Incentive toward quality, or question of ethics?

The Lufkin Daily News

As Woodland Heights Medical Center considers allowing doctors to hold shares in the hospital, its not-for-profit competitor has raised a number of ethical questions.

Woodland Heights CEO Lance Jones said that while hospital authorities, trustees and board of directors were still considering the idea, the focus of the move would be to improve the hospital’s customer service.

The idea of a physician owning stock or shares in a hospital is similar to a person owning a piece of property, Jones said. When a person owns a piece of property, he is more likely to keep it well-maintained, he said.

“This will continue to improve quality of services and of the hospital,” Jones said.

Jon Lamkin, business development director of Woodland Heights, said the idea of physicians owning shares of the hospital provides incentives to physicians to look at costs and the quality of that hospital.

But authorities at Memorial Health System of East Texas say they are skeptical, and the president of the system’s medical staff, Dr. Sid Roberts, expressed concern over the practice.

“The No. 1 driver of rising health care costs in the U.S. is overutilization,” Roberts said in a statement. “Whenever physicians have a direct financial interest in the amount or type of services provided, the subtle but real incentive is to order more tests or provide more care that may in fact be unnecessary. Physicians will naturally want to send paying, insured patients to the hospital where they get a kickback, while the poor uninsured patients go to the ‘country hospital.'”

There are a number of restrictions on such a syndication in health care, said Bryant Krenek, chief executive officer of Memorial.

“The federal government recognized the inherent conflict of interest arising out of physician ownership of health care service (and placed these restrictions),” he said.

One of the main conflicts of interest that arise out of such ownership has to do with the physician either directing the patient or ordering a service that the physician is going to benefit from, Krenek said.

“How do you ethically justify that connection?” he asked. “I can’t. I worked in a syndicated hospital for 10 years. I didn’t own shares, but other physicians did. It worked to the detriment of my competitor.”

Krenek said financial incentives may influence a physician’s decision on where to refer their patient.

“Lufkin has a good medical community, and we must work together for the good of the people we serve,” he said. “We are fortunate to have great physicians in this community, and we always have enjoyed a strong, positive relationship with them. Why change something that is not broken?”

Echoing Roberts’ statement, Krenek said that with syndication, there is a possibility that the physician would send high-paying, well-insured patients to the hospital that he or she has a stake in. Right now, he said, the hospitals are on a level playing field. Local physicians work out of both hospitals. But letting physicians own shares in one hospital could change the landscape, he said.

“It’s economics,” Krenek said. “If you can even question the connection, then don’t do it.”

Memorial is one of the few health care organizations in the country founded and funded by the people it serves, Krenek said.

“Therefore, we don’t want to lose sight of our purpose in this community. Our focus is simple — providing the highest quality of health care that is affordable to all East Texans. Every dollar that is generated by the hospital is reinvested back into the community’s health care needs, whether it is purchasing the latest technology, hiring highly qualified staff, or building state-of-the-art facilities,” he said.

Over the years, the two hospitals and the local physicians have worked hard together to create a regional health care hub so patients can stay close to home for all their health care needs, he said.

“We must continue that momentum. After all, it’s about community and the people we serve in East Texas,” Krenek said.

A statement from the American Hospital Association before the U.S. Senate Committee on Finance on “Physician-owned Specialty Hospitals: Profits before Patients?” dated May 17, 2006, addresses some of the concerns Krenek has.

A loophole in federal law allows physicians to own limited-service hospitals, such as cardiac, orthopedic and surgical facilities, where they then refer patients — a practice known as self-referral, the statement said. Self-referral raises serious concerns about conflict of interest, fair competition and whether the best interests of patients and communities are being served, the statement said.

Potential benefits touted by the physician-owned, limited-service hospital community include enhanced quality and greater efficiency, the statement said. This question can be answered by an examination of the evidence, it said.

“The research to date has found strong evidence that financial incentives are influencing physician behavior. Behaviors documented include patient selection and steering, service selection and increased utilization. On the other hand, two benefits of competition claimed by these facilities have not been borne out — they are not more efficient, and quality results have been mixed,” the statement said.

Jones and Lamkin disagreed.

Woodland Heights is not going to be cherry-picking patients because it is still a “whole” hospital as opposed to a speciality hospital and will treat all patients, Jones said.

“I don’t think that will be the case,” Jones said of physicians referring patients to Woodland Heights. “There is nothing that obligates them to send the patients to Woodland Heights. They want to send the patients to where they want to go. (Most of the time) both hospitals are at 80-to 85-percent capacity,” he said. “(Syndication) will just create two strong facilities … It’s not unethical, not illegal. To imply that our physicians are unethical … that is wrong.”

Krenek said Memorial is not implying that any of Lufkin’s physicians are unethical.

“We have a strong relationship with our medical staff, and it is our goal to work with them and Woodland Heights to offer the best and affordable health care in East Texas,” he said.

Jones said he’d rather have physicians invest in the facility than corporate bankers.

“(Physicians’) first interest is patients,” he said.

Jones said he agreed with Krenek that ventures such as physicians investing in specialty hospitals have impacted community hospitals, and this is exactly why the “whole hospital exception” exists under Medicare regulations.

“The primary purpose is to ensure the long-term viability of the entire hospital including a 24/7 emergency room,” he said.

Jones said Memorial and Woodland Heights were not on a level playing field, in spite of physicians working out of both hospitals, because Woodland Heights is a for-profit hospital and Memorial is a not-for-profit hospital.

“Woodland Heights will continue supporting the community with a sales/property tax contribution in excess of $2.2 million,” Jones said.

Memorial’s Krenek said, “Our tax status carries with it an obligation to provide health care for those in our community who cannot afford to pay for it otherwise. Last year we provided almost $70 million in charity care. In addition, every dollar earned by this system stays in the community and is not distributed to stockholders or to support corporate overhead.”

Jones pointed to The Surgery Center, which is about 25 percent physician-owned. The rest is owned by Triad, the group that owns Woodland Heights. He said that center has not changed the way the hospitals function.

“Both we and our medical staff have always held ourselves to be an ethical organization and will continue to do so in the future,” Jones said.
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