IPepartment of Health and Human Servces

OFFICE OF

INSPECTOR GENERAL

STATE PROHIBITIONS ON HOSPITAL

EMPLOYMENT OF PHYSICIANS:

CALIFORNIA DATA

MANAGEMENT ADVISORY REPORT

st:RvrCts

"1 

,f:la

Richard P. Kusserow

INSPECfOR GENERA

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. 

OFFICE OF EVALUATION AN 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 

Russell W. Hereford, Ph. Project Leader 

Headquarrs 

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 fie States 

that prohiit hopital emplont of physins inicate that thee prohibitns impose 

lea recr or adtratie 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 responding to OUT suey from the fie States inate that the prohibitns make it more dif 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. 

Twen-fOUT peen of hopital adtrators 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. 
.. 

... .....,............................................... :::. ..... ... ................,.......... ................................................. ....................... ..............,....................,.............,......... . ........... .........,...,... .......... .......... .......... ....... ::..

Th-peen of hopitl adistrators responding to OUT suey from the fie States say 

that th prhiitns on hol emplont of physins make it more dif 

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 fie States 

that prohiit hopital emplo 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. 

Hospils in thee fie States cie nuer of factors other than prohibitns on hopital emplo of physins as more importnt /iatins on the abil to ense specilt 

coverage in th emen depart. 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 LIATIONS


ON THIR HOSPITAL' ABIL TO ENSUR A ARIL


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 !p!q9# 99;. L.... lli 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%