Hospital Conflict of Interest  4/94

by Del Meyer, MD

Public debate over hospital conflict of interest has barely begun. Hospitals are no longer considered bastions of charity and good will, but as a business. Recent actions by the hospitals in acquiring clinics and practices have given some physicians a financial reprieve and caused other physicians to be concerned about conflict of interest. However, the problem is frequently still considered a physician conflict. Rodwin, in his book subtitled "Physician Conflict of Interest," states that hospital acquisitions of practice and hospital recruitment of physicians causes physicians to be beholden to the institution rather than to their patients. Even though it is the action of the hospitals that are challenging physicians' allegiance, the lay press still treats this as a physician conflict. The hospital is simply a business entity, and loyalty to patients is not expected, anymore than loyalty to their nurses, and to the physicians they will eventually have under their wing. To paraphrase Randy Shilts, when physicians become businessmen with financial ties to hospitals, insurance carriers, and fiscal intermediaries, "Who will patients then have as their physicians?"

Health Care Administrators

Historically, community hospitals have been directed by physicians. County, state, and federal hospitals generally had a Physician-in-Chief or a Hospital Director or Commander, who had administrative assistance. This assured that every decision passed through a patient advocate--someone with 5 to 10 years of medical training beyond college; someone who had been "in the trenches" of patient care; someone who had seen diseased life in the raw; someone who had tried to help those who "lead lives of quiet desperation" in our society.

Hospital administrators have grown in importance and a separate discipline has evolved (degree programs began as early as the 1920's) geared to management principles which have lost sight of patient advocacy. This is not an unexpected outcome. Management must deliver a respectable profit and an acceptable product. However, when that product is patient health and welfare, a conflict arises between costs and optimal care which administrators can't control, nor can government.

Hospital administrators have now essentially replaced physicians at the helm of health care institutions and frequently throughout the administrative structure. Recently, hospitals have reintroduced physicians into the administrative hierarchy, but under the direction of the administrator. Their effectiveness in patient advocacy is severely compromised since their salary and future economic security is contingent on providing hospital services and only palliating patient and physician concerns.

Medical Staff

Administrators at the helm of the medical institutions have no medical training. However, they are still responsible for all of the hospital's decisions and care. Therefore, administrators need the collective wisdom of the professional medical staff which has to be self governing. Medical Staffs are organized in a very formal fashion: Chief-of-Staff, Chiefs-of-Departments, e.g. medicine, surgery, pediatrics, ob-gyn; and Chiefs-of-Services, e.g. respiratory services, intensive care units, emergency rooms, and more recently of medical staff services. The latter are frequently hired by administration, but they are only part-time directors and still practice part-time. Questions have been raised as to how these physician administrators can be part of a hospital medical staff that is required to be self governing. One never knows whether their vote on staff issues is on behalf of their patients or on behalf of their employer. Rodwin has suggested it's the latter.

Hospital Charges and Costs

Hospital charges and revenues have increased. In the past the favored doctors were those who ordered the greatest number of tests, did the most procedures, or kept the patient in as long as possible. Reimbursement was based on number of days plus every charge that could be added.

Hospital administrators maintained that they had to increase the charges for private patients to cover the costs of those that didn't pay or paid less. This cost shifting made those that pay personally sometimes pay up to twice what those with insurance pay. This was exemplified in a medical staff meeting when the administrator bemoaned in his report that the hospital had only collected 50% of its charges. The next assistant administrator in his report outlined the hospital's acquisition program, and the next, the hospital's expansion and building program. Although the hospital was only collecting 50% of its charges, some stated that it must be making an obscene amount of profit, even though the reported revenue over expenses was 5%. Those are rather harsh words, but if the entire 100% of charges actually came in, the profits would be 10 fold higher and then could probably be called excessive.

This shifting is exemplified by an overseas executive who had his Coronary Artery Bypass Graft in Sacramento. He received a bill from the hospital for about $120,000. His daughter was a physician and apparently aware of excessive charges over costs. The patient walked into the hospital's business office and offered to settle the account for $60,000. They accepted and he wrote out a check for that amount. This lends credence to the view that the hospitals could implement rational pricing by essentially cutting their charges in half and still cover costs and profits.

Diagnostic Related Groups

Medicare, in an effort to bring hospital costs into a reasonable range, devised a system of charging on a diagnosis basis. With thousands of possible diagnoses, these were grouped into a few hundred diagnostic related groups. The reimbursement to the hospital, based on prior average length of stay and other costs, would be the same for a DRG regardless of length of stay.

Hospitals found out that when their beds were full, they lost money from any prolonged stay which did not translate into additional revenue. One hospital posted signs at the Staff entrance and in the Staff Lounge indicating that the hospital was full: "Please discharge early."

One hospital administrator told me they had a computer program which they used to maximize their reimbursement under DRG's. He stated that in his hospital chain they were actually able to improve their overall revenue with the DRG system, but they did have to rearrange doctors diagnosis in the summaries. Respiratory Failure listed separately was a far greater reimbursement than COPD with respiratory failure. They would also add diagnosis by making abnormal laboratory tests into diagnosis. An electrolyte panel was usually worth an extra diagnosis (hypokalemia) and a chemistry panel was usually worth several (hypercholesterolemia, etc.) The trick was to get the doctor to sign the revised page so the doctor would be held responsible if any irregularities were found on investigation. Regulations can never keep pace with human ingenuity.

Outpatient Surgery Centers

As surgeons developed techniques to bring major surgical procedures to the outpatient or "short stay" departments, this did not necessarily translate into reduced costs to the patient. When laparoscopic cholecystectomies were done with a one day stay, some hospitals were still able to charge the entire DRG for the 23 hour stay according to patients. In the normal course of hospital business practice this atrocity could not have occurred. It was made possible by government involvement in Medicare mandated DRG's making it legal to charge the same amount for a one day as for a 5 day or more stay. To receive a 5 day fee for a one day stay translates to $5000 per day in our above example or $1.8 million per bed per year if kept full.

In an attempt to reduce health care costs, doctors have invested in free standing outpatient facilities to reduced surgical charges. Several authors have noted that hospitals are buying up the surgical centers to reduce the competition to their own outpatient charges.

Ultimate Health Care Conflict: Hospital Ownership of Physicians

Rodwin also mentions that hospitals are now buying up large medical groups and clinics through a wholly owned Foundation. They have purchased all the assets of these groups and clinics and thus their basis to ever return to private practice. These doctors are beholden to the hospital whose foundation issues their paychecks. Many authors feel they work in direct competition with the hospital's free medical staff and are no longer free agents in any staff / hospital conflict. They no longer can do objective Peer Review. Their loyalties and their livelihoods belong to the hospitals. It doesn't take a Milton Friedman to figure that out.

Hospitals can, of course, hire doctors in any administrative capacity they choose. However, with divided loyalties, the patients, to whom we dedicated our lives, are the ultimate losers. We have lost that which money cannot buy, our integrity. To preserve our mission to the patients we serve, it would appear that physicians should not enter into any financial relationships with hospitals that care for their patients. If we see patients, we should maintain our status as a free self governing medical staff with our anchor in the private world in which our patients reside.