In this episode of RadCentral, a radiology podcast, we are joined by Attorney David Millstein to discuss corporate practice of medicine and private equity in healthcare. David was legal counsel for American Academy of Emergency Medicine Physician Group in a lawsuit challenging the legality of Envision Healthcare Corporation’s “friendly physician” business model. The lawsuit ended with the healthcare giant withdrawing from all operations in the State of California. AAEM-PG resolved the case on confidential terms.

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Key excerpts:

“The corporation decides, yeah, we’re going to increase the number of scans you have to read. You don’t have to be very perceptive to understand that degrades the quality of care.”

“Private equity, be it in the form of a hospital or Wall Street hedge funds, have completely infiltrated the medical field through a variety of complicated and nontransparent transactions which, end result, is they control the practice of medicine. The amount of patients that a doctor sees when he works, how much he makes, all of these things. And, as they control the sources of patients, it will get worse and worse.”

“When you speak out and then suddenly you’re not given hours that month, or you’re given terrible hours, or you’re getting pressure because you’re not meeting certain deadlines…at some point, that slow and subtle pressure is going to affect care.”

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Transcript Episode 2: Corporate Practice of Medicine

The transcript has been edited from the video content: Repetitions and vocal disfluencies have been removed for reading clarity.

David
It’s called the “friendly physician” model for private equity. It’s remarkable that they actually employ that term, because it’s very descriptive and it’s also odious…

Laura
Welcome to RadCentral, a radiology podcast hosted by Excalibur Healthcare.
I’m Laura.

Betsy
I’m Betsy.

Laura
And today we will be sitting down with attorney David Millstein, who is a founder of Milstein and Associates, a law firm located in San Francisco, California. We will be discussing corporate practice of medicine and the involvement of private equity in healthcare.

David
Well, I became an attorney because I thought that I wanted to do some kind of service and make the world better. I was really bad in math. So medicine was not an option, although I was interested in it and became interested in the kinds of things you can do as a lawyer, which is actually make a difference. You can win or lose cases.

And if you win the cases and you win the right ones, you can make all sorts of good things happen in a world that is not fair. So I became interested in corporate practice issues and representing physicians many, many years ago, when I was a young attorney.

Well, a lot younger. In 1998, I had a client who I’d done some work for, and came to me with a colleague saying, we work in these emergency rooms for, then, Catholic Health Care West. And they’ve come to us and said they’re buying a management service organization that they plan to install in all of our emergency rooms.

And we’re kind of suspicious. This doesn’t seem good for us, and it seems like we’ll be eventually working for them. So we, looked into it. We couldn’t get information. We filed a suit eventually that, alleged it was a violation of corporate practice in medicine, and kickbacks for hospitals to go into the MSO business because they were giving out the contracts–and they could give out the contracts to their own MSO and make a lot of money.

It turned out that not only was the hospital taking about 15% of the physicians pay by doing this, but they were also controlling the practice and they had enormous control. Now that case resulted in them reversing the merger that caused this. And Catholic Healthcare lost about $50 million when the judge said “They can’t win. What are they doing here?”

But that was a long fight. And since that time, the, although we won that battle, we clearly lost the war because, private equity being in the form of a hospital or, Wall Street hedge funds have completely infiltrated the medical field through a variety of complicated and, nontransparent transactions, which, end result, is they control the practice of medicine. The amount of patients that a doctor sees when he works, how much he makes, all of these things. And, as they control the sources of patients, it will get worse and worse.

Yes. Corporate practice of medicine is a prohibition in most states. That provides that the practice of medicine is a profession. Doctors can practice medicine, but corporations can’t. It’s a fundamental division based on the conflicting duties of a professional towards its patient, doctor towards his or her patient, and a corporation’s duties towards their shareholders.

Doctors are bound by oath and, the essence of being a physician to do what’s in the patient’s best interests, make decisions about treatment modalities, about drugs, about everything that is in the best interests of the patient. Corporations, on the other hand, have a sacrosanct duty, not to patients. They have a duty to their shareholders to make profits.

