Could you compete with an academic medical center?

Could you compete with an academic medical center?

Southern California physicians are facing a classic town-gownshowdown with UCLA--and finding that the court is their only hope of fendingoff the mighty university.

"If the other side prevails, doctors in California will be workingfor Kmart. It will be the end of the independent practice of medicine."A rather extreme statement, but FP Jack Lewin, California Medical Association'sexecutive vice president and CEO, isn't in the mood to modulate his angeras he talks about the "precious" University of California at LosAngeles, now embroiled in a lawsuit with the CMA and several community physicians.

When UCLA Medical Center was the shining, self-contained, medical cityon the hill, doctors were proud to have it in their backyard--a respectedinstitution, a place to send patients for liver transplants and neurosurgery.But now that UCLA is hunting for more pedestrian work--it needs primarycare patients to keep its medical school afloat--local physicians want thebehemoth out of their neighborhood. UCLA, the doctors claim, is competingwith them unfairly and illegally. What's worse, they say, the medical center'sactions open the door for any corporation to employ doctors and force themto put profits before patients.

At issue here is the corporate practice of medicine. In the 1920s and'30s, states passed laws prohibiting nonphysician-owned entities from hiringdoctors. The idea was to keep physicians beholden to patients' interests,not to those of corporate shareholders. Although many states don't rigorouslyenforce their corporate-practice-of-medicine laws--they allow hospitalsto own physician practices, for example--California is one of a handfulof states with firmly established corporate-practice statutes. And GoldenState doctors intend to keep it that way.

The dispute with UCLA Healthcare--which operates the UCLA Medical Center--revolvesaround an exemption to California's ban on corporate ownership. It allowspublic or private nonprofit institutions to employ physicians, providedthey are hired to do research and teach medical students and residents.The CMA and community doctors allege that UCLA acquires primary care practicesand hires specialists under the guise of teaching and research. Inreality, according to the lawsuits, UCLA employs these community-based doctorsto compete with private-practice physicians in Santa Monica, West LA, Malibu,Marina del Rey, and other affluent areas of southern California.

How, ask community physicians, can we possibly compete against a medicalcenter that spends as much as $30 million of taxpayers' money to build andpromote a network of 40 for-profit local clinics?

"Our medical group can't funnel money from bone marrow transplantsand cardiac surgery to grow our primary care business like UCLA is ableto do," says FP Bernard Katz, co-CEO of Santa Monica Bay PhysiciansHealth Services. "UCLA can pay higher salaries than we do. As a nonprofitteaching institution, it shouldn't be in direct competition with physicians,who also are taxpayers."

Finding another way to teach

UCLA counters that it's simply following a mandate from the Californialegislature and the governor. In 1994, the University of California agreedthat 50 percent of its residencies would be in primary care by 2002--tohelp balance the ranks of specialists and primary care doctors.

To fulfill that goal, the university began employing physicians, andit acquired a community hospital to educate residents in primary care settingsrather than in its tertiary- and quaternary care medical campus. The strategywas endorsed by the Council on Graduate Medical Education, which recommendedin a March 1999 report that future doctors be trained in both traditionaland community settings by faculty that includes community clinicians andexposes students to a diverse patient mix.

"What UCLA is doing in medical education isn't unique; it's whatis going on in the rest of the country," says internist Michael Karpf,director of UCLA Medical Center and vice provost for hospital systems. "Lookat Duke, the University of Pennsylvania, Barnes-Jewish in St. Louis, andthe University of Michigan--they are doing very similar things" byexpanding into the community.

And, yes, UCLA makes no secret that it has to compete for paying patientsto generate revenue to keep its costly teaching program going. The schoolcan afford to subsidize its primary care clinics because of the substantialrevenue they produce in ancillary services and admissions to the medicalcenter.

"We get only 3 percent of our budget from a state subsidy,"says Karpf. "We've taken huge hits from the Balanced Budget Act."That's the 1997 federal law that reduced Medicare reimbursement to teachinghospitals. "UCLA is trying to survive, and we have to figure a wayto function in this marketplace because no one--no one--is guaranteeingour survival. But this is not about taking patients away from the community.It's about developing viable systems for education and research."

To illustrate that UCLA is not overly aggressive in its competition forpatients, Karpf adds, "We only have 2 percent of the market in southernCalifornia. The University of Pennsylvania has 20 percent of the Philadelphiamarket, and Barnes-Jewish has 34 percent in St. Louis."

The CMA doesn't dispute UCLA's right to compete for patients. Rather,says Lewin, "the CMA recognizes that medical schools and teaching hospitalsare hard pressed for resources to continue their important mission in thisera of managed care. Our main concern is that UCLA has created a structurethat violates the corporate ban and undermines physician leadership andautonomy."

