Health Reform Could Put End to Physician-owned Hospitals

If passed as is, the Senate's current healthcare reform bill will put physician-owned hospitals on the endangered species list. Under the bill, physician-owned hospitals must meet a list of five "allowable growth criteria" if they want to continue receiving Medicare and Medicaid funding.

That doesn't sound horribly unreasonable until you learn that not one existing physician-owned hospital will be able to meet those criteria, says Molly Sandvig, Esq., executive director of Physician Hospitals of America (PHA), a Sioux Falls, SD-based advocacy group for the physician-owned hospital industry.

Some lawmakers are eager to put the kibosh on physician-owned hospitals because of a debate that has been raging in the field since physician-owned hospitals started cropping up in the 1990s. Opponents, including the American Hospital Association, believe that physician-owned hospitals enable physicians to perform unnecessary procedures so they can pocket more profit, says Terry Woodbeck, CEO of physician-owned Tulsa Spine & Specialty Hospitals.

Naysayers also fear that physicians with an ownership interest in a hospital will refuse to refer patients to other hospitals, even if doing so is in the best interest of patients.

Woodbeck disagrees with these arguments.

"Physicians live on physician referrals. If you get the reputation that you are a cutter, your referrals are going to dry up quickly and you are going to be nailed with a number of malpractice suits for doing unnecessary surgeries," he says.

Woodbeck adds that physician-owned hospitals provide some of the highest quality patient care in the country, and are a venue in which physicians and hospital administrators can align their financial interests to reduce the cost of care.

Regardless of the political motivations behind imposing growth restrictions on physician-owned hospitals, they will have a serious impact. Physician-owned hospitals that do not meet the five criteria would not be permitted to add beds and services to meet their communities' needs.

"If you can't grow and meet market demand, you become stagnant. You either sell your hospital, thus dissolving the physician-ownership model, or you go bankrupt," Sandvig explains.

In addition, if the bill passes as is, the percentage of physicians who have an ownership stake in any particular hospital will be chiseled in stone. For example, if 49% of a hospital is owned by physicians, the hospital would not be allowed to increase that number as of the date of the bill's passage.

Physician-owned hospitals that are currently under development will be grandfathered in if they are Medicare certified by August 1, 2010, but about 75 hospitals currently under development won't make the cut, says Sandvig. "These hospitals have steel in the ground, they are financed, and they have construction workers on site. There are over 25,000 construction and healthcare jobs that could be lost."

If physician-owned hospitals want to no longer receive funding from Medicare and Medicaid, they could grow unrestricted. However, that's not a feasible option for many physician-owned hospitals for whom Medicare and Medicaid constitute up to 40% of the bottom line.

"We don't want to be forced to pick our patients," says Sandvig. "The government is penalizing Medicare and Medicaid recipients at a time when hospitals are trying to figure out how to create greater access to quality care."

Another consequence of imposing growth limitations on physician-owned hospitals is that if they drop their Medicare and Medicaid coverage in favor of freedom to expand, they may be perceived by the public—particularly recipients of Medicare and Medicaid—as exclusive hospitals that are unwilling to greet patients who don't have bulging wallets. "It makes the physicians guilty of something that is imposed by the government," Sandvig says.

PHA is lobbying aggressively to convince lawmakers to amend the current bill and considering legal challenge, says Sandvig. "I'm not certain we will go forward with that at this point, but it is not out of the question."

Liz Jones is an associate editor at HCPro, Inc. She writes Medical Staff Briefing, Hospitalist Leadership Advisor, and co-writes Credentialing and Peer Review Legal Insider. She can be reached at ejones@hcpro.com.