EXCLUSIVE STAFFING ARRANGEMENTS FOR HOSPITALS WITH MEDI-CAL CONTRACTS

By Mark Kawa

Can a hospital which contracts with the State’s Medi-Cal system enter into exclusive provider arrangements with members of its medical staff? It depends.

Welfare and Institutions Code §14087.28 limits “a hospital contracting with the Medi-Cal program” from entering into exclusive contracts with physicians for services other than radiology, anesthesiology and pathology. Accordingly, for hospitals wishing to secure exclusive agreements in areas other than those mentioned above, the key issue turns on the hospital’s contractual relationship with the Medi-Cal program.

As a general rule, hospitals fall into one of four Medi-Cal contracting categories: (1) hospitals which have no contractual relationship with the Medi-Cal program; (2) those which have a Selective Provider contract with the California Medical Assistance Commission (“CMAC”); (3) those which have a relationship with an organized health systems such as a county organized health system (“COHS”); and (4) those which contract with both CMAC and COHS.

Since hospitals falling into the first category do not have a Medi-Cal contract, they are not bound by the limitations of Section 14087.28. Thus, they may enter into exclusive contracts for services in addition to radiology, anesthesiology and pathology, provided such agreements are otherwise justified and legally supportable.

Hospitals which have Selective Provider contracts with CMAC may not contract with physicians for exclusive services in areas other than radiology, anesthesiology and pathology. The Department of Health Services has expressly interpreted Section 14087.28 as prohibiting such conduct. The Department’s rationale is that hospital with Selective Provider contracts have a direct contractual relationship with the Medi-Cal program, and thus are bound by the limitations set forth in the statute.

By contrast, the Department of Health Services recently has held that hospitals whose Medi-Cal relationship exists through a COHS are not bound by Section 14087.28. Here, the Department reasons that while hospitals have a direct contractual relationship with the COHS, they don not have such a relationship with the Medi-Cal program. Accordingly, these hospitals are not deemed to contract with “the Medi-Cal program,” and thus are not bound by the statute.

Finally, hospitals who have both a Selective Provider contract and a contract with a COHS must comply with the prohibitions expressed in Section 14087.28. Since the Department of Health Services has ruled that hospitals holding Selective Provider contracts are bound by the statute, they are restricted from entering into exclusive contracts for services other than radiology, anesthesiology and pathology. That these hospitals also hold less restrictive COHS contracts in addition is of no consequence.

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