What's up, doc? Featured

1:08pm EDT September 22, 2003
If the health care industry seems chaotic from the outside, with aging baby boomers, managed care, new technology and nursing shortages, you should see it from behind the scenes.

Medicine, like anything else, is a business, and faces the same issues as any other business.

But to understand where medicine is today, you need to know its roots. Back in the days of house calls, hospitals were not the huge multibuilding facilities they are now.

"Hospitals really started out as physicians' clinics," says Tom Onusko, of counsel in Vorys Sater, Seymour and Pease's health and health care practice.

These small facilities grew and absorbed the very practices that made hospitals a necessity. As managed care and the roll-up mentality of the 1980s arrived, more doctors' practices became part of the hospitals' infrastructure.

"Seemed like a match made in heaven," says Onusko. "But like many relationships, there came the realization that some of these practices weren't run well. The doctors weren't happy, and the hospitals weren't happy."

Once again, the switch was on. Practices began breaking off and going it alone. At the same time, the health care landscape changed, and so these practices are trying to find new ways to turn a profit.

"Doctors are looking for other sources of revenue because they are getting paid less for traditional hands-on treatment," says Onusko. "They now want to do lab work and have their own equipment ... instead of sending people to the hospital. There are only so many things they can do to increase profitability.

"Now there is a trend for doctors to ask, 'Why don't we own our own hospitals?'"

The concern is that community hospitals will be stuck with the unprofitable cases. Lobbyists for the hospitals argue that these specialty hospitals are illegal, based on an Ohio law involving a "certificate of need."

The certificate of need prohibits the building of new hospitals unless there is a necessity based on demographics. But regulations to control supply and demand smack up against anticompetition issues, promising that this issue will have a long and complicated life.

"The community hospitals look at it as skimming the cream off the top. And some hospitals won't let those doctors on staff ... The doctors have sued arguing that the hospital can't keep (them) off staff. It's a highly charged issue," Onusko says.

Another health care issue coming to the forefront is "pay for use" arrangements that medical equipment vendors are making with doctors' practices.

"A lot of vendors are going to doctors and offering deals," says Onusko. "They want to charge a per procedure fee for every time someone uses the machine."

This can be beneficial for practices, erasing upfront costs and guaranteeing profit every time diagnostic equipment like MRIs or CAT scans are used and eliminating loss on downtime.

And it's convenient for the patient. However, there are ethical concerns regarding the captive referral structure.

"There are some basic kickback laws that have no safe harbors for these types of joint ventures," says Onusko. "There is the possibility that these turnkey operations may run afoul of fraud and abuse laws."

The issue is an ethical one involving a physician's referral bringing him or her financial gain.

"This is all very complicated and very scary," says Onusko. "But today, the financial pressure on these practices are so great."

There are basic medical questions as these facilities perform more complicated procedures.

"'Is it safe?' is the other question," Onusko says. "Is it safe to do a cardiac catheterization in the office? They are doing some pretty aggressive stuff in the office, and issues are going to surface there, too."

Finally, add the issue of medical malpractice insurance, the bane of certain types of practices. Although conventional wisdom is that these cost have risen drastically in the last few years due to an increase in medical malpractice lawsuits and their subsequent awards, this is not entirely true.

"It's a combination of factors," says Onusko. "Some of it is an ever-increasing number of lawsuits ... but when the stock market was doing great, the profit from investment subsidized the claims paid. When that went away, premiums went up."

All these issues speak to a medical practice's bottom line and the profitability of some medical fields, not to mention the role individual physicians and hospitals will play in the future. How to reach: Vorys, Sater, Seymour and Pease, (216) 479-6175 or www.vssp.com