Advocacy Resources

Since the early 1980’s hospitals have adopted medical staff development plans or strategic plans that outline the projected need for physicians in each specialty and the qualifications they must possess. Today, due to the growth in managed care and continued competitive, economic and legal pressures, most hospitals have some form of medical staff development plan. Hospitals adopt medical staff development plans to:

• Gain a competitive edge and increase their market share. Given today’s competitive healthcare market, hospitals must differentiate themselves from other hospitals that are competing for patients from the same patient and payor pools. The strength and unique of the medical staff attracts patients, and in turn payors. Consequently, hospitals are taking steps to ensure that their medical staff members are essentially full-time at their institution.

• Access key payor contracts and develop Medicare-risk products.

• Integrate physician and hospital services. To increase their referral networks, hospitals have acquired primary care practices and employed primary care physicians, and are also developing integration strategies for specialists to control inpatient utilization and develop global fees for services.

• Develop new clinical service (revenue) opportunities.

• Discourage specialists from developing competing ancillary services and discourage new entrants to their market.

• Manage the number and types of physicians on the hospital’s medical staff. The governing body establishes institution/community criteria, such as commitment to the hospital, office location, referral patterns, and economic criteria, such as the percentage of charge paying patients for medical staff appointment and reappointment.

• Determine what kinds of limited licensed practitioners and scope of practice will be permitted in the hospital.

• Protect their tax-exempt status. The Internal Revenue Service requires that nonprofit, tax exempt hospitals must demonstrate that expenditures to recruit physicians and acquire physician practices further their charitable missions.

• Maintain their Medicare eligibility. A hospital/health system must ensure that any financial support for recruiting physicians complies with Medicare anti-kickback laws.

Some of the above reasons for medical staff development plans are more valid than others, particularly those involving compliance with federal law. Some of the reasons for medical staff development plans, however, serve to exacerbate the tension between the members of the medical staff and the hospital. For example, many plans apply not only to new applicants seeking medical staff membership and clinical privileges, but are used to reappoint and renew current members. As a group, young physicians are impacted most by medical staff development plans. Because hospital medical staffs are already closed, they are denied the ability to gain clinical privileges and essentially the ability to practice.

With the continued growth of managed care and direct contracting, many hospitals pay particular attention to each physician’s economic contribution to the hospital. Physicians that do not actively utilize the hospital’s facilities, who have an economic relationship with a competing hospital, or who fail to generate revenue are being prohibited from applying to the medical staff and current members may no longer be eligible for continued appointment. These decisions are not based on the physician’s competence; thus, the physician has no right to due process and may not be provided reasonable notice.

In response to the growing corporatization of medicine, the AMA is convinced that hospitals and health systems will continue to develop and implement medical staff development plans and other forms of economic credentialing. The Association however is concerned that medical staff development plans and other forms of economic credentialing create conflicts between a physician’s duty to use a hospital best suited to a patient’s needs and his/her obligation to satisfy the Board’s credentialing criteria.

Special Concerns of Young Physicians

Some young physicians vehemently deny the need for any type of medical staff development plan, feeling that the only the healthcare marketplace should determine whether or not a physician is needed. They believe that medical staff development plans should not be acceptable in any form since they essentially control the number of specialists on staff.

Other young physicians point to specific areas of the country where medical staff development plans have restricted their ability to practice medicine. Those who apply for membership and/or clinical privileges at a given hospital learn that the quotas for their particular specialty have already been filled by older physicians and that despite their qualifications they have no avenue to gain privileges. These plans can have a particularly negative effect on those physicians just entering practice or who are new to a community.

Most young physicians, while they abhor closed medical staffs, acknowledge that hospitals will most likely continue to adopt and implement medical staff development plans to increase their market share, further the integration of physician and hospital services, and improve their financial margins.

Once a plan has been developed, it is extremely difficult for a medical staff or its members to stop a governing body from implementing the plan’s recommendations. It is for this reason that the AMA Young Physicians Section stresses that since the medical staff development plan affects all physicians who practice at the hospital and all who later apply for membership and/or clinical privileges, young physicians must become proactive and involved in the medical staff strategic planning process. Young physicians need to play an active role in the process through which medical staff development plans are developed, in order to protect their interests as well as those of their fellow young colleagues.

The AMA-YPS has assumed responsibility for educating young physicians throughout the United States about the importance of their participation on hospital medical staffs. While leadership positions require a commitment of time and energy and in many cases are not easily attained, young physicians cannot afford not to become active in medical staff leadership positions. This particular issue—medical staff development plans--has surfaced that clearly demonstrates the critical need for such involvement.

