Envision Health-California lawsuit tackles private equity in medicine

A group of emergency room doctors and consumer advocates in several states is pushing for stricter enforcement of decades-old statutes that prohibit ownership of medical practices by corporations that are not owned by licensed physicians.

Thirty-three states plus the District of Columbia have rules on their books against the so-called corporate practice of medicine. But over the years, critics say, the companies have successfully sidestepped prohibitions on owning medical practices by buying or setting up local staff groups that are nominally owned by doctors and limit doctors’ authority so they have no direct control.

These laws and regulations, which began appearing nearly a century ago, were intended to combat the commercialization of medicine, maintain the independence and authority of physicians, and prioritize the physician-patient relationship over the interests of investors and shareholders.

Those who advocate for stricter enforcement of the law say that physician-employer firms owned by private equity investors are the most egregious offenders. Private equity-backed staffing firms operate a quarter of the state’s emergency rooms, according to a Raleigh, North Carolina, doctor who runs a business for emergency physicians. The two largest are Nashville, Tenn.-based Envision Healthcare, owned by investment giant KKR & Co., and Knoxville, Tenn.-based TeamHealth, owned by Blackstone.

Court filings in multiple states, including California, Missouri, Texas and Tennessee, call out Envision and TeamHealth for allegedly using physician groups as straw men to circumvent corporate practice laws. But those filings have typically been in financial cases involving wrongful termination, breach of contract and overcharging.

Now, doctors and consumer advocates across the country are anticipating a California lawsuit against Envision, which is scheduled to begin in January 2024 in federal court. The plaintiff in the case, the Milwaukee-based American Academy of Emergency Medicine, alleges that Envision uses fictitious business structures to maintain de facto ownership of groups of emergency personnel, and is asking the court to declare them illegal.

“We’re not asking them to pay money and we’re not going to accept being paid to drop the case,” said David Millstein, the plaintiffs’ lead attorney. “We are simply asking the court to ban this practice model.”

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‘The ability to reverberate across the country’

The physician group believes a victory would lead to a California-wide ban on the practice — and not just in emergency hospitals, but for other staff provided by Envision and TeamHealth, including anesthesiology and hospital medicine. The California Medical Association supports the lawsuit, saying it will “shape the boundaries of California’s ban on the corporate practice of medicine.”

The prosecutor — along with many doctors, nurses and consumer advocates, as well as some lawmakers — hopes success in the case will encourage regulators and prosecutors in other states to take corporate drug bans more seriously. “Any decision anywhere in the country that says corporate ownership of a medical practice is illegal has the potential to absolutely reverberate across the country — and I hope it does,” said Julie Mayfield, a state senator in North Carolina.

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But the push to strengthen laws restricting the practice of corporate medicine has plenty of skeptics, who see it as an attempt to return to a golden era in medicine that is long gone or may never have existed. The genie is out of the bottle, they say, noting that the profit motive has permeated every corner of health care and that nearly 70 percent of U.S. doctors are now employed by corporations and hospitals.

The corporate practice medicine doctrine has “a very interesting and not very flattering history,” said Barack Richman, a law professor at Duke University. “The medical profession was trying to assert its self-serving professional dominance in ways that were not very beneficial to patients or the market.”

The California case involves Placentia-Linda Hospital in Orange County, where a group of plaintiffs lost an ambulance management contract to Envision. The complaint alleges that Envision uses the same business model at numerous hospitals across the state.

“Envision exercises deep and comprehensive direct and indirect control and/or influence over the practice of medicine, making decisions that directly and indirectly relate to the practice of medicine, making physicians only employees and reducing physician independence and freedom from commercial interests,” the statement said. to the complaint.

Envision said the company complies with state laws and its operating structure is common in the healthcare industry. “Legal challenges to that structure have proven futile,” Envision wrote in an email. It added that “decisions about care have and always will be between clinicians and patients.”

TeamHealth, the indirect target in this case, says its “world-class operations team” provides management services that “allow clinicians to focus on medical practice and patient care through a structure commonly used by hospitals, health systems and other providers around the world.” country.”

State rules vary widely

State laws and regulations governing the practice of corporate medicine vary widely depending on a number of factors, including whether there are exemptions for nonprofit organizations, how much of a physician’s income can be kept outside of the management firm, who can own the equipment, and how violations are punished. New York, Texas and California are considered to have among the strictest restrictions, while Florida and 16 other states have none.

