Lack of Patients Has Hospitals in Bidding War for Doctors’ Orders : Ethics: The ‘loyalty’ of physicians can be the key to a medical center’s financial health. But some observers believe monetary incentives can influence treatment.

Across the United States, hospitals without enough sick people to fill their beds are plying doctors with money, cheap loans, free office space and other gifts in return for patients.

A physician willing to move his practice across country--or even across town--can pick up tens of thousands of dollars in income guarantees, equipment and cold cash.

When the nation’s largest for-profit chain went looking for doctors for its new North Monroe Hospital here, for example, it agreed to pay eight specialists $1 million over three years to ease their move from the established medical center downtown.

In return for such generosity, hospitals typically expect one thing above all: The doctors’ patients--what they euphemistically call “loyalty.”

Although the deals make doctors richer and hospitals healthier, they may skirt the law and sometimes break it. Federal rules prohibit doctors from taking kickbacks for putting Medicare or Medicaid patients in hospitals, and most states have similar laws.

The American Medical Assn. ethics policy states: “Payments to or by a physician for the referral of patients are improper.” The American College of Physicians’ ethics manual says: “Collusion with any health-care provider for personal gain is morally reprehensible.”

Tying the doctor’s financial fortunes to those of a hospital injects a conflict of interest into medical care. These deals can influence--and perhaps degrade--the kind of treatment received. And the sick are almost never aware of this hidden partnership.

“If now it turns out that the doctor is in bed with the hospital and they are both interested in the bottom line, the patient becomes the victim,” said Dr. Arnold Relman, editor of the New England Journal of Medicine.

Medicare and other insurers have changed the rules of medicine by shortening, and often eliminating, hospital stays. As a result, many hospitals are half empty and eager to woo doctors, their most important source of business.

A doctor who gets money from a hospital might feel obliged to send patients there even if better care is available elsewhere. A patient may even wind up in a hospital when another option would be cheaper, safer or both.

Such deals also add to the cost of care because they tacitly, sometimes directly, pressure doctors to order a lot of tests and procedures.

“Medical decisions on whether you take action or not are difficult enough when all you have to consider is the patient’s welfare,” said Dr. Henry Jones, a Monroe family practitioner. “At the very least, you’re going to think more about putting someone in the hospital when it holds your mortgage or is giving you help that makes up a healthy part of your income.”

Jones, who was North Monroe Hospital’s first chief of staff when it opened in 1984, has sued the owner, Hospital Corp. of America, alleging unfair business practices. He contends that his practice was ruined after he complained about the policies and resigned.

Documents and depositions in his lawsuit open a rare window on the usually hush-hush deals between hospitals and doctors. They show hospital offers of discounted real estate and loans, as well as cash payments.

Such largess does not come without strings. Some recipients got notes from the hospital’s administrator prodding them to admit their patients. One doctor said he was told that loan payments could be deferred if he brought in enough patients. Others spoke of unnecessary, and potentially risky, tests ordered by doctors.

Officials of the chain denied rewarding doctors for admissions, but refused to talk about the deals, as did Arlen Reynolds, the North Monroe administrator at the time. In a deposition, Reynolds explained the philosophy behind the arrangements:

“We assist (doctors) in relocating so that we can increase the breadth . . . of our medical staff, and one of the side results of that is that you do get additional admissions,” he said.

Dr. Lee Roy Joyner, a founder of the group practice that received $1 million, went further, however:

“They wanted the gynecologists who did the most hysterectomies, not the ones who were the best doctors. They would make us aware of which admissions and procedures were where they made their money.”

The Monroe case may represent an extreme, but such deals are far from unusual. Hospitals of all types, from profit-making chains to facilities with religious affiliations, offer incentives to bring in doctors and, with them, their patients.

“You give me any major metropolitan area and I can guarantee you there is dirt going on,” said Steve Hirschtick, a Los Angeles lawyer who represents doctors around the country in contractual dealings with hospitals. “Anybody who looks at these deals is going to conclude they are illegal arrangements.”

“From attending conferences and listening to lawyers, it is something that is a growing trend,” said Harvey Yamplosky, former chief lawyer of the U.S. Department of Health and Human Services’ inspector general’s office. “Everybody seems to agree that if the government doesn’t do something more, it is going to take over the way people do business.”

Among the most common arrangements:

* Doctors receive cut-rate or free space in hospital-owned office buildings or have their rent paid.

* When a doctor joins the staff, the hospital guarantees him a minimum income for a few years.

* Many physicians get “signing bonuses” of $20,000-$50,000 or more.

* Hospitals outfit doctors’ offices with equipment, from photocopiers to X-ray machines.

* Hospitals pay doctors thousands of dollars for sham administrative positions that require no work.

* Doctors get loans at cheap rates, or no interest. Sometimes, the loans are written off if the doctor remains “loyal.”