AMA Policy and Activities

The AMA has a history of promoting self-governance and autonomy in clinical decision-making. Following a move by the Joint Commission on Accreditation f Health Organizations to eliminate the "medical staff" chapter of Hospital Accreditation Standards, the AMA Organized Medical Staff Section worked in concert with the AMA Commissioners to the Joint Commission to reinstate standards that retain the medical staff's authority in ensuring quality patient care. This culminated in a new Joint Commission Standards Medical Staff Chapter that responded appropriately to physician concerns about quality assurance and the patient-physician relationship.

As economic credentialing became a growing threat among practicing physicians, the AMA-OMSS took steps to counter denial of a physician's appointment or reappointment based on economic factors rather than on quality issues. The OMSS worked to establish policy that asked the AMA to amend JCAHO standards to state "that economic credentialing shall not be part of the appointment/reappointment process of a medical staff." While this exact language was not used in current standards, current standards do reflect the intent. They read as follows:

• MS.5.4.4 Decisions on reappointment or on revocation, revision, or renewal of clinical privileges must consider criteria that are directly related to the quality of care.

• MS.5.4.5 Decisions on appointments or on granting of clinical privileges must consider criteria that are directly related to the quality of care.

Many hospitals today condition medical staff privileges by prohibiting physicians from being members of multiple hospital medical staffs. At the 1997 Interim Meeting of the AMA House of Delegates, members argued successfully that hospital medical staff privileges should only be contingent on training, experience, and demonstrated competence, and that medical staff development plans should not relate to a physician's business/professional relationships with other hospitals or health systems.

The AMA supports the principle that a hospital may not limit a physician's participation or medical staff privileges at the hospital based in whole or in part on the physician's membership or participation at a different hospital or hospital system or on the medical staff membership or participation of a partner, associate or employee of the physician at a different hospital or hospital system. The AMA also opposes hospitals placing limitations on medical staff privileges or participation at a hospital based in whole or in part on the physician's membership or participation at a different hospital or hospital system or on the medical staff membership or participation of a partner, associate, or employee of the physician at a different hospital or hospital system.

Recently AMA-approved principles for medical staff development plans state that the medical staff and hospital/health system leaders have a mutual responsibility to: (1) cooperate and work together to meet the overall health and medical needs of the community and preserve patient care; (2) acknowledge the constraints imposed on the two by limited financial resources; (3) recognize the need to preserve the hospital/health system/s economic viability; and (4) respect the autonomy, practice prerogatives, and professional responsibilities of physicians. In addition, the medical staff and its elected leaders must be involved in the hospital/health system’s leadership function, including: the process to develop a mission that is reflected in the long-range, strategic and operational plans; service design; resource allocation; and organization policies. The medical staff should review, approve and make recommendations to the governing body prior to any decision being made to close the medical staff and/or a clinical department.

The AMA principles emphasize that the best interests of patients should be the predominant consideration in granting staff membership and clinical privileges, and that medical staffs must ensure that quality patient care is not harmed by economic motivations. The medical staff must be responsible for professional/quality criteria related to appointment/reappointment to the medical staff and granting/renewing clinical privileges. The professional/quality criteria should be based on objective standards and the standards should be disclosed. The medical staff should be consulted in establishing and implementing institutional/community criteria.

Furthermore, the AMA principles stress that institutional/community criteria should not be used inappropriately to prevent a particular practitioner or group of practitioners from gaining access to staff membership. Staff privileges for physicians should be based on training, experience, demonstrated competence, and adherence to medical staff bylaws. No aspect of medical staff membership or particular clinical privileges shall be denied on the basis of sex, race, age, creed, color, national origin, sexual orientation, or physical or mental impairment that does not pose a threat to the quality of patient care. Physician profiling must be adjusted to recognize case mix, severity of illness, age of patients and other aspects of the physician’s practice that may account for higher or lower than expected costs. Also, profiles of physicians must be made available to the physicians at regular intervals.

The AMA has communicated the above cited medical staff development plan principles to the President and Chair of the Board of the American Hospital Association. It also has recommended that state and local medical associations establish a dialogue regarding medical staff development plans with their state hospital association. Moreover, at the request of the Young Physicians Section, the AMA will report on the current utilization of these AMA Principles, with particular emphasis on the effects on hospital financial health. The report has not yet been released as of July 2000.

The AMA, if requested directly or by a constituent medical society, provides assistance to the medical staff in resolving a dispute over medical staff development plans or economic credentialing controlled by the hospital, if appropriate.

