December 2000 Bulletin

In whose best interests?

‘The interests involved are typically the financial interests. . . .’

COI policies protect groups from lawsuits

By Janice G. Cunningham

Occasionally, an apparently innocent situation affects a medical practice profoundly. A conflict may arise between what is in the best interest of the group practice and what is in the best interest of an individual group member. Dealing with these situations on a per case basis leads to accusations of favoritism and bad feelings.

Prevent conflict-of-interest trouble by implementing a comprehensive conflict-of-interest (COI) policy for your group practice. It is dangerous to assume that everyone in your group will act with the group’s best interests in mind. Sometimes, there is no bad intent, but rather a simple matter of not understanding the responsibilities and expectations within the group. Misunderstandings often lead to lawsuits if either the interested doctor or the group believes they have been wronged.

By implementing a COI policy that treats all of its physicians fairly and by established guidelines that are accepted by consensus, your practice significantly reduces the risk of such developments.

Your practice also will ensure that when financial and business opportunities present themselves, your physicians will act in the best interests of the practice first.

Consider the term "conflict of interest" within the context of a medical practice. The interests involved are typically the financial interests of the individual physicians and those of the practice. That is the most common source of the conflict.

In some situations, the practice’s physicians must choose between acting in ways that benefit them directly and acting in ways that benefit the practice directly. In the long run, factors that benefit the practice as a whole also tend to benefit all of the practice’s co-owners, directly and indirectly. In a progressive practice, all members recognize that they benefit when the practice grows stronger.

The purpose of a COI policy is to ensure that those members of the practice with a fiduciary responsibility toward the practice act in ways that benefit the practice first and themselves second.

In practical terms, this often means that a physician will sacrifice his or her own personal gains, in the short term, for the good of the practice. Subsequently, the physician making the immediate sacrifice hopes to benefit in the long term.

If you have a fiduciary responsibility within your medical practice, then every other member of your practice—owners, co-owners, associate physicians, directors, shareholders, and employees—invest within you their fiduciary expectations. They trust you to make the proper business decisions for the practice, even if that means personal financial sacrifice.

Not every member of a medical practice has a fiduciary responsibility, and levels of responsibility vary among those who are responsible in a fiduciary manner.

In the abstract, a conflict of interest occurs when the private interests of a member of a medical practice who has fiduciary responsibilities to the practice are at odds with his or her professional obligations to the practice.

It is not impossible for someone with fiduciary responsibilities to take advantage of his or her position this way without even realizing that he or she is violating a trust. For example, a physician on the practice’s Board of Directors is approached by a managed care company to develop outcomes software. He works on it in the evenings at home, using forms and other data from the practice. He believes that because he is doing the work on his own time, he should retain the income.

The truth is, he has failed to bring this business opportunity to the practice. He used valuable proprietary practice resources for his personal benefit. He violated his fiduciary duty.

In other cases, which are rare but do happen, self-aggrandizement and the attraction of personal gain are powerful incentives that may lead to deliberate violations of fiduciary responsibility. Consider the president of an orthopaedic group practice who signs a long-term contract with a company supplying office equipment. The rates are extremely high and the company is owned by his spouse. There is no question that this arrangement is suspect.

Some COI situations are perfectly acceptable. It is not uncommon for physicians to personally own their office real estate and lease it back to the group. Problems typically only arise if the rent is above the market rate.

How can it be determined if a conflict of interest exists? If you, as a neutral observer, reasonably question a practice member’s professional actions or decisions, there might be a conflict of interest. If this is the case, further investigation is needed, particularly if the practice has no COI policy that demands disclosure of potential conflict situations and establishes procedures for addressing them.

Do you need COI policies?

It is obvious that solo practices do not need COI policies. The physician is in charge of the entire practice and his or her personal welfare provides virtually all motivation to make the practice financially successful.

Some two-doctor practices are transitional situations in which the senior physician stays with the practice for a period of time during which he or she is selling the practice to the junior physician. Usually, these practices can do without COI policies.

In almost every other situation, COI policies are indicated. The primary functions of COI policies are to delineate fiduciary responsibilities among a group practice’s physicians and establish the appropriate rules of conduct in this area.

Developing a COI policy

First, make sure that every member of your practice understands the relevant fiduciary responsibilities that he or she bears. For all physician and nonphysician practice members, emphasize where they stand, what they must do and what they should not do.

Next, set out the rules of conduct. The key to avoiding any potential COI problem is disclosure. Require that physicians, in writing, make the group aware of any orthopaedics-related business opportunity that they personally receive. The practice should then have the right of first refusal to act on it. If the group chooses to forego the opportunity, then the individual physician should be free to proceed.

Also insist that any potential for personal financial gain that a physician (or immediate family members) may enjoy through a business arrangement with the practice be detailed in writing. If the group is fully informed of the circumstances and gives its approval, there should be no further issue.

Simply letting your physicians and staff know what is expected of them is enough to generate compliance in most cases. However, make sure that your COI policy also includes a system of disciplinary actions the practice can impose against repeat or flagrant violators. At the very least, physicians should be required to reimburse the group for income that should have come to the group or for excess costs paid by the group to an individual doctor. In more severe cases, termination of membership may be appropriate.

There are state laws governing fiduciary duties in corporations. Generally, they allow legal action to be taken against parties in violation of those duties. However, laws differ from state to state and, in many cases, tend to offer inadequate protection.

If your group practice is not incorporated, the same duties, though not legally required, should apply. Physicians should have reasonable assurances that the other physicians in the group are not going to take advantage of them or violate their trust.

Every practice’s COI policies should both reflect the group’s consensus and establish effective rules for handling situations in which their is a potential conflict of interest between a group’s physician and the group. There are basic terms that should be included in all COI policies, with additional terms as appropriate to reflect your practice’s unique situation.

©2000, The Health Care Group®. The author, Janice G. Cunningham, JD, OTR/L is a consultant with The Health Care Group® and an attorney with Health Care Law Associates, P.C., based in Plymouth Meeting, Pa.

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