Medical joint-venturing: an ethical perspective.

Joint ventures by physician entrepreneurs may introduce an intolerable conflict of interest into the heart of patient care, eroding patient trust and professional esteem. In 1986 a national chain opened a new radiological facility in Philadelphia near the office of Dr. Robert Hochberg, a private radiologist. Within several months, Hochberg noticed a decline in his business. Two and a half years later, less than half as many patients were using his office. Some of this was attributable to the superior technology at the competing facility, which boasted a state-of-the-art magnetic resonance imaging (MRI) machine. But Hochberg also blames the decline on what he believes are the chain's unfair business practices. When the new center opened, Hochberg notes, it recruited local doctors as limited partners, many of whom previously referred patients to him. According to Hochberg, "A few of the guys just turned off the spot."(1) A year earlier, Dr. William Birnbaum, a radiologist in Irvine, California, was approached by a colleague demanding a share of his profit. Birnbaum says he was told that if he didn't comply with the request, this colleague and the other physicians would stop referring patients to Birnbaum. "He said he wanted a piece of the action," Birnbaum later commented. "He said since it was their patients, they deserved some of the income.(2) Implicit in this request was the threat that the others might open a competing facility, which they eventually did. These stories suggest that medicine is no longer immune to the hardball tactics and hostile takeovers reported in the business pages of the newspapers. Behind these anecdotes, however, lies a development with potentially major impact on the quality of health care in this country and the future of the medical profession: the enormous growth in the number of medical facilities owned in "limited partnerships" by physicians who refer their own patients to them. Radiological offices, with their expensive CAT-scan and MRI technologies, are probably at the forefront of this development, but physician-ownership also plays a major role in the growth of many new outpatient, nonhospital medical facilities. These include women's health centers, alcohol and drug abuse treatment facilities, home health care services, freestanding urgent/primary care offices, same-day surgery centers, cardiopulmonary testing services, sports medicine clinics, parenteral nutrition services, and diagnostic medical laboratories.(3) In some cases, new hospital-based facilities have been opened in collaboration with groups of physician-investors or existing facilities have been "privatized" to stimulate physician referral to them.(4) Although accurate figures are hard to come by, congressional analysts have estimated that tens of thousands of doctors already invest in limited partnerships,(5) and one independent health care analyst believes that physicians hold shares or are partners in medical facilities that generate tens of billions of dollars a year in medical services.(6) A 1988 survey by the American Medical Association indicated that 7 percent of physicians polled had an ownership interest in a health care facility to which they refer patients,(7) while a 1989 report by the Inspector General of the Department of Health and Human Services (HHS) indicates that physicians own or invest in at least 25 percent of the independent clinical labs to which they refer patients, 27 percent of independent physiological labs, including radiology and MRI centers, and 8 percent of durable medical equipment businesses.(8) Legal Controversies Much of this activity involves what is called "joint-venturing" physicians and their financial backers. Typically, a group of investors guided by a consulting firm will recruit physician-investors in a proposed facility. As "limited partnerships" these arrangements do not have to include other nonphysician investors and may exclude doctors who use or own competing facilities. …