Bring the Fight Over Physician-Owned Hospitals Into the Open

Elyas Bakhtiari, for HealthLeaders Media, January 22, 2009

It has already passed in the House, and the legislation to expand the State Children's Health Insurance Program will likely make its way through the Senate with little resistance. After all, who would want to deny emergency health coverage to children who need it, particularly in a time like this?

Therein lies the brilliance of opponents of physician-owned hospitals, who have buried in the SCHIP bill a provision aimed at curtailing the growth and development of these facilities. The restrictions aren't currently in the Senate version of the bill, and it's unclear if they will make it into the final legislation. If they do, existing physician-owned hospitals would be barred from expanding, investment in such hospitals would be restricted, and no new Medicare reimbursement approvals would be issued.

It's an old trick in Washington—you hide potentially controversial measures in a must-pass bill to limit debate and tie opponents' hands—and it is a familiar tactic in this old fight.

In 2008, similar language was slipped into several bills, including legislation related to funding the war in Iraq and a completely unrelated farm bill, but the ban never passed. As I wrote last spring, this is a very divisive battle involving both physician and hospital heavyweights.

Physician owners contend that their specialty hospitals offer patients greater choice and better care, while hospitals warn that physician ownership can lead to self-referrals and doctors cherry-picking patients.

Both sides make a valid point or two, and it is a debate worth having—just not like this.

Although it may not fit the technical definition, the provision in SCHIP is essentially an earmark. A number of hospitals have lost market share to physician-owned competitors, and the ban could have a substantial financial impact on their bottom lines.

Are there legitimate concerns about self-referral? Sure. But CMS already has an elaborate process for dealing with that issue. Why not debate the constraints to put on physician hospital ownership through the usual channels?

I suspect it is because hospital associations are afraid they would lose. There are already 199 physician-owned hospitals nationwide, and another 85 currently under development, according to Physician Hospitals of America. That represents "$2.4 billion in total payroll, $509 million in federal taxes, $1.9 billion in trade payables, and 55,000 full- and part-time employees."

Physician-owned hospitals have already proven their utility. CMS has investigated the claims and given them the green light. An open debate would likely focus on how to regulate these entities, rather than whether or not they have a right to exist.

"The real issue at the heart of this is competition and control," says Molly Sandvig, executive director of Physician Hospitals of America. Opponents of physician-owned hospitals don't want regulated competitors. They'd prefer to not have the competition at all, which is why they keep trying to sneak a ban by Congress.

To borrow a phrase from the new President's inauguration speech this week, the time has come to set aside childish things. Physician-owned hospitals have the right to exist, but can be improved by greater transparency and accountability. That goes for this debate, too.

Elyas Bakhtiari is a managing editor with HealthLeaders Media. He can be reached at
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