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Hospital, physician advocates disagree over the role of physician-owned hospitals as policymakers ramp up focus

Legislation in the works could allow for a proliferation of physician-owned hospitals in some markets.

October 24, 2023 4:22 pm

Hospital advocacy groups hope to stanch momentum that’s building in policy circles to increase the number of physician-owned hospitals.

The American Hospital Association (AHA) and Federation of American Hospitals (FAH) issued a joint statement Oct. 18, saying permitting greater numbers of physician-owned hospitals (POHs) would have adverse effects on healthcare costs, access and quality.

The statement was published one day before a congressional hearing on ways to improve the Medicare program for patients and physicians. Some physician advocates see POHs as a way to achieve those goals.

AHA and FAH countered that it is vital to “maintain the current law, which protects the Medicare program from expansion of POH practices, and not roll back protections under false, theoretical arguments.”

There are 250 physician-owned hospitals nationwide, although physicians don’t have full ownership in all of those cases, according to data from the advocacy group Physician-Led Healthcare for America. Another 75 facilities were under development during passage of the Affordable Care Act (ACA), which included a provision curtailing the building or expansion of POHs.

Policymakers at the time expressed concern that POHs were more likely to cater to patients with commercial insurance, thereby limiting options for the millions of patients who were projected to gain Medicaid coverage.

Congress takes a closer look

Rep. Michael Burgess, MD (R-Texas), a physician who serves in the House, spoke during the Oct. 19 hearing of the House Energy and Commerce Committee’s Health Subcommittee about legislation that would loosen Stark Law restrictions on POHs. Current Stark provisions deny Medicare and Medicaid payment to physicians who engage in self-referral to POHs unless they meet narrow criteria for exceptions.

The legislation remains in the draft stage and is subject to technical changes before being submitted for committee consideration. The bill draft would allow physicians to refer patients to self-owned rural hospitals that are more than a 35-mile drive from the main patient campus of a hospital or critical access hospital. The draft also would overturn ACA restrictions on the expansion of existing physician-owned hospitals.

Burgess also was a lead sponsor in February of bipartisan, bicameral legislation that would remove the restrictions implemented by the ACA. The new draft goes further because it expands the Stark Law’s rural-provider exception, which currently applies to providers that furnish “substantially all” of their designated health services to rural residents.

“Who better to establish a facility in a rural area or an underserved area than someone who actually knows what a hospital is supposed to be and what a well-run hospital looks like? It is wrong that a hospital can own a physician and a physician can’t own a hospital,” Burgess said during the hearing.

“This [prospective legislation] allows physicians to maintain activity in the business of healthcare while providing patients access to the care they need and will allow doctors to continue to be able to afford to stay in practice when they have so many things working against them,” he added.

A need for alternative options?

Not surprisingly, the American Medical Association (AMA) is on the opposite side of the argument from the hospital groups. The physician advocacy association and others who support POHs frame part of their argument in terms of consolidation, saying allowing more POHs will stem factors that push physicians to sell their practices and join up with hospitals.

“The trend toward sharply higher levels of hospital market concentration around the nation has not benefited patients, who experience higher costs and poorer outcomes in highly concentrated markets,” AMA wrote in an August post.

“Permitting new physician-owned hospitals could promote desperately needed innovation in care delivery [and] flexibility in hospital supply during emergencies, and increase competition for physician labor, presenting a counterweight to the existential crisis of our time: burnout and the loss of physician autonomy,” the association also wrote.

But AHA and FAH said allowing a proliferation of POHs would fail to increase access to emergency services in particular, writing that many such hospitals lack the infrastructure to operate a full-scale emergency department. They also “cherry-pick” patients, leading to inequities in overall access and choice, the hospitals stated, echoing sentiments voiced by industry stakeholders when the ACA was passed.

Debate over costs and quality

The Physician’s Advocacy Institute and the Physicians Foundation recently commissioned a report that found Medicare would have saved about $1.1 billion (12.2%) across 20 expensive DRGs in 2019 if POH commercial reimbursement rates had applied across the board.

In their statement, however, AHA and FAH cited findings that suggest physician self-referral “leads to greater per capita utilization of services and higher costs for the Medicare program.”

In its own statement, AMA cited a 2021 study indicating that physician-owned specialty hospitals offer better value, while physician-owned community hospitals appear to fare as well in quality metrics as other hospitals (one of the study’s coauthors was Jesse M. Ehrenfeld, MD, who since has become the AMA’s president).

Another key issue cited by POH proponents is the need to promote competition in the hospital sector at a time when independent practices may struggle to stay afloat. Such concerns also have fed an increasing focus in Congress around site-neutral payment.

The hospital groups said an influx of POHs would not end the incentive for physicians to join established hospitals.

“Physicians are searching for alternative practice settings that reduce these [administrative] burdens and provide adequate reimbursement, while allowing them to focus on caring for patients,” AHA and FAH wrote.


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