A 1987 survey of 114 hospitals by the Atlanta recruiting firm Jackson & Coker found that 95% of them offered income guarantees to lure doctors, 88% said they gave physicians unspecified assistance to start practices, 52% provided free office space and 36% gave interest-free loans.

“Hospitals have to be aggressive to maintain the level of admissions, and doctors are important to that,” said Bill Dismuke, president of Jackson & Coker.

Hospitals long have recruited doctors to ensure good medical care for their communities, but the stakes have escalated. Instead of seeking doctors from across the country, many hospitals are recruiting from the other side of town.

“Setting them up in practice is an awfully good way to win loyalty,” said Sue Cejka, a St. Louis recruiter. “It’s a way for the hospital to engage doctors to admit to only the one hospital.”

Physician loyalty is important, in large part, because tight insurance rules require hospitals to send patients home as early as possible or treat them as outpatients.

In 1983, American hospitals were 72% full, according to the American Hospital Assn. By last year, occupancy had fallen to 65%, even though 250 hospitals had closed during the seven years.

This has left many of the remaining 5,537 hospitals scrambling for patients, and doctors are the best source. Steve Renn of Health Care Investment Analysts in Baltimore said that three out of four people pick a hospital according to their doctors’ recommendations.

“One of the top two or three ways of getting patients into your hospital is to get the strong allegiance of the doctor,” he said. “To do that, some hospitals tie the physicians’ fortunes into the fortunes of the hospital.”

A hospital tries to build financial ties with doctors even when it is the only facility in town, but the quest for doctors’ loyalty can intensify when hospitals vie for a shrinking pool of patients or, in Monroe’s case, a new hospital opens.

Before HCA built its sleek, 158-bed community hospital in the comfortable suburbs on Monroe’s north side, the city of 60,000 was served by St. Francis, a 480-bed regional medical center in the decaying downtown district, and two smaller hospitals.

To get started, HCA asked several doctors to open offices next door. HCA could not match services provided at St. Francis, but it offered other incentives:

* To get the city’s largest group of specialists to move, the hospital assumed the $15,000-a-month mortgage payments on their downtown building, sold them hospital land at a bargain price, loaned them $2.4 million to build and equip new offices and paid a $60,000 cash bonus. Similar deals were given to other doctors.

Shortly after the deal was signed, the doctors received a note from the hospital administrator urging them to admit patients.

* When the specialty group lost patients after the move, the hospital agreed to pay its eight doctors $1.08 million over three years.

* HCA deferred payments on the group’s loan for at least a year. Joyner said that an HCA official indicated future payments could be suspended if the hospital was at least 80% full.

Joyner resigned from the group after a falling out with his partners, who voted to remove him as president. He also was dropped from the hospital board.

* Some doctors complained that the hospital never called them when their patients came in for emergencies. Instead, they were referred to doctors who had special relationships with the hospital.

“What was unusual was the referral pattern from the emergency-room physicians,” said Dr. Sid Bailey, an orthopedic surgeon. “If a patient requests a doctor, the doctor should be called. It’s our feeling that they were calling someone else.”

Dr. Robin Lake, a member of Joyner’s former group, denied that financial arrangements affected medical judgment.

“Arlen (Reynolds) would give some pep talks, like, ‘We really need your support,’ but nobody had anything to say to me about how I practice medicine,” he said.

Lake also denied that HCA deferred loan payments based on the hospital’s occupancy rate. He said that after a one-year suspension, the group made loan payments until recently, when the clinic was dissolved and the property returned to the hospital in exchange for forgiveness of the loan.

HCA officials refused to be interviewed about the deals, citing pending litigation. A company statement said the chain helps doctors “to best serve the health-care needs of the community. In no instance are physicians rewarded for admitting or otherwise treating patients in HCA hospitals.”

HCA said that all benefits given to doctors met state and federal guidelines.

Violations are tough to prove. The federal 1977 Medicare, Medicaid Anti-Kickback Act makes it a felony for a doctor to “knowingly and willfully” receive any financial gain for referring patients. Such activity can cost Louisiana doctors their licenses.

Most agreements between doctors and hospitals are carefully worded to avoid any connection between financial benefits and patient referral.

“The gray area is: Is the economic benefit for the doctor in exchange for the referral of patients or for the betterment of medical care?” said attorney Sanford Teplitzky, who helped write the anti-kickback laws.

Many doctors and administrators believe they can keep the two issues apart.

Rather than bluntly asking a doctor for patients, David Glover, the current administrator at HCA’s Monroe hospital, said: “It’s kind of done in a joking fashion. You might see a doctor in the hallway and say, ‘Hey, Doc, we’ve got one empty ICU bed. It’s all yours.’ ”

But some fail to see the humor.

“It calls into question who the doctor is working for,” said Arthur Caplan, a medical ethics specialist at the University of Minnesota. “. . . You are supposed to have allegiance to your patient first and foremost. Doctors shouldn’t worry about losing their cheap rent if the hospital gets angry at them.”