State Hospitals Lay Off MD Staff; Could Private Hospitals Do the Same?

New Jersey state mental hospitals have laid off 16 doctors in order to fix budget gaps, according to the state Department of Human Services.

Typically, hospitals do not have the authority to lay off medical staff members because most are not directly employed by the hospital. However, some practitioners, such as hospitalists and contracted physicians, are direct hospital employees.

Does this mean MD layoffs can become a common occurrence at private hospitals as well?

Only time will tell how common the occurrence becomes, but some private hospitals have already made medical staff cutbacks.

"It can happen anywhere and unfortunately there's a perfect storm because you've got decreased Medicare/Medicaid reimbursement, you've got increasing bad debt, you've got the economic melt down of many hospital's investments," says Jonathan H. Burroughs, MD, MBA, FACPE, CMSL, senior consultant at The Greeley Company, a division of HCPro, Inc., based in Marblehead, MA. "Almost every hospital in the nation is facing budget shortfalls and budget cuts and one of the expenses on the ledger is physicians' compensation."

The American Medical Association and American Hospital Association do not keep statistics on how many doctors have been laid off for financial reasons. However, the AHA does track how many hospitals have cut staff positions across the board. Since September 2008, 48% of hospitals have reduced staff in response to economic concerns, according to a March 2009 report.

There are several types of doctors that hospitals have the authority to lay off for financial reasons. These include state employees, contracted practitioners, hospitalists, and practitioners who are dismissed on the basis of economic credentialing.

Contracted employees are the easiest group to lay off. "Many of their contracts have what are called clean sweep arrangements, which means when the contract is terminated all of their medical staff privileges and rights are terminated as well," Burroughs says.

Practitioners can protect themselves by structuring their contracts so that if the hospital terminates their contract, their status is restored to medical staff privilege rights.

Hospitalists can also be easily laid off because they are direct employees of the hospital.

Economic credentialing is more challenging for a hospital to implement. Only some states have laws allowing economic credentialing, which is the practice of denying clinical privileges because of financial rather than competency concerns. Hospitals can dismiss a practitioner for economic credentialing reasons at any time; they do not need to wait until the end of a reappointment cycle to act.

Burroughs recommends that hospital CEOs considering laying off doctors to fix budget gaps should first consult with medical staff leaders who can speak to quality of care issues. "I think the wise CEO will consult with those physicians and make the decision as collaboratively as possible," he says.