So when a corporation owns a medical practice, there is a irreconcilable conflict between the duties of the physicians and the duties of, if their bosses are corporations, the corporation. The corporation needs to do everything it can to maximize profits. And if that means the the wait times are high and the periods if that means seeing three patients an hour or, six patients an hour, they’re obliged as long as they could have some doctor rubber stamp it, they’re obliged to see the six patients an hour.

People sometimes mistake this as it’s a question whether the corporations are greedy. No it’s not. Corporations are obliged to make money. They’re not doing their duty if they don’t make money. And so, the that fundamental, irreconcilable it has been recognized for over 100 years and in, in enshrined and even before that in the principle that corporations can’t do on your medical practice.

So now we get to the obvious example, if you work for a corporation and practice medicine, it used to be they had company doctors at factories and they worked for the company. Well, let’s send this guy back to work. I mean, he doesn’t need any more time off. He’ll be fine. That was not allowed under corporate practice of medicine guidelines.

the the the end of him of doctors, though working for corporations, hardly stopped the problem because as, the economy got more sophisticated, the corporations, through their smart lawyers, developed a lot of ways to put the corporations, ownership in, in a doctor’s name so they could say, hey, a doctor owns this. well, that doesn’t solve the problem.

When the doctor owns 300 practices, the doctor has never been to those practices. He doesn’t know anything about the practice. He just rubber stamps whatever the corporate, managers say. So if the corporate managers say, hey, we think we’ll get better medical care because we saw a study somewhere and it says you can get better medical care if you see patients quickly and don’t spend as much time.

And so we’re going to do that. And the corporate doctor, which is, is, you know, just a phantom of the corporation, he says, this is what we’re doing now. When you the line doctor, complains about this and says, wait a second, this isn’t good for the patient–they say, well, you don’t work for the patient directly.

You work for this mega medical practice, and that is owned by this doctor, and he’s your boss. And if you don’t like it, leave. Well, as when you get to the point where the majority of physicians, the majority of the providers of medical service HMOs in the hospitals, when they are, you know, have total control of your city or the main you can’t go anywhere.

And so it becomes a point where the physicians are having to be resigned that they don’t have options. And that’s how it all gets horrible.

Yeah. I think you should be terrified. This is not, you know, sort of an academic problem. Physicians on every level are feeling this, and it’s a complete lack of power over their practice. A complete, subversion of the ethical values that cause most physicians to practice in the first place an unfettered allegiance to the interest of the patient.

And when you have a corporate overlord who’s, as they say, their duty is to generate profits, there’s absolutely no way that that power equilibrium can, stay with the physician because the physician has no options. So those kind of dynamics operate to subvert the ethical values, because, you know, people, naturally, they’re in a community, they’re raising their kids in the community.

The corporation decides, yeah, we’re going to increase the number of scans you have to read. Well, you know, you don’t have to be very, perceptive to understand that degrades the quality of care. And yet, you know, like, you know, a frog boiling on water, they don’t you’re not going to notice it right away. But the difference is going to develop into, you know, profound degradation of the quality of care, not because physicians are are, wanting to do that, but just as a, when, when you speak out and then suddenly you’re not given hours that month or you’re given terrible hours or you’re getting, pressure because you’re not meeting certain deadlines, and other people are getting advantages that you’re not getting, you know, at some point, that slow and subtle pressure is going to, affect care, the mechanisms through which, these groups have done it is, remarkable.

I, gave, for example, the physician who owns many, many, practices. It’s called the “friendly physician” model for private equity. It’s remarkable that they actually, you know, employ that term, because it’s very descriptive and it’s also odious because the doctor who is, is not supposed to be friendly to the corporation. That’s the whole purpose, is that you’re not friendly to, you know, an entity whose job it is to make profit. So you’re friendly to your patient.

But that’s not what the “friendly physician” model means. Yet this is the predominant model you mentioned. The the Catholic Health Care West case is now Dignity. And there’s a, the the, that case, the utilized, different model, but there’s many models. One of the models, we, I challenge the “friendly physician” model in California in the Envision Healthcare case that recently resolved and that, case involved, physician, who owned many, many practices.

