+" 
IPepartment of Health and Human Servces
OFFICE OF
INSPECTOR GENERAL
STATE PROHIBITIONS ON HOSPITAL
EMPLOYMENT OF PHYSICIANS:
CALIFORNIA DATA
MANAGEMENT ADVISORY REPORT
st:RvrCts
Richard P. Kusserow
INSPECfOR GENERA
"1 
,f:la FEBRUARY 199 OFFICE OF INSPECfOR GENERA

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Servces' (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs. 
statutory mision is carred out through a nationwide network of audits, investigations, and 
inspections conducted by three OIG operating components: 
the Offce of Audit Servces, the 
Office of Investigations, and the Offce of Evaluation and Inspections. The OIG also informs 
the Secretary of HHS of.program, and management problems, and recommends courses to 
correct them. 
OFFCE OF AUDIT SERVICE 
The OIG's Office of Audit Servces (OAS) provides all auditing servces for HHS, either by
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in 
carryng out their respective responsibilties and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the Department. 
OFFICE OF INTIGATIONS 
The OIG's Offce of Investigations (01) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 
unjust enrchment by providers. The investigative efforts of 01 lead to criminal convictions 
administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid 
program. 
AN 
OFFICE OF EVALUATION  INSPECfONS 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and 
program evaluations (called inspections) that focus on issues of concern to the Department 
the Congress, and the public. The findings and recommendations contained in these inspection 
reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerabilty, 
and effectiveness of departmental programs. 
This report was prepared under the direction of Mark R. Yessian, Ph.  , Regional Inspector 
General, Office of Evaluation and Inspections, and Martha B. Kvaal, Deputy Regional 
Inspector General, Office of Evaluation and Inspections, Region I. Participating in this project 
were the following people: 
Boton Region  Headquarrs 
Russell W. Hereford, Ph.  Project Leader  Alan S. Levine 
Lori B. Rutter  W. Mark Krushat 
Barbara R. Tedesco  Department of Health and Human Servces

OFFICE OF

INSPECTOR GENERAL

STATE PROHIBITIONS ON HOSPITAL

EMPLOYMENT OF PHYSICIANS:

CALIFORNIA DATA

MANAGEMENT ADVISORY REPORT 
'" st:RVrCtn
+t-" 
Richard P. Kusserow 
INSPECfOR GENERA 
"1 
'l~,faa 
OE1-01-91-00772  INTRODUCTION

This report is a companion to our previous study, "State Prohibitions on Hospital 
Employment of Physicians " OEI-Ol-91-00770. In that report, we found that only five 
States -- California, Colorado, Iowa, Ohio, and Texas -- prohibit hospitals from 
employing physicians for patient care servces. While the prohibitions appear to have 
some adverse impact on hospital operations in these five States, they do not appear to 
be a major overall problem. 
The purpose of this report is to provide a comparison of the data for hospitals in 
California with hospitals in the other four States that prohibit hospital employment of 
physicians. We prepared this report in response to a request from the offces of 
Representatives Pete Stark and Henry Waxan. 
FINDINGS

State prolnbitions on hospita employment of physician have some adverse impact on 
hospita operations.

1hir-eght peen of hopital adinistrators responding to the suey frm the 
that prroheiitc horpi tal emplont of physins inicate that thee prohibitns ifmiep oSstea tes 
adtratie 
lea  or  costs. 
Forty-one percent of hospital administrators in California indicate that 
these prohibitions impose legal, recruitment, or administrative costs 
versus 36 percent of hospitals in the other four States. 
Fort-one peen of hopital adintrators redspoindfin g to OUT suey from the 
inate  fie States
that the prohibitns make it more  to staff meical seres. 
Forty-three percent of California hospital administrators indicate that 
these prohibitions make it more difficult to staff medical servces as 
compared to 39 percent of hospital administrators in the other four 
States. 
adtrators 
Twen-fOUT peen of hopital  responding to OUT suey from the five 
States inate that thee prohibitns make it more difcu to staff bas emeen 
seres. 
Twenty percent of California hospital administrators say that the 
prohibitions make it more difficult to staff basic emergency servces as 
compared to 28 percent of administrators in the other four States.  ..:-.:.:..........  .." .".".'........'"......".............,....................,.........................................,................... .........................................,........,...................-......,...,.. ......... ... .
..
.............................:....:...................................
Tht-hp epernh ioitf nhso pitlh aodislt rators responding to OUT suey from thed fiie fSt ates say 
that  on  emplont of  it more 
physins make 
provi specilt emen seres. 
Thity-five percent of California hospital admistrators say that the 
prohibitions make it more diffcult to provide specialty emergency 
servces versus 25 percent of administrators in the other four States. 
However, these prolnbitions do not appear to present a major overal problem for
hospita. 
Thir-three peent of hopital adintrators respondg to the suey from the 
emplo  fie States 
that prohiit hopital  of physins report that the are not even aware that 
thee prhiitns apply in the State. 
Twenty percent of Californa hospital adminstrators report that they are 
not even aware that these prohibitions apply in their State compared to 
43 percent of administrators in the other four States. 
nuer 
Hospils in thee 
emplo  fie States cie  of factors other than prohibitns on hopital
tohf p heymsinesn a sd moerep iamrpotr.t nt /iatins on the abil to ense specilt 
coverage in  The factors inlu a shortage of specilt
physins low reimurem rates, fear of ineased malpractie libilty, and disptin
of the priate practies. 
TABlE 1

