. The result is that hospital physicians, who were once comfortably aligned with the economics of their hospital employer, will increasingly find themselves on the opposite side of the economic divide and in potential conflict with their employer.

Private equity has taken note of the new economic realities created by value-based care and is increasingly offering physicians the opportunity to leave the hospital setting and care for patients in private practice arrangements and management service organizations (MSO) backed by private equity.

In a world of value-based care, physicians can increase their compensation by avoiding hospitalizing patients when possible and instead sending them to less expensive outpatient facilities. In addition, physicians can direct a multitude of services, such as laboratory, diagnostic, and surgical services, to settings such as ambulatory surgery centers, free standing emergency rooms, telemedicine, mini-hospitals, home care and other settings that are less expensive and outside of the hospital’s ownership. In this changing environment, physicians and private equity can win at hospital systems’ expense.

Hospital systems will find that physicians increasingly wish to redefine, renegotiate, or sever their economic relationships with their hospital employers. Many of the contracts that exist today between hospitals and physicians were not designed to handle this sea change in incentive and reimbursement. For example, a significant number of physician employment agreements are based on a fee-for-service methodology known as work relative value units (WRVUs), which are part of the American Medical Association’s CPT coding system. In a value-based care environment, which rewards physicians for efficiently managing the total cost of care as opposed to generating a large number of relative value-based units, current employment agreements between doctors and hospitals will increasingly serve as a negative force in their relationship.

As both hospitals and physicians seek to redefine their relationship to reflect the new reimbursement reality, a sound knowledge of economics, medical practice, reimbursement, and forensic accounting will be required to help each party navigate this realignment. Repositioning will either occur in a negotiated and mutually satisfactory process or within the context of litigation, where issues such as fair market value, potential Stark violations, anti-trust, and tortuous interference may be raised.

Physicians whose relationship with the hospital is limited to credentialing and admitting privileges are not immune from the increase in conflicts that will arise. Physicians will be increasingly incentivized to send lucrative cases outside of the hospital and loss-leading cases to the hospital. To help navigate these challenges, hospitals and physician practices are increasingly entering into co-management agreements designed to provide cost savings and patient outcome improvements within the limitations of Stark and anti-kickback regulations.

However, these new arrangements could create conflict and potential litigation. For example, parties could disagree on the definition and appropriateness of criteria such as patient outcomes, length of stay, and billing denials. Physicians who are unable to come to terms with hospital systems will likely push back, raising threats of potential litigation around issues such as unfair retaliation, lack of fair hearings, lack of due process, and anti-trust concerns. The outcome of many of these disputes will likely hinge on hospital bylaws and physician relations that were created in an era that lacked such conflicts.

As legal counsel is called in to help physicians and hospital systems avoid these potential conflicts, negotiate suitable arrangements, and litigate if necessary, experts in economics, physician and hospital practice, value-based reimbursement, and forensic accounting can provide necessary background and expertise. Applying the old adage of “follow the money” can help lead to better operational and legal solutions.

Related Industries

Physician Practice Group, Healthcare