Economic Credentialing and Privileging

March 9, 2018 | Health System Risk Management


​​Economic credentialing refers to the use of economic indicators or efficiency standards in evaluating practitioners when granting or renewing medical staff appointments. It is increasingly common to track practitioner performance with utilization data that might include patient outcomes, number of admissions, average length of stay, or frequency with which the provider orders various tests. Although utilization data are used to assess quality of care, these data can also be used to determine an individual practitioner's economic effect on the hospital (e.g., overutilization of resources, frequent billing denials from government programs and insurance companies). A substantial body of case law supports the right of hospitals to deny medical staff appointment based on a hospital's economic need rather than solely on applicant qualifications. (Blum "Hospital-Medical") For example, in Edelman v. John F. Kennedy Memorial Hospital, the New Jersey Supreme Court upheld a lower court's dismissal of a physician's legal challenge against a hospital that declined to reappoint him to the medical staff because of inappropriate lengths of stay and excessive and unnecessary use of diagnostic tests. In denying the physician's reappointment, the hospital focused on the financial impact on the institution of the physician's overutilization patterns. The hospital did not mention quality-of-care issues. The court held that the hospital board's concern over the denial of payment that resulted from the physician's tendency to overutilize services was legitimate grounds for nonrenewal of staff membership.

Many healthcare organizations have adopted policies that make physician appointment or reappointment to a medical staff conditional, in part, on economic factors such as "the physician providing a certain volume of services at, or referring a certain number of patients to, the hospital and/or the physician not investing in competing facilities" (Jones). Economic credentialing has increased as market forces exer​t pressure on healthcare organizations in the form of public posting of quality data scores (e.g.,​, Hospital Compare) and as government programs and insurance companies drive increased reimbursement rates based on physician quality data and patient outcomes.

Using economic factors during credentialing and privileging to assess whether a physician is qualified to be accepted onto a medical staff can cause tension between healthcare organizations and physicians. Also, it is not uncommon for physicians to invest in or operate their own ambulatory surgery centers, which compete with hospitals. Physicians associated with these businesses may divert lucrative business away from the hospital, while continuing to refer patients to the hospital who have less than desirable reimbursement levels. (Mulholland) In response, some states permit hospitals to use economic factors as a valid reason for not appointing or reappointing practitioners. Other states have explicitly denounced this tactic, with support from state court decisions.

"Economic credentialing" has no universally accepted definition. The American Medical Association (AMA) defines it as "the use of economic criteria unrelated to the quality of care or professional competence in determining a physician's qualifications for initial or continuing hospital medical staff membership" (as quoted by Findlaw). Meanwhile, the American College of Medical Quality defines economic credentialing as the determination of ". . . a health care professional's qualifications based solely on economic factors that are unrelated to the individual's ability to make standard of care medical review or direct clinical care decisions" (as quoted by Findlaw). Others define the concept more broadly, finding that economic credentialing enables a hospital to control economic factors that affect the quality and range of services that a hospital can provide. ...

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