TrendWatch: Physician Ownership and Self-referral in Hospitals: Research on Negative Effects Grows

Physician self-referral – when physicians own the facilities to which they refer patients – has long been a concern in health care because of the potential for conflicts to arise between the needs of the patient and the financial interests of the physician. Though banned in most instances, physician ownership and self-referral has been an increasing trend in the hospital setting. This TrendWatch examines the growing body of research looking at: (1) whether the financial incentives facing physician-owners are influencing hospital referral decisions; and (2) the broader impact of self-referral on health care costs, quality and access.

Physician-owned hospitals tend to be smaller and newer, and focus on select services such as cardiac, orthopedic and surgical care. As a result they are often referred to as “limited-service,” “niche” or “specialty” hospitals. A growing number are expanding their range of services in response to regulatory and legislative pressures and may call themselves “full-service” hospitals; however, the research to date has focused on cardiac, orthopedic and surgical hospitals.

Since self-referral is the dominant issue raised by these facilities, much of the research on limited-service hospitals is likely to be applicable to other types of physician-owned hospitals. This research has found that physician ownership may be influencing referral decisions. Physician-owned hospitals are associated with increased referral rates and higher utilization. Physician-owners seem inclined to shift patient referrals to their own facilities. It also is well documented that physician-owned hospitals focus on the more profitable services and/or less complex, higher income and better insured patients.¹

These behaviors may damage the health care system at large by adding costs and by weakening the health care safety net as community hospitals see their mix of patients becoming more complex and less well financed. Evidence on quality of care has been mixed, with new concerns emerging about the ability of these facilities to deal with complications requiring emergency care.²

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Endnotes

1. Medicare Payment Advisory Commission. (August 2006). Physician-owned Specialty Hospitals Revisited. Washington, DC.
2. Office of Inspector General. (January 2008). Physician-owned Specialty Hospitals’ Ability to Manage Medical Emergencies. Washington, DC.