Economic credentialing: When hospitals play hardball

September 15, 2006

This doctor's hospital threatened to terminate her privileges because of her husband's interest in a competing hospital.

In theory, hospitals are supposed to make staff appointments and grant privileges based on a physician's clinical competence, as judged by the medical staff leadership. But with many hospitals facing increasing competition, rising costs, and other financial pressures, a growing number are using "economic credentialing"-rather than clinical skill-as a criterion for making staff appointments.

In a trend the AMA considers alarming, these hospitals are using staff privileges to reward physicians likely to bring in lucrative business and punish those with financial interests in competing facilities. According to Alice Gosfield, a healthcare attorney in Philadelphia, "Hospitals are feeling more threatened by competitors these days, and economic credentialing is a way of consolidating their power."

While Medicare, Medicaid, and JCAHO regulations all require hospitals to appraise physicians' professional competence when making staff appointments, they don't specifically prohibit consideration of financial interests in competing hospitals as appropriate criteria in such decisions. In fact, although some states now bar hospitals from such economic credentialing, it's still not illegal in most states.

A warm relationship turns chilly

Until recently, Cathey's professional relationship with BHMC had been amicable and mutually beneficial: Her office is located on the campus of the hospital, where she does nearly all her procedures-which bring the hospital significant revenue. The relationship is personal as well as professional. Cathey's two children were born at the hospital, and she and her family get most of their healthcare from BHMC physicians. Her husband, Steven, a neurosurgeon, also practiced there for many years. Both have appeared in television commercials for the hospital, and both have served as chairpersons for its annual fund-raiser.

Relations began to cool, however, when Steven Cathey joined a group of BHMC surgeons who'd decided to establish their own surgical facility in Little Rock. In May 2003, in anticipation of competition from the new Arkansas Surgical Hospital, Baptist Health's board of trustees adopted a written "conflict-of-interest policy"-described in the document as "economic credentialing." According to the minutes of that meeting, one motivation for the new policy was to ensure the "ability to show loyalty to physicians who are loyal to Baptist Health."

The new policy states that staff physicians with a direct or indirect financial interest in a competing hospital will lose their appointments and clinical privileges at Baptist's hospitals. The policy applies not only to physician investors in such facilities, but also to their immediate family members-with no right to a hearing or appellate review. (Prior to the new policy, all decisions regarding staff appointments and privileges at BHMC had been handled by the hospital's medical staff according to its bylaws, which include provisions for a hearing and appeal if disputes arise.)

In March 2005, just before the new surgical hospital opened, Janet Cathey wrote to Douglas Weeks, BHMC's administrator, asking if the new policy would affect her own privileges. She pointed out that she had no investment herself in her husband's new hospital. Besides, since she wasn't on its staff, and since it wasn't equipped to handle gynecological surgery, she wouldn't be referring patients there anyway. Cathey also noted that since most of her patients are enrolled in Blue Cross health plans that require exclusive use of Baptist Health hospitals, loss of her privileges at BHMC would have a "drastic" effect on her practice and on her patients.

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