Hospital stock option: conflict of interest?

[Neurologo]

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Does anyone experienced here know whether receiving a for-profit hospital's stock option as a portion of peripheral benefits constitutes a conflict of interest if I am employed there? Or is this a common practice?
Thank you.

 

[dyeguy21]

Not qualified for legal advice. But, in for-profit industries it is actually quite a common practice. In fact it makes sense because you are "invested" in a sense towards the future of the hospital. You are incentivized to make good decisions and remain cost-conscious in order to better your stock. An important part of this is when you are allowed to exercise your option, and what you ultimately do depends on your interpretation of the expected trajectory of the stock price.

It only becomes an issue if you trade stock based on insider information that is unavailable to the public.

Think of it this way: the question is equivalent to saying "Am I allowed to own the place/business at which I work?" The answer is yes.

 

[ThoracicGuy]

Not qualified for legal advice. But, in for-profit industries it is actually quite a common practice. In fact it makes sense because you are "invested" in a sense towards the future of the hospital. You are incentivized to make good decisions and remain cost-conscious in order to better your stock. An important part of this is when you are allowed to exercise your option, and what you ultimately do depends on your interpretation of the expected trajectory of the stock price.

It only becomes an issue if you trade stock based on insider information that is unavailable to the public.

Think of it this way: the question is equivalent to saying "Am I allowed to own the place/business at which I work?" The answer is yes.

Though financially speaking, as soon as you can exercise those options, you should sell them and buy a nice index fund. You don't want to put your eggs all in one basket, Enron-style...

 

[dyeguy21]

Though financially speaking, as soon as you can exercise those options, you should sell them and buy a nice index fund. You don't want to put your eggs all in one basket, Enron-style...

Yes, you shouldn't put everything in. It's just a nice option to have if you believe that stock (value) in the hospital will increase as time goes by. Diversification is the most important part of anyone's portfolio.

Simple way to explain this: I flip a coin: Heads You get $100, tails you lose $50. With one coin those odds aren't great, but if instead I took the results of 1000's of coin flips in determining your outcome, suddenly its not nearly as risky. The other important idea presented here is that diversified funds are not linked in any meaningful way (each flip has nothing to do with a previous flip or any other coin). Thus, believing that your portfolio is diversified if you own hospital stock, pharm stock, and biotech is silly. Instead own hospital stock, clothes, oil, medicine, and food. While these are linked through interconnected need, it is unlikely that all will fail simultaneously, and if they do it probably means the world is failing apart and that the fiat currency used to purchase these assets is value-less.

 

[Neurologo]

Not qualified for legal advice. But, in for-profit industries it is actually quite a common practice. In fact it makes sense because you are "invested" in a sense towards the future of the hospital. You are incentivized to make good decisions and remain cost-conscious in order to better your stock.

I understand that happens often in non-medical fields. But my thinking is that what is profitable for hospitals may not be the best for patients. It seems that growing number of patients are accusing their doctors of ordering "unnecessary" tests to increase profit.

 

[dyeguy21]

I understand that happens often in non-medical fields. But my thinking is that what is profitable for hospitals may not be the best for patients. It seems that growing number of patients are accusing their doctors of ordering "unnecessary" tests to increase profit.

Honestly depends on the payment system: more tests doesn't always equal more money. In fact DRG payments are set up to incentivize fewer tests.

Either way some patients are gonna be upset with you whether or not you own stock in your hospital. It's also not something you have to disclose to patients before seeing them. It would be akin to your local private doctor saying, "Before I see you I need you to know that I own this business and choices I make based on your care directly impact my reimbursement and compensation."

Even if you don't have stock in your hospital you are still going to be placed under pressure to increase revenue on a regular basis. All this option offers you is the possibility of taking part in the success of your hospital so that all your efforts at generating increased revenue are rewarded outside of your base salary.

Finally, the point you raise is one of the many debates in medical economics/policy right now: Should all hospitals be not-for-profit? Because, as you state, the incentives of a for-profit organization do not necessarily line up with those of the benevolent medical community. Logically, as a for-profit I want my patients to come back to my hospital to utilize my services on a regular basis, thus I have no incentive to cure. The counterpoint is that because these groups must generate profit and are under similar governance and surveillance as not-for-profits, for-profits instead create new, efficient models of care to reduce cost levels below that of similar not-for-profit groups.