The physician in that model, which is repeated everywhere around the country. basically is a figurehead and the, the, recently in Oregon, I was involved in, largest nation, to strengthen their corporate practice of medicine rules. And the president of, one Medical, which is a large privately backed equity, group, came on and tried to justify, the, the U.

One medical, as you know. Well, they make our appointments for us and they, they do this administrative stuff and we don’t really want to do that. So we could see more patients. which is absurd. That’s not what they do. They, they schedule you, they collect all your money, they decide how much you’re going to get. They, decide, how you’re going to practice.

They establish treatment modalities, benchmarking, studies that they will feed you. And when these when these private equity groups are and MSOs are appealing for contracts, exclusive contracts in many cases, they’re telling the hospital how much money we’re going to make for you wait times and, not diverting patients and all the microeconomics of practice which results in private equity, you know, so if they’re pitching you that way, you don’t think they’re doing it.

One of the problems in this area is who’s going to fight this? Because physicians don’t have organizational, organizations equipped to do this. and legislatures, tend to be difficult to persuade in the face of massive, lobbying by the money groups because basically, that’s where all the money is, is in private equity.

So when you have Amazon opposing your legislation, they might tread lightly.

And, so it’s a very, yeah. I’m coming to believe that that, lawsuits aren’t as effective as legislation. Now, lawsuits can address this, but it’s an opportunistic kind of situation. And where, for instance, one large private medical group and I’ve represented some who have the wherewithal to fight with, an MSO and all of the cases I’ve done, they’ve the MSOs back down because they’re wrong.

00;17;21;26 – 00;17;48;20

David
They know they’re violating the law. They can’t win. but they can get away with it because nobody there’s no mechanism for people. Most people, certainly private physician can’t, you know, file lawsuits for those reasons. So it can be used sometimes as a defense if they get sued for violating a non-compete. For example, I, I’ve done I’ve successfully defended those cases.

But, you know, when even though you’re sitting as a physician, seeing, working for maybe a big radiology company and who says we’re just providing equipment to you guys and, you know, we’re we’re we’re not telling you that practice. but the they are and the law recognizes that the there is no clear line. There’s a California case says there’s no clear line of division between the business and the professional side of a medical practice.

There’s a merging of those two things. And complete control of the business side can equate to, control over the professional side.

Betsy
I don’t want to sound naïve, but how did they wind up with this involvement that slowly erodes their control over their practice?

David
Very good question. I don’t know how much of the majority is a result of retiring physicians who want a retirement plan and sell out their practice. They have clients. They have them and for some, infrastructure. And the private equity group comes along and says, hey, they have some front man physician, and they say, hey I’m going to take over this and we’ll pay you all this money.

And they get paid for their practice and they sign over, they establish the MSO structure whereby MSO or non MSO, the physician sells, but that physician who you’re selling to is a “friendly physician”, and he has many practices. He’s not buying your practice. The private equity group that he is obliged to is buying your practice. And when he sells that practice, he’s not allowed to if he’s installed, you know, in some titular leadership position. He can never sell it.

The private equity group gets to decide who goes in there. Well, if you can’t sell something, you don’t really own it, do you? So these complicated non transfer agreements result in the corporation owning the facility. And then you do that ten times and pretty soon you’re the dominant player in that area. And you can do whatever you want with your rates.

You can do whatever, you can pay physicians whatever you want, because you control so many of the facilities. So at the the heart of the evil of corporate practice are selling out physicians, and they’re to blame for most of this professional medical society’s licensing. Folks have authority to discipline physicians for violations of corporate practice of medicine, but they don’t because they tend to have quite a few of these selling out physicians in their organization, they’re dominant economic features.

So if you are, you know, politically aware, you understand that when you have massive money on one side, unless you have some countervailing money on the other side, it’s very difficult to pass legislation that is effective.

Betsy
Newcomers to an independent practice physician group don’t have the same kind of money to help their practice stay private…

David
Well, if you’re an employee or an independent contractor of a physician owned group, you kind of have no power. I mean, you’re just working for a guy who has so many hospital contracts or so many of this contracts, and that’s a reality. The only thing the physicians to can do is walk. But in many environments where there’s not a lot of practices, that’s not even an option.

