Lift The Ban On Physician-Owned Hospitals

As Congress considers year-end legislative options, one small change in the Affordable Care Act could make a big difference in access to quality health care for millions of Americans: Lifting the ban on creation and expansion of physician-owned hospitals.

Physicians have an ownership stake in approximately 250 hospitals operating in 34 states, and they have a strong track record of providing quality care.  Yet in 2010, the ACA slapped a ban on building new or expanding existing physician hospitals in response to cries from the megalithic general hospitals that claimed—erroneously it has now been proven—that private hospitals were “cherry picking” the most profitable patients.

Physician-owned hospitals (POHs) that violate the ACA bans are prohibited from participating in Medicare or Medicaid.  More than 40 major expansion projects at existing hospitals were stopped in their tracks.

Hospitals owned by physicians are often the most efficient, state-of-the-art facilities in the country, the result of doctors’ desire to be involved in making detailed decisions about the staff, equipment, training, and procedures that can best serve their patients.

  • Seven of the top 10 hospitals receiving quality bonuses in the new Hospital Value-Based Purchasing Program in 2015 were physician-owned hospitals. This, despite the fact that POHs represent less than 5% of the 5,700 hospitals nationwide.
  • The Centers for Medicare and Medicaid Services released Star Ratings in 2015 based on consumer assessment surveys.  More than 40% of physicians-owned hospitals received the top 5-star rating compared to only 5% of general hospitals.
  • The Department of Health and Human Services found that patients are three to five times more likely to experience complications at general hospitals than at physician-owned specialty hospitals.

Physicians also are attentive to the bottom line, and these hospitals often charge less for the same procedures than their non-physician-owned counterparts.  An analysis by Avalon Health Economics said that physician-owned hospitals are saving Medicare $3.2 billion over 10 years.

They also provide more charity care than not-for-profit hospitals which receive subsidies and tax exemptions.  A CMS study found that POHs spend nearly 6% of their total revenue on community benefits compared to less than 1% for other hospitals.

POHs are in both rural and urban areas, including full-service hospitals and specialty hospitals focusing on orthopedic surgery, cardiac care, rehabilitation, psychiatry, etc.  These are not hospitals in which doctors are expected to get rich.  A majority of physician owners have less than a 2% interest in the hospital; they just want to practice in an environment where their medical expertise counts for something and they can put patient care first.

So why would the Obama administration want to penalize these hospitals?  Because the big community hospitals see them as competition. And the big hospitals have a lot more clout with politicians because they are almost always a major employer in their states and districts.  The big community hospitals claim the POHs have adverse incentives to cherry-pick healthier and wealthier patients and treat fewer Medicaid patients.

But a major study published this year in The British Medical Journal found the claims are untrue. “[W]e found that patients at POHs and non-POHs were equally likely to have Medicaid insurance and to be from racial or ethnic minority groups,” according to Daniel Blumenthal of Massachusetts General Hospital and his co-authors.

Their extensive study of POHs in the U.S. also concluded:  “POHs also performed equally to non-POHs on a wide array of measures of quality of care, costs, and payments for care.”

The authors recommended a reexamination of “existing public policies that target all hospitals with physician owners.”

U.S. Rep. Sam Johnson, R-TX, is sponsoring legislation [H.R. 2513] that would, among other things, suspend the moratoria on POH expansion for three years and grandfather in several POHs that were under development when the ACA passed March 23, 2010.

The American Medical Association has endorsed Rep. Johnson’s “Promoting Access, Competition, and Equity Act of 2015” to allow certain physician-owned hospitals to expand their facilities.

“Limiting the viability of physician-owned hospitals reduces access to high-quality health care and has a destructive effect on the economy in communities these hospitals serve,” according to a letter from AMA Executive Vice President James L. Madara, M.D.  “Physician-owned hospitals also represent the type of coordinated care being proposed for the future of health care delivery.”

The punitive ban on POHs imposed by the ACA has to go.  Rep. Johnson’s bill is a first step toward freeing physicians to participate in establishing hospitals that allow them greater freedom to practice quality medicine.  The big hospitals need the competition.

Posted on Forbes, November 6, 2015.


About the author

Grace-Marie Turner is president of the Galen Institute, a public policy research organization that she founded in 1995 to promote an informed debate over free-market ideas for health reform. Full biography