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Legal implications of economic credentialing

By John W. Jones, Esq.

Historically, hospital credentialing decisions have been based almost exclusively on qualitative criteria and a physician’s clinical competence. Such a process has been driven and primarily governed by state law, Medicare conditions of participation and standards adopted by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Hospitals began subtly moving away from this central focus on quality considerations and gravitating toward economic considerations, initially utilizing physician utilization patterns. Given the economic pressures being placed on hospitals, they are now, more than ever, focusing on economic considerations in connection with their privileging decisions. This practice has become widely known as “economic credentialing.” The American Medical Association (AMA) and others have taken exception to this type of credentialing asserting that such credentialing practices conflict with state and federal law, including the federal Anti-Kickback Statute.

Critics such as the AMA have defined economic credentialing as “the use of economic criteria unrelated to quality of care or professional competence in determining a physician’s qualifications for initial or continuing hospital medical staff membership or privileges.” Essentially, economic credentialing is any practice by which a hospital conditions the granting of staff privileges on the physician providing a certain volume of services at, or referring a certain number of patients to, the hospital and/or the physician not investing in competing facilities. Economic credentialing can take on many forms. It began with exclusive contracting and now includes physician profiling practices and conflict of interest policies.

Hospitals first began departing from the use of quality measures in its credentialing decisions with the use of exclusive contracts. Generally, under an exclusive contract, the hospital enters into an agreement with a single provider group to provide all of the services in that group’s specialty area. This has become a widely accepted form of economic credentialing and has passed muster under the antitrust laws as courts have found that the pro-competitive benefits outweigh the anticompetitive effects.

Physician profiling and conflicts credentialing are somewhat different forms of economic credentialing. Physician profiling measures the quality of services provided by a physician, his or her utilization patterns and the cost of the services provided. It is an analytic tool that utilizes epidemiologic methods to compare provider practice patterns, including quality of care, utilization, service and cost. The hospital then uses these measures in its credentialing decisions.

Conflict of interest policies or “loyalty oaths” have been regarded as one of the most pure forms of economic credentialing because such credentialing decisions are made solely on the basis of economic factors. Although these policies are tailored to a particular hospital’s needs, they will generally provide that a physician is ineligible for medical staff membership and privileges if the physician has an ownership or investment interest in a competing facility, such as an ambulatory surgical center (ASC). The premise of such policies appears to be that the physician cannot simultaneously be a partner with, and competitor of, the hospital. Accordingly, hospitals’ movement toward the use of economic criteria in its credentialing decisions appear, at least in part, to be motivated by an increasing number of physicians investing in and providing, at times, much more profitable, ancillary services through specialty hospitals, ASCs, outpatient diagnostic facilities and other health care joint ventures. Such credentialing practices have raised issues under federal and state law.

Anti-Kickback Statute

The federal Anti-Kickback Statute proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for a patient referral or referral of other business for which payment may be made by a Federal health care program, including Medicare and Medicaid. Violations of the Anti-Kickback Statute can result in significant criminal penalties of up to $50,000 for each violation, as well as imprisonment.

OIG has historically taken the position that remuneration or payment to those in a position to refer clearly implicates the Anti-Kickback Statute. The argument is that the transfer of value to a physician may induce the physician to recommend his patients to the entity providing the payment. Since a physician is in a position of recommending or referring his patients to a hospital, any value transferred to him by the hospital could, if not properly structured, present risk to the parties. Critics of economic credentialing have taken the position that the value being transferred to the physician is the “privilege” to perform services at the hospital. By conditioning the grant of privileges on referrals for services or items reimbursable by the federal health care programs, including Medicare or Medicaid, the hospital has potentially violated the statute.

In December 2002, OIG issued a solicitation of public comments on certain credentialing practices in response to the AMA’s concern that an increasing number of hospitals were refusing to grant privileges to physicians who own or have other financial positions in or leadership positions with, or refer to competing health care entities or otherwise fail to admit a certain volume of patients to the hospital. One of the issues raised in the solicitation was whether medical staff privileges constitute remuneration for purposes of implicating the federal Anti-Kickback Statute. After receiving comment on the issue, OIG has indicated that privileges can constitute remuneration and, therefore, implicate (and potentially violate) the federal Anti-Kickback Statute.

