Blog: Health Affairs Article Misses the Mark on Physician-Owned Hospitals

A recent Health Affairs post gives an incomplete account of the implications of allowing new and expanded physician-owned hospitals to bill Medicare and Medicaid. 

The growth of physician-owned hospitals was restricted for good reasons, and those remain valid today. These restrictions also enjoy bipartisan support. The initial moratorium on physician self-referrals came about after decades of analysis from several administrations, the Medicare Payment Advisory Commission and the Congressional Budget Office. Their studies highlighted the adverse effects of this practice, the most important of which was physician self-referrals risked undermining the nation’s health care safety-net by too often prioritizing the most profitable patients over those who are underinsured and uninsured. They also found the referrals consistently lead to costly overuse of medical services.

The doors of full-service community hospitals and health systems are always open and care is available for everyone who walks through those doors. Physician-owned hospitals operate differently. Though some physician-owned hospitals do feature emergency departments, they often limit the number of treatments available and are ill-equipped to deal with more severe cases. In addition, physician-owned hospitals typically focus on specialized care in the most profitable service lines, such as cardiac, orthopedic or general surgery. As a result, patients requiring more intensive care or those with more complex conditions are steered toward full-service community hospitals. This situation not only jeopardizes the care of vulnerable patients, but also the financial health of full-service community hospitals. These hospitals rely on a balance of services and patients to remain financially solvent with sufficient resources to provide life-saving trauma centers, burn units and behavioral health services – all vital services that are not prioritized by physician-owned hospitals.

Recent data reinforce the need to retain restrictions on new and expanded physician-owned hospitals. An analysis conducted by the health care economics consulting firm Dobson | DaVanzo confirmed previous findings that these facilities:

• Cherry-pick patients by avoiding Medicaid and uninsured patients;
• Treat fewer medically-complex patients;
• Provide few emergency services – an important community benefit; and
• Are penalized for unnecessary readmissions at 10 times the rate of non-physician owned hospitals.

Another analysis from DeBrunner & Associates conducted in August 2020 found that, on average, patients treated at full-service community hospitals are 36% more likely to have one or more chronic conditions than those treated at physician-owned hospitals. At the same time, community hospitals provide 25% more in uncompensated care as a share of total expenses.

Full-service community hospitals have faced unprecedented challenges in the last year as a result of the COVID-19 pandemic while continuing to provide care to their communities. In a series of reports released last summer, the AHA projected that hospital and health system financial losses were expected to be at least $323.1 billion through 2020. Looking ahead to 2021, Kaufman Hall forecasts that total hospital revenue in 2021 could be down between $53 billion and $122 billion from pre-pandemic baselines. Even under the most optimistic scenario, on average, 39% of hospitals would operate in the red in 2021, a marked increase over pre-pandemic baselines. At least three dozen hospitals entered bankruptcy in 2020, according to data compiled by Bloomberg, and the University of North Carolina Sheps Center found that 20 rural hospitals closed last year. Lifting the restrictions on physician-owned hospitals could exacerbate these trends. 

Absent from the article is the fact that existing physician-owned hospitals are still allowed to expand under current law if they meet certain criteria. But further easing the current restrictions would risk undermining care for the patients who need it most. The current restrictions in place should remain. 

Shira Hollander is a senior associate director of policy at the AHA.