US Lawmakers Could Lift Restrictions on Doc-Owned Hospitals

Nearly 15 years ago, the construction of doctor-owned hospitals largely ground to a halt. But federal lawmakers now are considering bills that would lift current restrictions on physician ownership — a move advocates said could increase competition at a time when regulators are closely scrutinizing consolidation in healthcare.

A provision in the Affordable Care Act of 2010 limited the expansion of existing physician-owned hospitals (POHs) and halted the opening of new ones. Today, only about 4% of American hospitals are owned by physicians.

The proposed legislation (H.R. 977/S. 470), called the “Patient Access to Higher Quality Health Care Act of 2023,” would repeal that provision. The bills remain in committee for now.

Meanwhile, industry groups continue to debate the proposed legislation’s potential impact on healthcare quality, cost, and patient access to hospital care.

Lifting current restrictions could dramatically expand the number of doctor-owned hospitals, now estimated at 250-265 nationally, according to Physician-Led Healthcare for America (PHA), which advocates for POHs.

Dozens of physician groups including PHA argued that ending the restriction would introduce more competition amid rising prices, hospital mergers, and other consolidation.

Allowing physician ownership also could give struggling rural communities “another option to maintain local high-quality care and encourage local investment in existing hospitals,” proponents wrote in a Wall Street Journal op-ed.

The ‘Cherry-Picking’ Debate

Hospital industry groups counter that POHs are primarily orthopedic and other specialty facilities that “cherry pick” healthier, better insured patients and don’t compete fairly with general acute-care hospitals.

“They’re not providing full service,” said Chip Kahn, president and CEO of the Federation of American Hospitals, which represents about 1000 for-profit hospitals. “They’re not providing emergency rooms. They’re not taking care of uninsured patients.”

Both sides cite reports or other analyses often funded by or affiliated with their groups. They can’t agree on how many POHs provide general services vs specialties such as orthopedics.

PHA leaders said slightly more than half of POHs are general service hospitals, pointing to data in a 2015 study. Kahn puts the figure at roughly a handful nationally that provide the full gamut of hospital services.

“There’s a lot of strong opinions about physician-owned hospitals and not a lot of recent data,” said Peter Cram, MD, MBA, a professor of medicine at The University of Texas Medical Branch at Galveston, who authored some of the studies published prior to 2010.

But Cram is not surprised that the idea has reemerged. Hospital consolidation over the last decade has ignited discussions about how to expand competition, he said. “In many markets, there are a very small number of very large health systems with enormous pricing power.”

Dueling Studies Compare Cost, Utilization

Amid the fierce debate, dueling data points quickly stack up.

One 2023 analysis, commissioned by two physician-affiliated groups and based on 2019 Medicare claims data, found that the cost of care was 8%-15% lower at POHs than at traditional hospitals. The academic researchers, who focused on the 20 most expensive diagnostic-related groups treated by 186 POHs, calculated that the price difference would have translated to roughly $1.1 billion in Medicare savings for 2019.

Another analysis, also published last year and commissioned by the American Hospital Association and Federation of American Hospitals, scrutinized patient acuity, insurance coverage, and other factors at 163 POHs vs 3020 non-POHs. POHs were more likely to garner the maximum hospital readmission penalty and treated fewer Medicaid patients, 3.5% vs 8.4% at the non-POHs, according to the report by healthcare consulting firm Dobson DaVanzo & Associates.

Before the 2010 restriction, the concern was that hospital ownership would incentivize physicians to refer their patients there, “or an incentive to overtreat or to prioritize more profitable procedures,” said Katherine Hempstead, a senior healthcare policy adviser at the Robert Wood Johnson Foundation.

One pre-2010 study, which looked at several heart procedures in Medicare patients after a specialty cardiac hospital opened in a healthcare region, found that the number of procedures increased during the subsequent 4 years compared with regions who added no new heart programs. For percutaneous coronary interventions — a procedure designed to open blocked arteries — the increase appeared to occur with patients who hadn’t experienced a heart attack, where the benefits “are frequently less clear,” the researchers wrote.

The authors of a related editorial, who included Cram, commented that the “current findings suggest that physician ownership of specialty hospitals may be problematic if such ownership increases the use of services for patients with marginal indications.” 

However, Cram added in a recent interview, it “should be explored as another option for mitigating [healthcare] consolidation.”

Cram also coauthored a peer-reviewed study, published last year, that compared commercially negotiated prices between POHs and non-POHs for eight services, including two levels of emergency room visits, a spinal injection, and a CT-scan of the abdomen and pelvis.

PHO advocates said the study’s findings show that the negotiated prices for seven out of the eight services ran between 4% and 33% lower at POHs. (The exception was for a comprehensive metabolic panel.) Opponents noted that at the 156 POHs studied, just 3% of patients were covered by Medicaid compared with about 7% at the other hospitals.

Still, the lower prices illustrate how POHs can introduce competition in a market, said Ge Bai, PhD, CPA, another study author. The research was supported by a grant from www.PatientRightsAdvocate.org, a nonprofit group that focuses on healthcare price transparency.

“Let them compete, let the patient choose,” said Bai, a professor of accounting and health policy at Johns Hopkins University in Baltimore. “Having these newcomers come in, they [the existing hospitals] will be under pressure to perform better for patients.”

Boosting Rural Access to Care?

Bai agrees with POH supporters that permitting physician ownership could bolster struggling rural hospitals. Given that POHs can offer services at a lower price, she said, “they can afford to enter some markets that a non-POH won’t find attractive.”

Since 2010, nearly 150 rural hospitals have closed or converted to a more limited role, such as providing primary care or long-term care services, according to The Cecil G. Sheps Center for Health Services Research in Chapel Hill, North Carolina. Only 6.8% of POHs are located in rural areas, according to the 2023 Dobson | DaVanzo analysis, vs 24% of non-POHs.

Leaders at PHA provided a list of specialty hospital construction projects or expansion plans halted by the ownership restriction, including nearly 40 hospitals that hadn’t yet been completed. Some affected projects were in rural communities, said Joseph Alhadeff, MD, the group’s president, who feels that local physicians can potentially step in as owners if the restriction is lifted.

“Physicians, they want to treat their community — they want the healthcare to be local,” he said. “They don’t want to see people traveling 2 and 3 hours to have to get to healthcare.”

Kahn dismissed the argument that physician ownership could prove to be the savior in rural regions as “fantastical thinking,” noting that rural hospitals are more likely to serve communities with an aging or lower-income population primarily covered by Medicare or Medicaid.

“Frankly, Medicare and Medicaid doesn’t pay enough for those hospitals to be viable,” he said. “I don’t think there are that many doctors out there that are going to come in with some magic formula.”

Hempstead doesn’t rule out that proactive rural physicians might step up for their local hospital. But too often rural challenges are intractable, rooted in a declining population and thus lower patient volume, she said.

Neither does Hempstead hold a position regarding whether expanding physician hospital ownership would improve cost and quality. But the idea is having its moment amid not only heightened consolidation but also physicians’ longstanding belief that they’re uniquely qualified to innovate in healthcare, she said.

“They are supposed to be entrepreneurs — that’s their original role,” Hempstead said. “And by not letting them own hospitals, you’re losing a big opportunity for physicians obviously but also for society as a whole. You are kind of leaving the best players on the sidelines— I think that would be the argument.”

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