A professor in name only

If UCLA were truly using the primary care clinics it has acquired forteaching, the community doctors would have no beef, according to the CMA.But lawsuits filed in December 1998 and February 1999 accuse UCLA of givingacademic titles to doctors merely to increase the cachet of its communityclinics ("Our doctors are UCLA professors") and gain an unfaircompetitive advantage. "Few, if any, of the newly employed physiciansperform any significant teaching or research duties at or for the UCLA medicalschool or hospital," according to the lawsuits.

General surgeon Robert Uyeda (above) filed one of them, claiming he lostpatients to a competing practice after UCLA employed its physicians. Uyedais the owner and medical director of Nippon Medical Clinic, a 12-physicianmultispecialty practice with a bilingual staff that specializes in treatingJapanese-speaking patients. But the court ruled that, as a state entity,UCLA Healthcare is exempt from civil liability under the Unfair BusinessPractices Act--and dismissed the suit. Uyeda is appealing the decision.

"These guys sold their practices, got themselves an academic title,and now patients think their clinical skills are better than mine, whichis absolutely untrue," he says.

"One of the physicians at the other group is a nonboard-certifiedFP, who is now an associate professor of medicine at UCLA," complainsUyeda. "And what is considered teaching? One resident hanging aroundthe office one hour a week?"

Adds the CMA's Lewin: "We resent the fact that UCLA is calling someof these doctors professors when they haven't clawed their way up the academicladder. That constitutes false advertising."

UCLA has no specifications on the number of hours employee doctors mustteach, according to the university's lawyers. Some physicians conduct face-to-facetutorials, while others have students rotate through their offices. Butuniversity counsel Jeffrey A. Blair says the community physicians are subjectto the school's standard hiring and promotion rules. "If they don'tachieve favorable results and haven't moved up the ranks by Year Seven,they will be let go, just like any other University of California faculty,"he says.

Blair also points out that it's unfair to judge the teaching activitiesof community physicians while the network of clinics is still being established."This is a new way of educating doctors, and it's not well-developedyet. So right now you don't see in these primary care offices the numberof post-docs, fellows, and residents that you'll see in the coming years.We're laying the foundation now."

Twelve anesthesiologists go to court

When UCLA first began hiring primary care physicians in 1994, there waslittle back talk from other local doctors. The physicians who went to workfor UCLA got good prices for their hard assets and didn't complain. Andif community specialists were losing referrals, the losses weren't noticeableor easily tracked.

The flashpoint was reached in 1995 when UCLA bought the 363-bed communitySanta Monica Hospital to train residents in primary and secondary care.The 12 anesthesiologists in the Santa Monica Anesthesia Medical Group, whopracticed out of the community hospital, were then told they had to becomeUCLA employees if they wanted to continue working at the hospital. Thatway, school administrators said, the university could oversee the anesthesiadepartment and give residents exposure to the best teaching patients. Itis necessary for UCLA to employ the physicians--instead of contracting withthem--to maintain "the supervision and control required for teachingand research," says John F. Lundberg, deputy general counsel of theRegents of the University of California.

But the 12 doctors didn't want to become employees. "As employees,we could be fired at any time," says anesthesiologist Tom Bohlmann."We also didn't want the university telling us what hours we'd haveto work. Our group has developed a flexible schedule that we like."

Being employees would also involve a significant loss of income. "UCLAwanted to take 35 to 40 percent of our revenue," says Bohlmann. "Andfor giving that up, all we'd get was the privilege of keeping our jobs.It felt like extortion to me."

In November 1998, UCLA told the group that the anesthesia departmentat Santa Monica Hospital would be staffed by UCLA-employed anesthesiologistsas of Feb. 1. Shortly before Christmas, the group and the CMA filed a lawsuitagainst UCLA, asking for $20 million in damages. According to the suit,UCLA couldn't legally hire the anesthesiologists because the institutionrequired "no substantive teaching or research duties" of them.

Last month, a California Superior Court judge threw out UCLA's motionto dismiss the suit saying, "There is a likelihood the plaintiffs willprevail on the merits." She also enjoined the school from terminatingthe group's privileges. "The Regents' argument . . . that all activityin its facilities are 'teaching activities' strains credulity," shesaid.

Lawyers for the CMA and the anesthesiologists believe their case is bolsteredby a recent jury verdict in Florida, which awarded two radiation oncologists$22.8 million after a hospital in Palm Beach County refused to renew theirprivileges and signed an exclusive contract with the University of MiamiSchool of Medicine for radiation oncology services. The quality of the twodoctors' care was never an issue; the decision to replace them was an economicone. "Courts are holding hospitals accountable if they try to shutdoctors out for economically motivated reasons," says Astrid G. Meghrigian,a CMA attorney.