Other relevant AMA policies are as follows:

• Policy H-225.990: supports establishment of hospital committees of equal numbers of board of trustees/directors and medical staff representatives to negotiate conflicts and attempt to resolve them as they arise.
• Policy H-230.968: provides that members of the medical staff whose clinical privileges are limited/revoked for economic or contractual reasons should be entitled to the due process.
• Policies H-230.975 and H-230.976: strongly oppose the practice of economic credentialing.
• Policy H-230.994: supports the principles of open staff privileges for physicians, based on training, experience, demonstrated competence, and adherence.

Legislative Action

Recent Illinois law established that "inappropriate use of economic credentialing in determining an individual’s qualifications for initial or continued medical staff membership or privileges may deprive the citizens of the state of Illinois access to choice of health care providers." It also mandates minimal "safeguards that require hospitals…to explain to individual providers the reasons, including economic factors, for credentialing decisions, to allow for a fair hearing, and to report economic credentialing to the Hospital Licensing Board for further study." Under the Illinois law, "if a hospital exercises its option to enter into an exclusive contract and that contract results in the total or partial termination or reduction of medical staff membership or clinical privileges of a current medial staff member, the hospital shall provide the affected staff member 60 days prior notice of the effect on his/her medical staff membership or privileges."

Case Law

The body of case law on hospital development plans is mixed, and is still evolving. Courts have struck down all or portions of some medical staff development plans. Examples include where a hospital failed to document the need for the policy (Walsky v. Pascack Valley Hospital, 367 A.2d 1204 (N.J. Super. 1976); where the plan included a provision prohibiting physicians with two years or more experience in the primary service area from applying for appointment (Berman v. Valley Hospital, 510 A.2d 673 (N.J. 1986); and where the plan closed the staff to new practitioners, but granted an exception to those joining existing practices (Desai v. St. Barnabas Hospital, 510 A. 2d 662 (N.J. 1986). Moreover, in Austin v. Mercy Health System, 1995 WL 525250 (Wis. Appl), the Wisconsin Court of Appeals held against a hospital that unilaterally adopted a new policy that changed the credentialing requirements for physicians to practice in the intensive care unit in violation of the hospital’s bylaws. The court held that the bylaws established a contract between the hospital and the medical staff and that portions of the critical care policy breached that policy.

Courts, however, have upheld requirements that physicians on the medical staff use only the hospital’s equipment and services. Courts also have upheld a hospital’s decision to enter into an exclusive contract with physicians – without consulting the medical staff – even though it was excluding competent members of the medical staff who had clinical privileges. In addition, in Aluko v. The Charlotte-Mecklenburg Hospital Authority (W.D.N.C., 1997), the U.S. District Court ruled that where a physician loses privileges based on the hospital’s administrative, market-driven decision, no constitutionally protected liberty interest has been violated, particularly since the physician retained privileges in other hospitals to perform the procedure.

The issue that has not been addressed by the courts is whether or not a hospital can exclude members of the medical staff with privileges to perform a clinical service from exercising those privileges if the hospital had not entered into an exclusive contract with another group of physicians and was excluding members of the medical staff because they were employed by or had signed a contract with a competitor. The courts, have, however, not been willing to find an antitrust injury if one or two physicians are excluded from performing certain services by a hospital since decreasing the practice of one or two physicians does not impact interstate commerce.

Antitrust Concerns

Hospitals often use the threat of possible conspiracy as means to minimize or exclude medical staff involvement in hospital medical staff development plans.

The AMA Office of the General Counsel reviewed the federal and state antitrust laws and guidelines and believes that, while concern about compliance with federal and state antitrust laws is legitimate, the mere fact that physicians on the medical staff participated in a medical staff development plan is not, by itself, a violation of antitrust laws. In late 1999, the Young Physicians Section again asked the AMA to study the impact of medical staff development plans on physicians entering or changing practice and determine whether some of the plans may be illegal restraints of trade under the antitrust laws.

The primary legal concern is that physicians denied privileges when the medical staff development plan is implemented may allege that the physicians who participated in the preparation of the plan conspired with the hospital to exclude them from competing in the market served by the hospital. The essence of the charge is that the physicians who competed with the excluded physician – and participated in the development of the plan – influenced the hospital to deny privileges to the excluded physician to eliminate him/her as a competition. Such a conspiracy could indeed violate federal antitrust laws.

Federal courts, however, are split on whether a medical staff is legally capable of conspiring with its hospital in the matter of peer review; a majority hold that conspiracy is impossible in the context of peer review because the hospital and its medical staff share a unity of interest in upholding quality to care. Even in jurisdictions where conspiracy is possible, the hospital and medical staff must have intended to conspire to restrain trade, and the restraint of trade must have harmed competition. That has proven very difficult for plaintiffs to demonstrate, and they have almost always lost cases of this nature.