PERCENT OF ADMISTRTORS CITG LIAATIORNISL
 

ON THIR HOSPITAL' ABIL TO ENSUR A 
OF SPECITY COVEGE IN TH EMGENCY DEPARTMNT

CALIFORN  HOSPITAL IN IOWA, OIDO
LIATION  HOSPITAL  COLORAO AN TEXA 
Shortage of Specialty  65%  64% 
Physicians 
Low Reimbursement  78%  44% 
Malpractice Liabilty  50%  31% 
Disruption of Practice  39%  39% 
COBRA Sanctions  30%  18% 
ltg 
lli!p!q9#  99;.  L....
g=ip 
Jgly jMijn 
Source: N =54 hospital administrators form California and 61 hospital administrators from Colorado, Iowa, Ohio 
and Texas. DIG/DEI survey of hospital administrators, May 1991.  CONCLUSIONS

Our data reveal that, for the most part, the impact of State prohibitions on hospital 
employment of physicians is similar for hospitals in California and those in the other four 
States in which these laws apply. Differences between California and the other four 
States are apparent in only two of the issues that we examied. 
First, California hospital administrators are more likely to be aware of the prohibitions 
than are their counterparts in the other four States. Eighty percent of California 
administrators indicated that the prohibitions apply in their State, versus only 57 percent 
of those from the other four States. While we don t have a definitive explanation for this 
situation, it is likely that the issue simply has received more attention in Caliorna than 
elsewhere. Individuals we spoke with in California -- from the hospital, medical, and 
legal communities -- suggested that State prohibitions on hospital employment of 
physicians are a "lightning rod" for a range of issues affecting medical staff-hospital 
relationships, particularly issues related to cost containment and control over medical 
practice patterns within the hospital setting. 
Second, as Table 1 shows, 30 percent of California hospital administrators (versus only 
percent of administrators in the other four States) consider the prohibitions on hospital 
employment of physicians to be a factor limiting their abilty to ensure specialty coverage 
in their emergency department. However, in both Caliorna and the other four States 
the impact of these prohibitions relative to the other factors identified above is minor. In 
fact, this fiding identifies other considerations that appear to be more extensive in 
California relative to assuring specialty coverage in the emergency department 
particularly hospital administrators' concerns over low reimbursement and malpractice 
liability.  ..  .. ... 
....~...:.=.....'.....:.....:........~......:..:.:...................:..:.."..~........:......:..............)....=..:....~...."...........:..:..:.............:.:..~..:..:............ ..'....:.....:.:.....~.........'....'.......; ......;......"....: .~........:............:.....:......"..::....'.~..........:..::...................;..'.":."......:... .:;..;............:."...::....).....:.......:.....:.....".:.. ...:...............;;.....:...::..............;....;':".".........:......:....: .;..'.......:...:..;............."."...:/....:..............:. : :..........~.........:....:..: ........,...........:...~....:....... ...:...:........-......:...~....:. ..::............:;:...:........:.......:~,...............,....:...:......".;......:.:......:,..:.....;....:..:.....:.....;....;..........:."....;.....:..............:.:......... ....... ;...............:....:..:......;........,....:.......;.....:...:....:.:.......;........:..::...;.....:............;:,.;..............: ,......;.:..............:..:.....................:..................:.....;...:..".......... ...:..:.................:...:..................,...........:.............\...:........-.........:............:)................:. ...........;.........,:...:.....-...=..:.........":..:.......;.............:... ...:....:..........:.:............:........:............:..........:..:... ...:..:...:.......:.:.:.~......:.....:..:."..:......~...:...:..:.....:.....:."~....:......:..~.:....~..:."...~:..:...:..:....~..::...;....:.\....:.. .:.:...-..;...:...:.....:.:........:......;.......;......?..........?.......
APPENDIX A

METHODOLOICAL NOTE

The methodology for the study on "State Prohibitions on Hospital Employment of 
Physicians" is described in detail in that report. The following table provides data on the 
characteristics of the sample of hospitals surveyed in this study. 
TABIE A

STATE PROIDmONS ON HOSPITAL EMPLOYMNT OF PHYSICIAS

CHCfRISTICS OF HOSPITAL IN SAMIE

CALORN 
HOSPITAL IN IOWA, OIDO
ARIE 
HOSPITAL  COLORA AN TEXA 
::::_11::1;.
:::I. 
Urban 70%  48% 
Rural 30%  52% 
))r

Public 19%  42%

Prte Non-Profit 67%  48%

Prite For-Profit 15%  10%

lll 
100 Beds 43%  44%

100 - 299 beds 33%  34%

300 - 499 beds 20%  15%

500beds 6%

;/L::) 
Teachig 15%  23%

Non-Teachig 85%  77%