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 major players, 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.
In addition to going in detail through the 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. 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.
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: