SoCal Hospitals Work On Way to Get Around Physician Employment Ban

Cheryl Clark, May 17, 2010

A group of 157 Southern California hospitals is trying to get around the state's ban against the corporate practice of medicine by making a way rural and small hospitals could create special foundations that would hire doctors, in some ways similar to Kaiser Permanente and other larger systems.

"Right now, the larger hospitals have the ability to create these medical foundations, and most of them do so, such as Catholic Healthcare West, Sutter Health, Scripps, and Sharp," says Jim Lott, executive vice president of the Hospital Association of Southern California, which includes Los Angeles, Orange, Santa Barbara, Ventura, Riverside, and San Bernardino counties.

"We want to give all hospitals the leverage to do this, too," Lott says. "Some of our hospitals are desperate for physicians."

"We're not talking about a super-mega foundation either," Lott says. "Hospitals won't run the foundations, nor will the foundation be run by the Hospital Association."

He adds that the idea also could ease into bundled payment and accountable care organization integration between hospitals and physicians, two parts of healthcare reform legislation that are destined to be "game-changers" for the hospital-physician relationship.

"When they're able to provide the full spectrum of care, and share in some of the savings, their incentives align and the cost of care goes down," Lott says.

Lott envisions a "separate organization with a separate governing body that is not a shell company, but one that will look like all the other medical foundations that we have in California."

Right now, state law allows hospitals to create such foundations only if they each have at least 40 physician members and 10 of those physicians are specialists, conditions that Lott termed "onerous." That's virtually impossible for smaller community hospitals of 200 beds or fewer, he explains.

The discussion of allowing smaller and rural hospitals to pool together to create such a foundation is in part a response to the hospital association's failure to get legislation passed that would allow hospitals that have trouble recruiting physicians – either because they are small, in remote locations or in areas with large numbers of Medicaid or uninsured patients.

The powerful California Medical Association has long opposed any bill introduced that would modify the state's ban against the corporate practice of medicine.

The CMA apparently is opposed to the pooled hospital foundation idea as well. Dustin Corcoran, CEO of the California Medical Association, told the Wall Street Journal that such foundations would give hospital groups too much control, and said they would in effect be creating medical groups.

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