Inside referrals provoke quality-of-care complaints

The anesthesiologists' lawsuit also addresses other specialists' complaintsthat UCLA "unlawfully controls referrals" by pressuring its primarycare physicians to refer only to UCLA specialists, even if an outside physicianwould be the better choice for the patient.

"UCLA is an excellent medical school with some of the best departmentsin the country, but not every department is the best," says generalsurgeon Uyeda. "And physicians, as patient advocates, must refer patientsto the doctor who will provide the best service, regardless of who is issuingthe paycheck. But that isn't happening; a UCLA physician will seldom referto a non-UCLA specialist or hospital."

Cardiologist Daniel Wohlgelernter claims he and his colleagues lost referralswhen UCLA began hiring physicians. Wohlgelernter himself declined an "attractivepackage" from UCLA because he didn't want to be employed, and he didn'twant to split up his five-partner group. "UCLA only wanted two of us,and I felt an ethical and fiduciary responsibility to remain with my group,"he says.

UCLA then hired three young cardiologists, which initially didn't fazeWohlgelernter. "The cardiologists were fresh out of training, so Ifigured they wouldn't make any inroads in a community where patients valueexperience and a clinical track record," he says. "If the marketplacehad been free to operate in its normal fashion, those physicians wouldn'thave affected our practice at all."

But, instead, Wohlgelernter says his group has lost countless patientsbecause UCLA primary care doctors "are forced to refer all their patients"--includingmany who'd been with his group for years--to UCLA cardiologists.

"The patient is the victim here," says Wohlgelernter. "Theseare people we've brought through heart attacks and bypass surgery, and nowour strong patient-doctor relationships are being severed." What ifthese patients demand to see him? A few have returned, he says, but onlyafter they've petitioned UCLA Healthcare with numerous letters and phonecalls.

Wohlgelernter talks about "a certain bitter irony to being victimized"by the institution that he feels he has given so much to. He ticks off hiscontributions: He was a full-time faculty member in the '80s, he continuesto do volunteer teaching at Santa Monica hospital, he has referred manypatients to UCLA, and he supports the institution with his taxes. "Iand other physicians feel doubly wounded because UCLA isn't just some uglycorporate structure," he says. "It's an academic medical centerthat should have a higher mission and nobility of purpose than this take-no-prisoners,bottom-line ethic."

The hearsay evidence that primary care physicians are receiving financialincentives--or being coerced--to refer patients to UCLA specialists is justplain nonsense, says vice-provost Karpf. "If a community specialisthas a longstanding relationship with a patient, we won't interfere withthat." But, he adds, an integrated medical group tends to refer amongits own doctors, and a common medical record makes it easier to keep patientsin house.

UCLA attorney Blair reiterates that referrals are based on patients'best interests. "That is the only priority," he says. "Physicianreferrals aren't tracked, nor is compensation tied to them." UCLA physiciansrealize, however, that referring within the network increases profits--andpossible future compensation.

"Salaried physicians' contributions to teaching, research, and clinicalactivity are reviewed annually by their departments," adds Regentsattorney Lundberg. "Their performance in those areas affects theirsalaries, which are negotiated annually. And if the network does well, thereis more money to negotiate additional compensation."

No question, the CMA and the anesthesiologists are facing a formidableforce in UCLA, with its large legal team and war chest. The anesthesiologistswere willing to give up the fight when UCLA proposed a settlement that wouldhave given the doctors five years to find another hospital practice--providedthe CMA dropped its suit, too. But the medical association is refusing toback down.

So what would satisfy the CMA? One solution would be to make teachingthe primary job of the employed doctors. Or make the dean of UCLA medicalschool, internist Gerald Levey, the head of a professional corporation directingthe 40 community clinics. "If Dean Levey, a physician who has takenan oath to serve patients first, controlled the network of clinics, we'dhave no lawsuit, even if his decisions were frustrating to community physicians,"says Lewin. "But the university doesn't even trust the dean to leada physician corporation. It wants the right to pull the strings and havetotal control."

The CMA has a secondary agenda as well. It wants the lawsuit to forcea debate on how public medical education is financed. "Society hasto face this issue," says Arthur R. Chenen, the attorney representingthe anesthesiologists. "No one wants to see UCLA hampered in legitimateteaching functions. But if academic medical centers aren't allowed to fundmedical education by going into commercial medicine, how are they goingto do it?"

Certainly not on the backs of physicians in private practice, if thesesouthern California doctors have their way. "Physicians as a grouphave been entirely too passive about the changes that have occurred aroundus, such as the onset of managed care and third-party intrusions,"says cardiologist Wohlgelernter. "We haven't protected our businessinterests until now, and look what happened."

By Anita J. Slomski, Group Practice Editor

Anita Slomski. Could you compete with an academic medical center?.

Medical Economics

1999;16:52.