 

[ThoracicGuy]

Yes, you shouldn't put everything in. It's just a nice option to have if you believe that stock (value) in the hospital will increase as time goes by. Diversification is the most important part of anyone's portfolio.

Simple way to explain this: I flip a coin: Heads You get $100, tails you lose $50. With one coin those odds aren't great, but if instead I took the results of 1000's of coin flips in determining your outcome, suddenly its not nearly as risky. The other important idea presented here is that diversified funds are not linked in any meaningful way (each flip has nothing to do with a previous flip or any other coin). Thus, believing that your portfolio is diversified if you own hospital stock, pharm stock, and biotech is silly. Instead own hospital stock, clothes, oil, medicine, and food. While these are linked through interconnected need, it is unlikely that all will fail simultaneously, and if they do it probably means the world is failing apart and that the fiat currency used to purchase these assets is value-less.

Sure if you want to keep less than 5% of your total assets as play money, go for it. You don't know the future, nor do I. I'd rather own something like VTSAX that owns stock in thousands of companies and won't be hurt significantly if a few companies go down. Over the long run, that strategy will win out. Even investing in sectors isn't really as smart to do, unless you again are using a very small amount to play with...

 

[Frederica]

Does anyone experienced here know whether receiving a for-profit hospital's stock option as a portion of peripheral benefits constitutes a conflict of interest if I am employed there? Or is this a common practice?
Thank you.

I used to work for a for-profit hospital system, HealthSouth. I'm pretty sure we received stocks options, but it's been almost 20 years since I left (I saw that downfall coming 100 miles away).

 

[Igor4sugry]

Does anyone experienced here know whether receiving a for-profit hospital's stock option as a portion of peripheral benefits constitutes a conflict of interest if I am employed there? Or is this a common practice?
Thank you.

There is a more subtle situation where a hospital offers a 457 plan. This plan could be a private type or government type. Usual advise is to avoid private 457 plan since it exposes one to risk in case the hospital that owns it goes under.

 

[Winged Scapula]

Either way some patients are gonna be upset with you whether or not you own stock in your hospital. It's also not something you have to disclose to patients before seeing them. It would be akin to your local private doctor saying, "Before I see you I need you to know that I own this business and choices I make based on your care directly impact my reimbursement and compensation."

While you don't have to disclose that you own your own private practice, Medicare/CMS does indeed require physicians disclose ownership in surgery centers, radiology facilities, physical therapy centers, etc. when referring patients to same. Since a physician can and does financially benefit from admitting patients to these facilities and hospitals, you are required, if you take Medicare, to disclose this information. Not surprisingly, surgeons who have ownership in an ASC do more surgeries. 🙄

I'm not sure most would disclose stock options in such a situation however.

 

[dyeguy21]

While you don't have to disclose that you own your own private practice, Medicare/CMS does indeed require physicians disclose ownership in surgery centers, radiology facilities, physical therapy centers, etc. when referring patients to same. Since a physician can and does financially benefit from admitting patients to these facilities and hospitals, you are required, if you take Medicare, to disclose this information. Not surprisingly, surgeons who have ownership in an ASC do more surgeries. 🙄

I'm not sure most would disclose stock options in such a situation however.

This is true, because this is the Stark law in action as you are directly benefiting from ancillary services provided to a patient (the medical equivalence of vertical integration, a big no-no in the USA). However, this is only required if you only refer to a single center, as far as I understand. You are allowed to offer a list of places they could go for say PT and your place can be on the list just as long as you don't intentionally coerce patients in specifically going to your center. Stock options in these places would be odd as most PT places aren't publicly traded, but I could see some of the national centers having that issue. But in that case I don't know if it would be a problem as you own stock in a national brand and not just one specific place.so unless you blatantly refer people to the company you could still argue that you've invested in centers nationwide and you are not necessarily directly benefitting from your own referrals, but rather from the profitability of the company on a national level. Does seem tricky though.

Sure if you want to keep less than 5% of your total assets as play money, go for it. You don't know the future, nor do I. I'd rather own something like VTSAX that owns stock in thousands of companies and won't be hurt significantly if a few companies go down. Over the long run, that strategy will win out. Even investing in sectors isn't really as smart to do, unless you again are using a very small amount to play with...