In its 2005 Supplemental Compliance Program Guidance for Hospitals, OIG provides: “Certain medical staff credentialing practices may implicate the anti-kickback statute. For example, conditioning privileges on a particular number of referrals or requiring the performance of a particular number of procedures, beyond volumes necessary to ensure clinical proficiency, potentially raise substantial risks under the statute. On the other hand, a credentialing policy that categorically refuses privileges to physicians with significant conflicts of interest would not appear to implicate the statute in most situations. Whether a particular credentialing policy runs afoul of the anti-kickback statute would depend on the specific facts and circumstances, including the intent of the parties.”

OIG’s position is consistent with certain of its other pronouncements, such as those made in connection with the practitioner recruitment safe harbor. Under the physician recruitment safe harbor, hospitals are prohibited from requiring physicians they recruit from engaging in exclusive credentialing. The concern is that the hospital may be in violation of the federal Anti-Kickback statute if the hospital prohibits the physician from obtaining or maintaining staff privileges at other facilities, requires a physician to admit a proportionate share of his patients to the hospital or conditions recruitment payments on aggregate admissions. Importantly, however, OIG recognizes that it is the credentialing of privileges on a certain number of referrals or requiring the referral of a certain number of procedures beyond that required to ensure clinical proficiency which presents risks under the statute and when significant conflicts exists, the categorical denial of privileges to physicians with such conflicts would not implicate the statute.

To minimize any confusion and potential risk to the parties, the AMA recommends, among other things, that hospital bylaws clearly articulate membership and privilege criteria, including a prohibition on economic credentialing and encourage medical staff involvement in the development of conflict of interest policies, as well as in medical staff development plans and strategic planning activities.

False Claims Act

Violation of the federal Anti-Kickback statute could also create risk to the parties under the False Claims Act. The false certification doctrine, under the False Claims Act, predicates liability on the submission of a false certification that claims submitted to the government programs for reimbursement have been submitted in compliance with all applicable laws and regulations. Claims submitted under an arrangement which otherwise violates such laws and regulations, including the federal Anti-Kickback Statute, would violate the False Claims Act. Critics of this doctrine argue, however, that such a theory turns the False Claims Act into a vehicle for permitting private civil litigants to enforce a criminal statute, a responsibility delegated solely to the federal government.

Antitrust

Hospitals have historically prevailed in challenges that credentialing decisions violated state and federal antitrust laws. Generally, these decisions were evaluated under a rule of reason standard and courts found that the pro-competitive benefits outweighed any anti-competitive effects, focusing primarily on the quality of care delivered to patients. The most pure form of economic credentialing (conflicts credentialing), however, could present different challenges under these laws since economic factors, rather than quality factors, govern the credentialing decisions being made.

State Law

Many states have passed legislation restricting, in some form, hospitals’ use of economic factors in its credentialing decisions. Others, however, have adopted laws permitting hospitals to engage in some form of economic credentialing. Hospitals and physicians should be mindful of these statutes although they really fail to provide any global resolution to the issue of which criteria are permissible and otherwise consistent with the proscriptions under federal law. Another potential issue is whether credentialing decisions based solely on economic factors could expose credentialing committee members to potential liability for decisions not based on physician competence or professional conduct. State laws and the federal Health Care Quality Improvement Act provide immunity to credentialing committee members for their actions, provided such actions are based on the competence or professional conduct of the physician.

With the decline in reimbursement rates, rising costs and increasing inefficiencies, as well as the onset of pay-for-performance reimbursement models, it does not appear that the tension created by economic conflicts (real or perceived) between hospitals and physicians will subside any time soon. Accordingly, hospitals and physicians should work to align their interests and develop hospital credentialing policies in partnership consistent with applicable state and federal laws and clinical standards.

John W. Jones, Esq., is a member of the Health Care Services Group at Pepper Hamilton LLP in Philadelphia, Pa.

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