California heats up: will a jury decide the future of medicine? - Managed Care on Trial

Physician Executive, Sept-Oct, 2000 by Earl R. Washburn

THE CALIFORNIA health care scene is getting nastier and more contentious as conflict resolution shifts from negotiation to litigation. Major players are deciding that they have little to lose and potentially much to gain by going to court. Several recent actions illustrate this trend.

* In late 1998, the California Medical Association joined a physician lawsuit against UCLA School of Medicine, charging the school with violating the state bar against the corporate practice of medicine. This case tested the liberties and limits of academically based medical groups and marked the first time that our state medical association had gone to court against one of our medical schools. Then CMA President, Robert Reid, MD, said, "It is with great regret that we join this suit....We are strong supporters of the U.C. system....We are also aware of the problems the U.C. system faces in funding graduate medical education. But this is not the way to solve those problems." (1)

* The suit challenged UCLA's business plan, which expanded the school's historical role as a research and teaching institution by acquiring community hospitals and clinics and forcing staff members to become part of the university medical group. The suit alleged that this business plan forced physicians into illegal fee-splitting and referral schemes. The case also questioned the practice of hiring community physicians and advertising them to the public as "assistant clinical professors and faculty members" when these physicians did not have any significant teaching duties. (1)

* Ultimately, CMA lost, as the appellate court agreed with the trial judge that medical schools are fully exempt from the corporate bar. The facts of the case were not tried, as the cause of action was disallowed. In June the California Supreme Court declined to review this decision. In pursuing this case, the CMA has suffered a major setback in its efforts to protect the corporate bar in California. In essence, now the eight California medical schools may develop their business plans with complete disregard of the corporate bar. This is not what CMA hoped to achieve. Going to court always is a gamble.

* In June, Catholic Healthcare West filed suit against Blue Cross of California, claiming $50 million in underpaid or unpaid claims and charging the state's largest for-profit health plan with breach of contract and fraud. Blue Cross disputed this charge, with spokesman Michael Chee responding, In our view, this is just a disappointing move to gain leverage." Michael Mattoch, Chief Counsel for the California Healthcare Association said, "This is D-Day. When an organization the size of Catholic Healthcare West decides to make a move like this, I think it has to be taken as a clear indication of the level of frustration among hospitals." (2) California hospitals also expressed their frustration in a new survey, which indentified Blue Cross as the most problematic payer in the state. (3)

* Tough politics aren't only played out in the courtroom. Mercy Healthcare of Sacramento (a division of CHW) has been in a two-year struggle with the Service Employees International Union (SEIU) over unionizing the Mercy hospitals. In a hotly contested January 2000 election, the SEIU failed to win the right to represent the Mercy workers. The union appealed the vote to the National Labor Relations Board (NLRB), which found that there were some irregularities in the voting process but not enough to disallow the election results. For the moment, Mercy Healthcare had prevailed.

Payback time came in June when labor pressure on the state retirement system, CalPERS, successfully blocked a bid by Western Health Advantage to become the newest HMO available to CalPERS' one million members. WHA met all the criteria for approval and had a positive staff recommendation, but it is partly owned by Mercy Healthcare. That fact alone scuttled the deal. One CalPERS benefit committee member. Rob Feckner, said, "There is the potential that those premium dollars would be used for anti-union activity." He further noted that WHA "looks like it offers a good value for the service they provide." (4) Clearly the CalPERS decision was based on grounds other than staff recommendation or value. WHA is still hoping that CalPERS will reconsider this decision. (5)

* In a separate action, the same Mercy Healthcare system is the defendant in an employee whistleblower suit accusing Mercy of stealing millions from the government through a systematic scheme of false reports to Medicare. The U.S. Department of Justice recently joined this suit, which accuses Mercy Healthcare of nearly $19 million in overpayments due to a series of accounting tricks and cost shifting. An attorney for Mercy said, "When we get to the end, Mercy Healthcare Sacramento will be shown to have acted in good faith and it will be apparent that there were no false claims made to the government." (6) Obviously, the whistle-blowing former employees and the DOJ do not agree. The whole subject of Medicare fraud and abuse is an ever evolving and tricky business. (7) If a major, religiously based hospital system is found guilty of Medicare fraud, how many other hospitals will be in the same boat?