Agreed. I didn't mean to just invest in certain sectors period, I too prefer index funds for stock purposes as you invest in a wide array of companies which provide the diversification necessary for a portion of your assets, hence the idea of 1000's of coin flips. Its also important to look at ETFs, mutuals, federal and municipal bonds, emerging market funds, and commodity investment if you truly want to spread your money out over a small pool of risk. All depends on your personal preference in terms of risk v. gain. Personally, for those among us that have lower levels of debt and have a good 30-40 years of work ahead of us, I think this is your chance to be aggressive as you can become more conservative as times goes by, beware the current bubble burst, however.

 

[Winged Scapula]

This is true, because this is the Stark law in action as you are directly benefiting from ancillary services provided to a patient (the medical equivalence of vertical integration, a big no-no in the USA). However, this is only required if you only refer to a single center, as far as I understand. You are allowed to offer a list of places they could go for say PT and your place can be on the list just as long as you don't intentionally coerce patients in specifically going to your center. Stock options in these places would be odd as most PT places aren't publicly traded, but I could see some of the national centers having that issue. But in that case I don't know if it would be a problem as you own stock in a national brand and not just one specific place.so unless you blatantly refer people to the company you could still argue that you've invested in centers nationwide and you are not necessarily directly benefitting from your own referrals, but rather from the profitability of the company on a national level. Does seem tricky though.



Agreed. I didn't mean to just invest in certain sectors period, I too prefer index funds for stock purposes as you invest in a wide array of companies which provide the diversification necessary for a portion of your assets, hence the idea of 1000's of coin flips. Its also important to look at ETFs, mutuals, federal and municipal bonds, emerging market funds, and commodity investment if you truly want to spread your money out over a small pool of risk. All depends on your personal preference in terms of risk v. gain. Personally, for those among us that have lower levels of debt and have a good 30-40 years of work ahead of us, I think this is your chance to be aggressive as you can become more conservative as times goes by, beware the current bubble burst, however.

I believe, at least in my state, that even if you provide a list of options you must still disclose your ownership in one or more of the options.

At least that's what our attorney advised us when giving patients information about places where we have surgical privileges and therefore it is on ourconsent forms and financial disclosure paperwork given to patients.

 

[Arcan57]

Even if you don't have stock in your hospital you are still going to be placed under pressure to increase revenue on a regular basis. All this option offers you is the possibility of taking part in the success of your hospital so that all your efforts at generating increased revenue are rewarded outside of your base salary.

Finally, the point you raise is one of the many debates in medical economics/policy right now: Should all hospitals be not-for-profit? Because, as you state, the incentives of a for-profit organization do not necessarily line up with those of the benevolent medical community. Logically, as a for-profit I want my patients to come back to my hospital to utilize my services on a regular basis, thus I have no incentive to cure. The counterpoint is that because these groups must generate profit and are under similar governance and surveillance as not-for-profits, for-profits instead create new, efficient models of care to reduce cost levels below that of similar not-for-profit groups.

I think it's important to clarify the differences between how for-profit and non-profit hospitals operate. For-profit hospitals pay taxes on their profits and are able to disperse those profits to shareholders. Non-profit hospitals are not taxed on their profits and must keep their profits internal. I think there's still a percentage of people that hear non-profit and think of the indigent, inner-city Level 1 center. Most non-profits are community based and part of sprawling networks under a single brand and varying degrees of central control. Their goal is to make money, they're just not giving it to shareholders. They're using it to provide competitive executive pay, purchase land for new buildings, and amass massive war-chests to buffer against changing reimbursement strategies without having to divvy up the cash with Uncle Sam. I don't doubt that the pressure of paying taxes encourages the for-profits to pursue more disruptive revenue strategies out of necessity, but both groups are tightly focused on revenue and cost-containment.

 

[dyeguy21]

Agree with Winged Scapula it may be different state to state or my understanding may not be correct.

Also, yup the majority of hospitals in the US are actually not-for-profit. The difference I was trying to point out is that the cost-cutting behaviors of a for-profit are generally more aggressive as they need to prove to shareholders in the short run that their investment is worth it. Not-for-profits could care less what anyone thinks and choose their own mission and path, however they are definitely not just charity care centers. It's a huge argument that has yet to have a definitive answer on either side of the issue.