Betsy
I found you through the Envision case. I came across the news that Envision was pulling out of California. I describe it as taking their ball and leaving the playground. They don’t want to do business in California when it involves continuing with the lawsuit, is that–did I understand that correctly?

David
That’s my view. They don’t admit that. But we filed the case. I think we got some, a very, very early ruling in the case that made it clear that if we could prove what we were saying about the way their company operated, then it would be a classic case of a violation of corporate practices in medicine.

And I wouldn’t have filed it if I didn’t think we could prove it. And, I’m 100% confident we would have prevailed in that case. they, yeah, in my opinion, they could not withstand the the existence of a California precedent saying that the “friendly physician” model was blatantly illegal. That would have ramifications for the other 90% of their business in the rest of the country.

It also would have ramifications to all private equity groups. That would be profound. We wanted to establish that precedent, but once they leave, there’s really no case there or there is a difficult impediments to undertaking a case when you don’t have what we lawyers call a case in controversy, you have to have an actual dispute. And we weren’t suing for money.

We were suing to stop the for a declaration that this is a practice. This is one of the problems that I’ve personally experienced with a number of these cases is when confronted, they can just leave, you know, California maybe represented 10%, 15% of their, their, their, I don’t even think 10% of their national market. Why why risk their the legality of their practice model.

And I had many, health care lawyers from the other side tell me that, you know, everybody’s looking at your case really carefully because we’re going to have to figure out a different way if you invalidate it. Could they figure out a different way? Well, you know, I think it gets harder and harder as you get pinned in more, but there are very few organizations, groups or individuals who have the resources to litigate a federal district court case. I mean, it’s incredibly…it’s expensive.

And unless you are protecting something that’s, you know, it’s very hard to justify spending money just for the advancement of a principle.

I represented the American Academy of Emergency Medicine professional group. they were the people who sued. The state did not sue. Could you get a state attorney general interested in the issue to sue? Yeah, I mean, that’s possible, but that particular attorney general has to be, you know, willing to withstand the ire of Amazon, for instance, or Optum and these massive private equity guys, they, UnitedHealth, they have to be able to withstand that on a local level.

It’s hard to find politicians who are running for office who are interested and feel that that is going to do that. In California, the attorney general has supported legislation to have reviews of health care mergers. And that’s a step in the right direction. It creates transparency. And it it, it gives some governmental authority.

But it’s, it’s, the best would be actual enforcement of corporate practice, which doesn’t, doesn’t occur. And this problem isn’t just medicine. I mean psychiatry, it’s veterinary practice. It’s all the professions. They have not yet really seeped into the legal profession, but they’re trying. I’ve noticed that attempts are being made.

Well, I, I have limited, when they’ve removed all the emergency, operations, I I’m actually not knowledgeable. as to their, other operations and what they’ve done in California, because I was just sued them over the the emergency practices.

On the radiology side, you know, Envision, we found that independent of the lawsuit they were utilizing, and we allege this, they utilized the acquisition of emergency rooms by giving away subsidy free radiology agreements. There was a, in the county that our case arose, that there was a radiology group who was being paid by Tenant Health to, a couple hundred thousand a year for the purpose of subsidizing the, the, you know, providing radiologists for the hospital because, you know, that’s that’s done envision, told them that if you allow us, give us this great emergency room contract,

00;29;10;12 – 00;29;41;14
David
We will, not, you know, we will provide you tenant the hospital with radiology free. So the independent group who was being paid 200,000 lost was was going to or the, or I think they did lose their contract because free services were being, provided. Now we allege that was a bribe. Because it is.

They said, no, there’s no money. We didn’t pay any money. Well, the judge didn’t, you know, I don’t think even spent any time, discussing that obviously it was a bribe, but radiologists are impacted. And I have talked to radiology groups in California about that. But again, the problem is you would have to have a really big radiology group to be able to go up against them and sue them.

You know, you’d have to have that, you know, some 20 member group or 40 member group that would be that would be difficult for them to, to, to withstand, that process.

I think I touched on it, but I think it’s very important for physicians to be more, aggressive about protecting their turf. just on idea, you know, on a that will that trickles up. The only thing stopping it from getting horrible now or just individual physicians. thinking of alternatives, not necessarily joining big groups, trying to do things more independently.

