Judicial Advocacy

Hospitals must be held accountable for economic credentialing

Tanya Albert Henry , Contributing News Writer

Hospitals can’t be allowed to pick and choose which doctors or physician groups get to provide care within their walls based on who is referring more patients, physicians tell the New Jersey Supreme Court.

The practice—commonly referred to as economic credentialing—results in higher health care costs, damage to the viability of private practices and diminished patient choice.

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That’s why the Litigation Center of the American Medical Association and State Medical Societies and the Medical Society of New Jersey (MSNJ) tell New Jersey’s highest court that it must uphold lower court decisions that found a hospital breached the implied covenant of good faith and fair dealing when it terminated a contract with a neurosurgery group.

Physicians say the decision in the case, Comprehensive Neurosurgical P.C. et al. vs. The Valley Hospital et al., was made based on the hospital’s bottom line, not the quality of health care as executives claimed.

“Valley should not be permitted to arbitrarily or pretextually terminate the staff privileges of Comprehensive so that it may, in turn, reward another practice for its assured referral stream,” says the brief that the AMA Litigation Center and MSNJ filed.

The behavior may even implicate the federal anti-kickback statute and the Stark Law, physicians say, and it’s “antithetical to a nonprofit hospital’s charitable purpose.”

Find out more about the cases in which the AMA Litigation Center is providing assistance and learn about the Litigation Center’s case-selection criteria.

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Before 2016, Comprehensive Neurosurgical was instrumental in creating Valley Hospital’s neurosurgery department. It earned the New Jersey Department of Health and Senior Services’ recognition as a comprehensive stroke center.

In February 2016, Valley Hospital terminated Comprehensive Neurological physicians from its medical staff so it could enter into an exclusive arrangement with Neurosurgical Association of New Jersey. Comprehensive Neurological then sued Valley Hospital. A jury found that Valley breached their contract’s implied covenant of good faith and fair dealing.

The trial judge who denied Valley Hospital’s post-trial motions said that Comprehensive Neurosurgical showed evidence that Valley Hospital executives “had made a predetermined decision to revoke” Comprehensive Neurosurgical physicians’ privileges. This included Valley Hospital’s own general counsel indicating that before they could cut ties with Comprehensive Neurosurgical the hospital needed to “build a strong case ahead of time.”

Evidence in the trial also included a white paper that alleged the other neurological group outperformed Comprehensive Neurosurgical on a variety of metrics. In affirming the trial court’s decision, the appellate court called the white paper a “sham study” and said that the neurosurgeons “presented substantial evidence to show that Valley Hospital … unfairly manipulated the data ... to support its preferred outcome.”

The court further said it was done to justify Valley Hospital’s decision to oust Comprehensive Neurosurgical because those physicians also had a relationship with—and referred patients to—Valley Hospital’s major competitor.

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What happened in this case is a microcosm of what is happening nationally, the brief explains.

More complex payment systems, costly health IT systems and large medical practices affiliated with hospitals are just a few of the changes that have made it more difficult for physician-owned practices to keep their doors open.

In 2022, 65% of neurosurgeons were hospital employees, up from 58% in 2019, the brief says.

Meanwhile, hospitals face declining inpatient rates and payment. By controlling the referral source hospitals can guarantee a steady stream of referrals for inpatient and outpatient services. Nationwide, private practice physicians who refuse to give up their autonomy and maintain medical staff privileges at multiple competing hospitals can sometimes face tools of harassment such as arbitrary terminations of staff privileges.

That’s what happened here, the brief says in urging the New Jersey Supreme Court to uphold the appellate court’s decision.

“Valley’s conduct, specifically creating a pretextual white paper for the sole purpose of attempting to justify the termination of Comprehensive staff privileges under the guise of a quality improvement initiative, is an abuse of the credentialing process, and is demonstrative of a larger systemic issue in modern health care: the unchecked power of hospitals and health systems to prioritize profits over patient care.”