Kickback Philosophy

Physician Subsidiary Entity – Aligned or A’lying?


The physician subsidiary entity is a physician alignment model sold as a kinder, gentler, freer alternative to direct hospital employment.

But is it kinder, gentler or freer?

Although there are various alternatives to setting up the subsidiary model, generally the assets of a medical group are sold to the hospital. Then either the physicians formerly engaged by the medical group remain as employees of the group, which is now owned by a physician “friendly” to the hospital, or they become employees of a new professional corporation owned by the hospital-friendly physician.

The notion is that although the hospital essentially owns the group, the group’s physicians, subject to rights retained by the hospital, control the medical group’s board of directors. Purportedly, this provides the physicians with greater autonomy including determining how compensation is allocated among them.

But, as all compensation to the group is either flowing directly from the hospital or is metered by it, query whether that control is real or illusory.

The physicians do have more control over how the allowed sum is allocated among them (or, at least the board or the officers of the subsidiary hold that control) but it’s a fallacy that the subsidiary has any real existence beyond that. The upside has been completely capped.

Of course, if the only two alternatives to be considered are hospital employment with no more group to have a role in determining compensation or an illusory group that permits control physicians to still determine who in the “group” gets what, then there is perhaps more “freedom” in the latter model.

It’s the same degree of freedom that exists within the giraffe enclosure at the Santa Barbara Zoo: the giraffes can run anywhere they want, except where they can’t.

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