There’s been a tremendous influx of, concierge physicians and internal medicine that is directly the result. That’s not rich people wanting special treatment. It’s affluent people desperate to be able to get some medical care and and spending enormous money to do that, just basically rejecting the whole system that we have of insurance based medical care.

So any ways of avoiding that and being activists are good. And I encourage the retiring physicians and others not to deceive yourself into thinking that you’re providing efficiencies and better care to patients by aligning and selling your practice or joining your practices. Because you’re not. The inevitable effect of money is to run something as a business. It’s different than running it as a profession.

Obviously there’s professionals who make decisions that are not in the patient’s best interest. And we, as lawyers, you know, I’m critical of those people, those kind of subtle intrusions as bad as we have, as bad as they then are nothing next to the institutional, power dynamics of a having private equity because it’s just persistent. And I encourage physicians to not instead of think of it as a, you know, good versus evil bad rich guys trying to exploit, you know, rake in money and all these kind of metaphors, rich versus poor to not think of it that way.

It’s a structural issue, structurally speaking. Private equities are not doing their job if they’re not sucking as much profit as they can. If they’re not they’re violating their duty to their shareholders. So those things are incompatible. You cannot serve a private equity boss and your patient with fidelity, you can’t do that. So the only way to avoid that is to…I would hope that that the private groups can flourish. And if young people can set up their own practice reflecting their own value, younger physicians, they ought to do that. Because there’s just no comfort at the end of the day when you, as an employee, have really no power to do things the way they ought to be done. The way that people make you feel will make you feel good about your practice.

00;36;11;28 – 00;36;45;15
David
Yes. So, one of the situations is when private equity comes in and they lose money. They just don’t make good decisions in some of the private equity. They have enormous infrastructure. And those infrastructures are not necessarily efficient. you never bureaucracy and in many ways and many physician entrepreneurs I’ve talked to say, you know, there’s nothing like the old fashioned way of a doctor who owns a practice, who’s looking at the bills, who’s looking at everything and managing it.

That’s the way you achieve maximum efficiency. you might get more customers and you will get more customers with size and the leverage, such as offering radiology subsidy free stuff to get contracts is, you know, hard to compete against that. But many of those models do implode eventually. Envision claims they weren’t making any money in California, and that’s why they left.

But, there certainly is a history. Certainly Envision’s bankruptcy suggests that they weren’t making money. In general. And so when those things implode, if they implode, there is an opportunity for physicians to get back in because basically they’re going bankrupt and can be bought for almost nothing. And, I, I was in fact, I was talking to a bankruptcy attorney in the Envision case who was assisting us, and he was kind of reminding me of how in the 70s there was a lot of what they call rollups, purchase of practices that imploded and the they just couldn’t sustain themselves.

And it is possible that that could happen. Of course, that’s not a very powerful position to just be hoping that they don’t. It fails. and now it’s even more difficult because we have, a threat of vertical integration where we’re, you know, UnitedHealth through Optum, is purchasing medical practices. So you have an insurer owning the medical practice, which is just a nightmarish situation.

And, whether that gives new breath to some of the companies that might be imploding, I don’t know, you know, you’d have to ask, economist those kinds of questions, but, there is, that is an opportunity situation when those things occasionally just because of bad management, they just don’t make it.

Okay.

No, I think I’ve said enough.

Okay, good. Well, thanks. Nice chatting with you. Oh, sure. Very good. Bye. Bye.

Betsy
Another fantastic podcast. Laura, why don’t you take us out of here?

Laura
Sure. RadCentral is a production of Excalibur Healthcare. Thank you for listening. Don’t forget to like and subscribe, and you can find RadCentral wherever you get your podcasts. From all of us at Excalibur Healthcare. Have a great week.

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** The views, opinions, and statements expressed by guests on this RadCentral are solely their own and do not necessarily reflect the views, opinions, or positions of the RadCentral podcast, Excalibur Healthcare, or its hosts. Excalibur Healthcare does not endorse or guarantee the accuracy, completeness, or reliability of any information shared by guests during the episodes. *

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