Hospital Ownership Arrangements Criticized by Docs’ Advocates

Physician owners of the emergency practice at Dell Seton Medical Center in Austin reached a deal last month to buy out private-equity partner Welsh, Carson, Anderson & Stowe (WCAS). The relationship between New York-based WCAS and the level-1 trauma center, among other similar arrangements between private investors and healthcare practices, has caused some alarm among members of the medical community. The concern has been that de facto non-doctor ownership of healthcare facilities hurts quality.

Regarding Dell Seton, based at the University of Texas Hospital in Austin, emergency medical experts have alleged that the dismissal or transfer of nine physicians this winter underscores an inclination on the part of corporate entities like WCAS to rely on underqualified personnel. In some healthcare settings, physician assistants (PAs) and nurse practitioners (NPs) increasingly perform roles once in the sole purview of medical doctors who are much more expensive to hire.

The possibility of shifting more advanced duties from physicians to other medical staff is an alarming one, according to Dr. Saba Rizvi, an Austin-based emergency physician and an at-large director of the Texas chapter of the American Academy of Emergency Medicine (AAEM). Rizvi said this is especially disquieting in the COVID-19 era when patient volumes are higher than normal.

“Nurse practitioners are not equipped nor trained nor educated nor do they have the capacity or the background to do lots of things that emergency physicians do,” Rizvi told HC. In particular, she cited airway management procedures like intubations that some patients with severe coronavirus symptoms require. “[NPs] are not an adequate replacement for physicians, and it creates a safety issue for patients who arrive at that center to be treated.” She furthermore noted that, as a university hospital, Dell Seton “has an obligation to teach not only medical residents in the training of emergency medicine but also medical students from the Dell Medical School.” Rizvi fears their educations have been compromised.

Rizvi and other critics of such medical staffing decisions say they boil down to the profit motives of private-equity firms that manage medical practices. An article she published last October in Emergency Medicine News discussed broad criticisms of such ownership arrangements, contending that they not only worsen patient care but sacrifice physicians’ autonomy and due process rights.

Texas has a strong legal framework, known as a corporate practice of medicine (CPOM) law, precluding non-medical ownership of healthcare practices, but Rizvi says companies like WCAS have been able to skirt CPOM laws through what are called “workarounds.” These devices partner senior doctors at a practice with private investors, preserving the notion that the medical office in question is substantially doctor-owned. The problem, Dr. Rizvi said, is that state legal authorities need to be more aggressive in enforcing CPOM statutes.

In 1986, Texas’s statute was prominently enforced in the case Flynn Brothers, Inc. v. First Medical Associates. Therein, a state appellate court decided that even though the deal struck between the private company and the medical organization was portrayed by the two parties as an “independent contractor” agreement, it effectively amounted to non-medical corporate control and ownership of a healthcare practice.

Philadelphia-based Dr. Robert McNamara, a past president of AAEM, said other similarly worrying arrangements are ongoing in Texas, including the lay firm TeamHealth’s partnership with Memorial Hermann Health System and Envision’s partnership with UT Health East Texas. While WCAS is a subsidiary of partly physician-owned U.S. Acute Care Solutions, TeamHealth and Envision are owned entirely by private equity.

“Texas, with low malpractice rates, with the way reimbursements work, it’s an attractive area for these companies, because they can come in and they can charge a lot of money and not have a lot of expenses in terms of medical malpractice, so they’re all over” the state,” McNamara said.

Private equity has assumed an increased role in medicine in recent years. According to Bloomberg Businessweek, for instance, private equity is estimated to own more than 10 percent of the American dermatology market (an industry that has garnered high interest of late because America’s population is greatly aging). These business schemes, wherein private investors essentially head medical practices for a few years, cut costs, and sell the practices for a profit, has drawn the reprehension of political progressives but has also come under the scrutiny of free-marketers.

For example, Dr. Scott Gottlieb, a resident fellow at the conservative American Enterprise Institute and a former commissioner of the Food and Drug Administration, authored a 2011 report in which he generally extolled innovations driven by entrepreneurs with the support of venture capital. He especially observed the role venture-backed firms played in the development of rehabilitation hospitals, outpatient dialysis clinics, and long-term care hospitals. But private-equity outfits function differently than venture-capital ones do. The former typically hold majority shares of a company and therefore assume managerial responsibility for that company; the latter, holding much less ownership in a corporation, leaves the management responsibilities to industry professionals.

“The largest flows of new capital into health services are coming not from venture capitalists focused on developing new concepts in how health care services are delivered, but from private equity investors who are raising funds to acquire—and consolidate—existing health care companies…,” Gottlieb wrote. “Private equity is focused on consolidating and streamlining health care businesses. In some cases, it has been used as a way to wring money out of existing entities, consolidate them, and gain market leverage that lets providers drive up prices. But such financial engineering rarely creates new innovation.” (Gottlieb has continued to lament that venture capital in healthcare has dwindled in the wake of regulatory changes made through Obamacare.)

However America’s healthcare industry reached this point, physicians’ advocates like Drs. Rizvi and McNamara are adamant that the trend toward greater private-equity involvement must end, so doctors are in full charge of medical decisions.

“For the benefit of the patients, you would hope that physicians would decide who is the best person to see a patient in an emergency department, not a company that’s trying to preserve its bottom line,” McNamara said. “The whole selection of who is going to work what shift, are you going to be seen by an emergency doctor, are you going to be seen by a physician assistant or a nurse practitioner, that’s the practice of medicine; and these are business decisions that are being made that really should be made solely by the practicing physicians who are at the site.”

Neither WCAS nor Dell Seton’s press office returned calls for comment.

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