A new case in California, American Academy of Medicine Physician Group v. Envision Healthcare, aims at the heart of illegal manner in which private equity groups openly own and operate medical practices, mainly via owning companies that provide outsourced medical practices to hospitals, such as emergency room doctors, hospitalists, and ob/gyn specialists. Gretchen Morgenson has publicized the suit, which we’ve embedded at the end of this post. It’s clear and well written.
It is surprising that it has taken this long for private equity’s flagrant abuse of the prohibition against corporations and lay parties practicing medicine to be hauled into court. California prosecutors have for some time been looking into how to challenge it, but were stymied by the difficulty in finding doctors who’d be willing to act as lead plaintiffs. It’s even more surprising given that the two giants in this arena, KKR’s Envision Healthcare, targeted in this suit, and Blackstone’s TeamHealth, have succeeded in engaging in abusive practices like “surprise billing” to the degree that they’ve been a focus of Congressional hearings and now legislation. To give an idea of scale, Envision Healthcare has contracted with 540 health organizations in 45 states.
We’ve written about private equity’s lawbreaking via practicing medicine without a license before, in the case of Dr. Ming Lin, who was fired after whistleblowing at Blackstone’s TeamHealth over poor coronavirus care. We wrote in our our March 2020 post that the press astonishingly covered for Blackstone by failing to connect Dr. Lin’s hospital, St. Joseph Medical Center with real power powerTeamHealth, even after reporting that it was TeamHealth that lowered the axe on Dr. Lin! As we added:
However, the furor over the mistreatment of Dr. Lin did largely manage to skip over the question of how TeamHealth is even legally in the position to effectively provide hospital services when they are not licensed to do so. Several groups protested Dr. Lin’s ouster and one, the American Academy of Emergency Medicine, focused squarely on this issue. From a position statement on its website (emphasis ours):
According to public statements, TeamHealth and PeaceHealth St. Joseph Medical Center have terminated Dr. Ming Lin. If this is so, AAEM condemns TeamHealth and PeaceHealth St. Joseph Medical Center for terminating Dr. Ming Lin an emergency physician who went public with his concerns over the safety of the hospital staff and his patients in this pandemic. It is an essential duty of a physician to advocate for the health of others. Dr. Lin, as a member of the medical staff, is entitled to full due process and a fair hearing from his peers on the medical staff. TeamHealth, a lay corporation owned by the private equity company the Blackstone Group, should not be the employer of Dr. Lin according to the laws of the state of Washington. Their hand in this termination is not only inexcusable but likely impermissible. We call on the WA state Attorney General and the State Board of Medicine to investigate this circumstance.
Needless to say, those clever private equity lawyers have tried to make the dubious and in some (many?) jurisdictions, illegal practices of having a non-licensed organization provide medical services work by keeping doctors-owned companies in the legal structure. The wee problem is that they are straws, devoid of any substance and authority. Eileen Appelbaum explained by e-mail:
TeamHealth is structured as a Management Services Organization (MSO) that doesn’t ‘own’ the doctors’ practices it provides services to. Each practice is ‘owned’ by a doctor or committee of doctors that establishes medical standards for the practice. Sometimes (not sure if this is true of TeamHealth), a single doctor is the owner of record for as many as 60 doctor practices.
The question of what ‘own” means in this context is a bit tricky. Rosemary Batt and I paid money for me to sit in on a webinar organized by a well-respected source of data and information on health care where private equity people experienced in acquiring doctor practices were instructing newbies in how to structure it. They practically snickered as the explained how the doctors that essentially sold their practices to a PE-owned company like TeamHealth were reassured by the fact that it would be doctors that ‘owned’ and ran the practices.
Of course, the deal required them to sell all their assets – building, equipment, supplies, receivables – to the TeamHealth-type organization. So, what does it mean that the doctors own the practice if the practice has no assets that can be sold, moved, used as collateral for a loan, etc.?
Yves here. I can pretty much guarantee that the lack of substance of ownership on the asset side is reflected by a services agreement that strips the nominal owners of any say. This could be pretty overt, or or it could be achieved by having the doctor sham-owners of a particular entity have no role in operating decisions and participate only in policy decisions via a committee where TeamHealth appointed other MDs that were guaranteed to vote the way Blackstone and TeamHealth bean-counters wanted.
Back to the present post. The details of this suit, filed by the very same American Academy of Emergency Medicine, confirms that Appelbaum’s intel and our surmised were correct.
The filing shows the multiple ways the organizational relations and contractual restrictions on doctors fall wildly afoul of the strong prohibitions in California law against non-doctors practicing medicine or owning physicians’ practices. Note that most states have similar strong statutes. It also details typical legal structure of an Envision Healthcare operated hospital practice, with the focus here an emergency room group that demonstrates methods used systematically across Envision Healthcare.
This suit revolves around the displacement of a proper physician’s group providing emergency room services at Placentia Linda Hospital by Envision Healthcare. American Academy of Medicine Physician Group, a non-profit, had provided billing and other administrative services to the ER group.
The litany of misconduct described in this short filing is impressive. Envision Healthcare has one straw acting as the MD in charge of each physicians’ group. He’s not licensed in or living in California. And it’s the same guy, calling into question how much he does besides rent out his license. Non-doctors have signed and filed virtually all key corporate documents. The MD-straw allegedly has very limited rights over his shares (he can’t transfer them, pay himself dividends, etc), meaning his ownership is effectively a legal fiction. The doctors who join these practices also have their rights restricted, including their ability to exercise clinical judgment. They are subject to all sorts of guidelines and restrictions set by non-MDs.
And then we have the financial frauds. The doctors in these practices have to agree to let Envision Healthcare bill under their license numbers. The suit alleges that Envision Healthcare inflated these charges and retains the excess, which is illegal sharing of medical fees with non-physicians (as well as Medicare and Medicaid fraud for Medicare/Medicaid patients…I would assume these attorneys also filed qui tam suits). They also gave kickbacks to the hospital, here in the form of a sweetheart deal on an anesthesia group.
This case has the potential to blow open this entire field of illegal practices across the US, since as this case details, the private equity groups’ efforts at complying with the law don’t even rise to the level of being a fig leaf.
Please read the filing in full. As Morgenson wrote:
When Envision took over the emergency practice at the Placentia hospital, it did so by acquiring a medical group, the suit contends, and then creating a separate legal entity to control the group of physicians. That is Envision’s business model, the suit alleges, and the entities are managed and operated by people who are employed by or connected to Envision.
“A medical director of the physician entity is appointed, and the choice is made by Envision,” the suit says. “Decisions are not made by the medical directors.”
Private equity-owned Envision offers remuneration to hospitals in exchange for contracts, the lawsuit alleges, shutting out “legally operating medical groups,” such as those partnering with AAEM.
Envision’s control over the physicians in the practices it acquires is “profound and pervasive,” the suit alleges. For example, Envision decides how many and which physicians are hired, their compensation and their work schedules, and it also sets other terms of employment, staffing levels and numbers of patient encounters. Envision controls coding decisions and bills patients and/or insurers for such services without telling physicians what has been billed, the suit says.
Needless to say, in many areas of the country there aren’t a lot of hospital groups. So a doctor who is unhappy with how Envision Health is running an emergency room is at risk of being fired or harassed, like given the worst imaginable hours at a hospital a long drive from his home…which is what TeamHealth did to Dr. Lin when it graciously offered him another posting after he was canned….which as we pointed out would have been tantamount to a demotion by virtue of a more difficult commute.
So pass the popcorn. This ought to be fun.00 AAEMPG vs EnvisionC Complaint-FINAL122021