The Bar to the Corporate Practice of Medicine

Editorial Note: At press time, there continue to be new developments to this issue. CMA, with the help of our grassroots efforts, has raised many questions in the minds of members of the Assembly about the wisdom of allowing the direct employment of physicians and surgeons by hospitals and hospital districts. Because of the increasing difficulty in obtaining the votes to approve SB 726 in the Assembly, the sponsors of the bill changed tactics and tried to revive AB 646 in the Senate Business and Professions Committee by amending it and setting it for hearing on Monday, April 19, 2010. Due to a quick response from CMA and the local societies with members sitting on that committee, it appears there are not sufficient votes to move the bill along, so it was removed from the agenda. The sponsors continue to remain active and are searching for the right opportunity to press this issue through the Legislature. While CMA was able to defend the bar on the corporate practice of medicine in 2009 and is on pace to do so in 2010 as well, we feel educating our physicians on this very important and active issue warrants publishing this article.

Physician autonomy and patient safety are under attack in Sacramento this year by hospitals districts* and labor unions that are challenging the bar to the corporate practice of medicine, California’s patient protection law that prohibits corporations from hiring physicians and thus from practicing medicine.

The bar against the corporate practice of medicine has been in place in California since 1938 and continues to protect patients from corporate entities exerting control over the delivery of medicine. When hospitals are allowed to hire and charge for physician services, a division of the physician’s loyalty to the patient can be created, commercial exploitation of medical care can occur, and lay control over a physician’s professional medical judgment can be exerted, each of which resulting in higher healthcare costs and — what is worse — diminished quality of care provided to patients in California.

In 2009, three separate bills undermining or eliminating the corporate bar were introduced. These three bills were derailed through the lobbying of CMA.

In 2010, those bills were consolidated into one: SB 726 by Senator Roy Ashburn and sponsored by the American Federation of State, County, and Municipal Employees (AFSCME) — a labor union interested in unionizing doctors — and the California Association of Healthcare Districts, whose members want to hire and control physician services.

The supporters claim this is about creating access to physician services where there is none today. They claim that hospitals, especially in rural areas, are unable to attract and retain physicians and therefore must be allowed to directly employ physicians.

CMA is opposed to any bill that diminishes the bar to the corporate practice of medicine for a number of reasons:

1. These bills do not increase the number of physicians in California. The only way to increase access to physician services is to increase the number of physicians. Increasing slots to allow residents to train in California, developing the medical schools at UC Merced and UC Riverside, and expanding access to California’s loan repayment program will truly ensure physicians go to and stay in rural and underserved areas. CMA supported bills, for example, are now providing over $2 million in medical school loan repayment for physicians who agree to practice in rural and underserved areas. Since loan repayment obligations are one of the primary reasons physicians will not go to underserved areas, this will attract physicians to those areas without compromising the quality of care patients receive.
2. Allowing a hospital to directly employ a physician will NOT increase access to physician services. The hospital will push patients to their preferred physicians and thereby control the competitive market. Non-employed physicians will not be able to compete and will likely be forced out of town, resulting in reduced access.
3. Physicians and hospitals have conflicting goals. Physicians want to keep their patients well and out of the hospital. Hospitals are focused on patient utilization of their beds and other facilities. The ban on corporations practicing medicine is an important protection for patients in California’s hospitals and ensures that those who make decisions that affect the provision of medical services: 1) understand the quality-of-care implications of that medical service; 2) have a professional ethical obligation to place the patient’s interests first; and 3) are subject to the Medical Board of California. Physicians, not hospitals, are the ones who are ethically and legally obligated to do what is best for patients.
4. Placing doctors under the oversight of nonphysicians who are under enormous pressures to cut costs or increase revenues will threaten the independent medical judgment necessary to ensure patients are protected. A study was recently released that shows that a motivation for hospitals to acquire physician practices is financially based, that is, to increase referrals from the physicians that they employ and to share in their revenue — not just for increased access for patients. In addition, hospitals are already interfering with medical staffs’ ability to ensure quality care through independent self-governance. For example, some hospitals have adopted medical management protocols that have resulted in inappropriate hospital tests, procedures, and stays, jeopardizing patients and increasing costs.
5. Hospital districts already have numerous financial incentives they can use to recruit physicians. Proponents of eliminating the corporate bar, including hospitals districts, have failed to show why allowing corporate entities to directly hire physicians would work where these incentives have failed. A list of incentives currently available to hospitals and hospitals districts includes:
   • guaranteeing to a physician and surgeon a minimum income for a period of no more than three years from the opening of the physician and surgeon’s practice,
   • guaranteeing purchases of necessary equipment by the physician and surgeon,
   • providing reduced rental rates of office space in any building owned by the district or any of its affiliated entities, and
   • providing other incentives to a physician and surgeon in exchange for consideration and upon terms and conditions the hospital district’s board of directors deems reasonable and appropriate.

None of these incentives grants hospitals or hospital districts the control over the actions of physicians that they seek through the ability to hire physicians — the real goal of eliminating the patient protections of the corporate bar.

Of concern to CMA, there is significant misrepresentation by opponents of the bar to the corporate practice of medicine. They have created a website that claims that eliminating the corporate bar would solve California’s physician shortage (despite not creating a single new additional physician or residency slot in the state!), that incorrectly states that “support for SB 726 is broad, diverse, and expert” [“From doctors and healthcare experts, to civil-rights groups and faith-based organizations, Californians with conscience are calling for an exemption to the ‘physician hiring ban.”], that falsely states that AMA supports eliminating the corporate bar, and that inappropriately uses CMA data in an effort to make it appear as though CMA supports SB 726 as a way to solve the doctor shortage in California.

* California’s Legislature responded to a hospital shortage after World War II by enacting the Local Hospital District Act, which later became the Health Care District Act, a body of law that authorizes communities to form special districts to construct and operate hospitals and other healthcare facilities to meet local needs.