The best protection from antitrust claims that may arise from development and implementation of a medical staff development plan is to assure that the process proceeds in good faith for the purpose of making the hospital a more effective competitor, and that it is not used to exercise leverage to disadvantage physicians who compete with the hospital itself or physicians on the medical staff of the hospital.

Federal Anti-kickback, Self-Referral, and Tax Laws

The AMA Office of the General Counsel has also reviewed federal anti-kickback laws, federal self-referral laws (Stark I and II), and federal tax laws to determine whether medical staff development plans violate these laws. It concluded that it is unlikely that such medical staff development plans implicate these laws for the reasons stated below.

• The federal anti-kickback law makes it illegal to receive remuneration in exchange for, or to offer or pay remuneration in order to induce, the referral of Medicare or Medicaid beneficiaries. For a medical staff development plan to be illegal under the anti-kickback law, pursuant to the plan, the hospital must give physicians "remuneration" in exchange for the referral of Medicare or Medicaid patients to the hospital. There are no cases on record that explore the extension of privileges in return for referrals. Moreover, the legal literature suggests that it is doubtful that the mere granting of staff privileges is remuneration within the anti-kickback statute, as a hospital does not compensate a physician for referring patients to the hospital simply by giving the physician the opportunity to admit patients.

• The federal self-referral laws (Stark I and II) prohibit a physician from referring Medicare or Medicaid patients to an entity for designated health services if the physician (or an immediate family member of the physician) has a financial relationship with that entity. Medical staff development plans typically do not trigger the Stark laws: the possession of staff privileges, by itself, does not constitute a financial relationship with the hospital within the meaning of the Stark laws. Further, the clinical work that must be furnished at the hospital pursuant to medical staff development plans includes services which are not considered "designated health services" for purposes of the Stark laws.

• The relevant tax law is whether medical staff development plans might jeopardize the hospital’s tax-exempt status. To maintain its tax-exempt status, a hospital must neither engage in activities that result in a transfer of the hospital’s net earnings to an individual, nor engage in substantial activities that cause the hospital to be operated for the benefit of a private interest. Whether the granting of medical staff privileges is tied to volume of admissions or not, it does not involve a transfer of the hospital’s net earning to the physician. Although physicians do recognize some private benefit through their hospital privileges, the Internal Revenue Service has recognized that this type of private benefit is incidental to the overwhelming public benefits that results from having the combined resources of the hospital and its professional staff available to serve the public.

Because the engagement in substantial criminal activities is inconsistent with charitable purposes, a hospital could lose its tax-exempt status if its medical staff development plan violates the federal anti-kickback statute. Recent Internal Revenue Service rulings suggest that where a hospital is involved in "substantial" activities that violate the anti-kickback statute, the hospital also violates the requirements for tax exemption. However, it is unlikely that the kind of medical staff development plans discussed in this report would be found to violate the anti-kickback statute.

The Importance of Young Physician Involvement

As repeatedly emphasized, the AMA Young Physicians Section is on record as opposing closed medical staffs. The AMA-YPS also believes that young physicians need to understand the value of participation on hospital medical staffs and of the need to become active in medical staff leadership. The proliferation of medical staff development plans underscores the critical need for such involvement.

The AMA-YPS further believes that hospitals/health systems that choose to utilize medical staff development plans should ensure that the medical staff and the governing body work in concert to assure that credentialing is based on quality issues and not on economically-driven closure to medical staffs, and that certain principles should become part of those medical staff development plans.

The AMA-YPS believes that young physicians, especially those new to practice, may be impacted by these plans even more so than their colleagues who have been in practice longer, who are active in medical staff leadership positions, and who are ensconced in the community. The key to combating unilateral attempts to impose medical staff development plans is physician leadership. Often the difference between institutions where plans are imposed and those where they are developed in partnership with the medical staff is the presence or absence of solid leadership on the medical staff. Young physicians thus need to be proactive, to become involved in the medical staff strategic planning process, and to take steps to be a part of the medical staff leadership team.

The issues discussed above exemplify why young physicians need to have a voice, a voice that is best be heard at the outset. Do what is necessary to be a part of your medical staff leadership to ensure hospital and health system policies do not unfairly impact young physicians.

Those physicians wishing to amend AMA policy or to establish new policy also have an avenue for such action through the AMA Young Physicians Section, the AMA Organized Medical Staff Section, or the AMA House of Delegates.

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