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Kirk Ogroski, a partner at the law firm Goodwin Procter, said this kind of governance structure predates the arrival of private equity in the industry. “I would be surprised if a company interested in investing in this space screws up its incorporation documents; it would shock me,” Ogroski said.

Private equity-backed firms have attracted emergency care in recent years because emergency rooms are profitable and because they were able to charge exorbitant amounts for out-of-network care — at least until federal law cracked down on surprise charges. Envision and TeamHealth are prioritizing profits, critics say, by maximizing revenue, cutting costs and consolidating smaller practices into ever-larger groups — to the point of regional dominance.

Envision and TeamHealth are privately held, making it difficult to find reliable data on their finances and their level of market penetration.

Dr. Leon Adelman, co-founder and CEO of Ivy Clinicians, a Raleigh-based emergency physician startup site, spent 18 months compiling data and found that private equity-backed staffing firms run 25% of the nation’s emergency rooms. TeamHealth and Envision have the two largest shares, at 8.6% and 8.3%, respectively, Adelman said.

Other estimates put private capital penetration in ER close to 40%.

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Doctors are asking for an investigation

So far, efforts by emergency room doctors and others to challenge private employment companies for their alleged violations have yielded frustrating results.

An advocacy group called Take Medicine Back, formed last year by a handful of emergency physicians, sent a letter in July to North Carolina Attorney General Josh Stein asking him to investigate violations of the corporate medicine ban. And since Stein holds a senior position in the National Association of Attorneys General, the letter also asks him to take the lead in persuading his fellow AGs to “initiate a multistate investigation into the widespread lack of enforcement” of corporate medicare law practices.

The group’s leader, Dr. Mitchell Lee, said he was initially disappointed by the response he received from Stein’s office, which promised to review his request, saying it raised complex legal issues about the corporate practice of medicine in the state. But Lee is now more hopeful, having secured a January meeting with officials in Stein’s office.

Dr. Robert McNamara, co-founder of the Lee Group and chair of emergency medicine at Temple University’s Lewis Katz School of Medicine, filed complaints with the Texas Medical Board, along with Houston physician Dr. David Hoyer, asking the board to intervene against two doctors accused of engaging in professional misconduct. which are controlled by Envision and TeamHealth. In both cases, the board declined to intervene.

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McNamara, who serves as the chief medical officer of the physician group California Envision, also filed a complaint with Pennsylvania Attorney General Josh Shapiro, alleging that a group called Pennsylvania Ambulance Services PC, which was trying to contract with Ambulance. Crozer Keystone Health System physicians, was wholly owned by TeamHealth and served as a shell to avoid control.

A senior official in Shapiro’s office responded, saying the complaint had been forwarded to two state agencies, but McNamara said he hadn’t heard anything in more than three years.

Different views on the role of private capital

Proponents of private equity say it has done a lot of good for health care. Jamal Hagler, vice president of research at the American Investment Council, said private equity brings expertise to hospital systems, “whether it’s hiring new staff, growing and opening new markets, integrating new technologies or developing new technologies.”

But many doctors who have worked for private companies say their mission is incompatible with best medical practice. They cite an emphasis on speed and large numbers of patients over safety; preference for less trained, cheaper medical workers; and treatment protocols inappropriate for certain patients.

Dr. Shawn Jones, an emergency physician in Asheville, North Carolina, said his first full-time job was at a hospital in Florida, where EmCare, a subsidiary of Envision, ran the emergency room. Jones said EmCare, working with the hospital owner, pushed doctors to meet performance goals related to wait times and treatments, which weren’t always good for patients.

For example, if a patient came in with an abnormally high heart and respiratory rate — signs of sepsis — doctors were expected to give them large amounts of fluids and antibiotics within an hour, Jones said. But these symptoms can also be caused by a panic attack or heart failure.

“You don’t want to give a heart failure patient 2 or 3 liters of fluid and I’d get emails saying, ‘You didn’t do that,'” he said. “Well, no, I didn’t, because the reason they couldn’t breathe was because they had too much fluid in their lungs.

Envision said the company’s 25,000 clinicians, “like all clinicians, make independent assessments to provide quality, compassionate, clinically appropriate care.”

Jones felt differently. “We don’t need some MBA experts telling us what to do,” he said.

Kaiser Health News is a national health policy information service. It is an editorially independent program of the Henry J. Family Foundation. Kaiser that is not affiliated with Kaiser Permanente.


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