By Brendon Nafziger and Heather Mayer

A group representing physicians contracted by the City of Hope Medical Center in California expressed an "overwhelming loss of confidence" in the hospital's CEO, Michael Friedman, in the latest round of bare-knuckled sparring between the cancer hospital and the group of physicians suing each other over a controversial contracting scheme.

For several weeks, the two organizations have traded accusations regarding the creation of a proposed medical foundation, and planned recruiting for it.

In the vote announced Monday, the doctors group, called City of Hope Medical Group, slammed the hospital for not renewing a contract with its physicians engaged in research, teaching and some specialist work. In its announcement, it also accused the hospital of illegally soliciting doctors away from the group.

The cancer hospital, located in Duarte, a suburb of Los Angeles, seeks to replace the physicians group when the contract expires Feb. 1, 2011 with a new medical foundation the doctors group says will be largely run by the hospital.

Though announced this week, the vote was taken before the physicians group filed a lawsuit earlier this month against the hospital, accusing the hospital of trying to illegally control doctors through the medical foundation.

The hospital promptly counter-sued the doctors group, arguing that it is trying to recruit the doctors legally. The hospital is requesting judicial intervention to block the doctors group from interfering with its plans, and it blames the group for "besmirching" its reputation since talks between the two organizations broke down.

"To carry out threats the medical group has written to us, they said they were prepared to use publicity, legislation, the patients, the media, in any way to obtain their contract ends," City of Hope CEO Friedman told DOTmed News. "The management of this medical group is prepared to proceed with a scorched earth policy."

The foundation, headed by hospital corporate chief medical officer Alexandra Levine, would be run by 22 board members, who do not hold medical degrees, and one doctor "as a peace offering," the doctors group said.

The group believes the new foundation is illegal because it claims it violates California law, which forbids the corporate practice of medicine. The group also fears that the structure of the medical foundation will interfere with patient care because it will not be headed by doctors.

"Our view is how does one physician out of 23 [board members] make this work?" said Vincent Jensen, the doctors group's COO. "As a patient comes in for treatment, they want their doctor in control of how they're treated. They don't want 22 board members who know nothing about medicine to be able to make medical decisions."

The hospital dismisses these claims.

"It's easy for someone to say it's illegal, when they mean, 'We don't like it,'" Friedman said.

"This is a 100-hundred-year-old organization that has made its reputation in compassionate patient care, ethical activities and extraordinary research. It would be foolish to do anything inappropriate or illegal."

The hospital said the group is "misrepresenting" the makeup of the board, which has yet to be fully established. And the California Hospital Association, which backs the hospital, said that under California law foundation boards must contain a majority of non-physician members.

"At the governance level, our law, California law, requires the majority of members be community members and it be not for profit," Duane Dauner, CEO of the CHA, said.

The hospital also pointed out that at least 20 other leading California hospitals, such as Cedars-Sinai, Scripps and Catholic Healthcare West, also contract doctors through foundations and that those boards are made up of a mix of physicians and business people.

Nonetheless, not everyone is convinced City of Hope's foundation will be independent.

"One critical factor [with the other foundations] is the board that runs the foundation is independent, and our understanding of what the hospital system is trying to do here, the hospital board is also the board of the foundation, so there's no difference between the two," said Francisco Silva, general counsel for the California Medical Association, which supports the doctors group. "So they're making potentially clinical decisions at the same time they're acting as a hospital board."

Silva said hospital-created foundations can be a way for hospitals to make money from referrals, which they can keep in-system, and which get reimbursed at higher rates by Medicare than outpatient ones.

For instance, Jensen explained, Medi-Cal, California's Medicaid program, reimburses CT scans at $177.47 for independent clinics. But if the hospital owns the clinic, Medi-Cal will pay the hospital $254.56 for the same procedure.

"That's a 43 percent increase in revenue just for filing paperwork under a hospital license," Jensen said.

Jensen based this example on a situation his group is currently facing: the doctors group owns a South Pasadena cancer clinic, which the hospital wants to make a part of its system, he said. "But patients want to stay there and not be part of a hospital system."

The California hospital lobby argues the reimbursement advantages are too small to be a "major" incentive for hospitals to set up foundations.

"I do not believe the motivation of any hospital that has ever gotten involved with [this] is to increase reimbursement," Dauner said.

Creating and supporting a foundation is costly, with most foundations in California losing money initially, Dauner argued.

"The typical hospital that has foundations ends up subsidizing the doctors in the foundation anywhere between half a million a year and four million a year," he said.

Foundations help hospitals and doctors deliver services more efficiently, Dauner said. They also allow better coordination of care, which he believes can help hospitals and doctors endure what he considers the harsh financial environment of continued reimbursement cuts, coupled with health care reform.

For instance, Medicare encourages medical home models that require coordination among providers, which Dauner said is easier under a foundation structure.

WHEN THE CONTRACT IS UP

Once the contract between the hospital and the doctors group expires, it will terminate 187 physicians' jobs. The contract affects researchers and certain specialists contracted by the hospital through the group: radiologists, anesthesiologists, radiation oncologists and pathologists.

But that doesn't mean the physicians will be out of work. The hospital said it will offer nearly all of these physicians jobs as part of its medical foundation.

The hospital was also quick to point out that changes won't affect doctors who treat patients at the hospital, who will retain full privileges to work there. Under California law, doctors charge separately from the institution.

"Physicians who do not join the foundation will be able to practice here at City of Hope and enjoy all the clinical opportunities," Friedman said, adding "Nothing changes here from the patient's perspective."

Yet without the hospital's contract, the doctors group would not be able to survive, explained Jensen. He said the group isn't able to find another research lab, research nurses -- the infrastructure to support the academic side of medicine.

On the other hand, Jensen said the hospital needs the group's physicians. Without certain departmental specialists, a hospital legally cannot operate. And, Jensen pointed out the hospital would be unable to find the same quality physicians by the time the contract expires.

"They have to have us, and we have to have them," he said.

Of course, once out of their individual contracts, doctors from the group may turn to the foundation to practice their medicine and research, said Lawrence Weiss, president of the doctors group.

"The large majority of physicians will hold out," he said. "Some might go to the foundation, which wouldn't be surprising. Some might be promised better deals."

City of Hope Medical Group has been a partner with City of Hope Medical Center since 1977.