Image: Swampyank
One thing I didn’t know until this week, however, is that the PPACA included restrictions on hospital ownership.
Specifically, Section 6001 (PDF Link) of the legislation amends Section 1877 of the Social Security Act, which states that:
If a physician (or an immediate family member of such physician) has a financial relationship with [a hospital], then the physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under this title, and the [hospital] may not present, or cause to be presented, a claim under this title or bill to any individual, third party payor, or other entity for designated health service furnished pursuant to such a referral. [Edited for clarity.]
The ACA continued these restrictions by way of defining the only ways hospitals could gain an exception to this section. Hospitals are exempt only if they:
- Were already physician-owned by August 1, 2010, or
- Serve a rural population, or
- Have a high percentage of Medicaid patients.
ACA Section 6001 went on to clarify that these were the only exceptions allowable. It also spelled out the restrictions associated with physician-owned hospitals. Section 6002 established requirements for transparency, reporting, and disclosure of physicians’ hospital ownership or investment interests.
The idea behind the restriction on physician-owned hospitals was a good one: it’s designed to keep physicians from “double dipping.” Physicians being paid for treating patients were doing this by referring their patients to hospitals that they also partly or completely owned. Thus, even if they didn’t treat the patients while they were hospitalized, that particular patient’s hospital care still resulted in income to the physician.
It’s hardly surprising that physician groups oppose the continuation of Section 6001, while hospital groups support it. In fact, it’s completely predictable and understandable.
A 2023 report showed that physician-owned hospitals treat fewer Medicaid patients and are more likely to be subjected to maximum hospital readmission penalties from the Centers for Medicare and Medicaid Services (CMS). That is, they tended to cherry-pick in favor of patients who had private health insurance and/or who could self-pay. They also tended not to accept the more complex cases, and patient outcomes in these hospitals were significantly lower.
On the other hand, a different 2023 study (PDF Link) showed that physician-owned hospitals had a lower cost of care for all of the twenty most expensive diagnoses and for eight common services. This difference was significant: Becker’s reports that these reductions in cost saved Medicare as much as $1.1 billion during calendar year 2019.
Unsurprisingly, the first report was commissioned by the American Hospital Association and the second report was commissioned by the Physician’s Advocacy Institute. Thus, both studies are likely biased.
The various stakeholders have noticed this, too; Becker’s quotes one hospital advocate saying “[physician-owned hospitals are] not providing full service. They’re not providing emergency rooms. They’re not taking care of uninsured patients.” On the other hand, Fierce Healthcare quoted the American Enterprise Institute as saying that physician-owned hospitals do not “systematically select more profitable or less disadvantaged patients or provide lower-value care.” They go on to state that physician-owned hospitals have a better quality of care.
It’s enough to drive a layperson batty: do we believe the physicians or do we believe the hospitals?
At the moment, Congress seems slightly more inclined to believe the physicians. Legislation proposed in 2023 (for the 2023-2025 sessions) would have overturned the ban on physician-owned hospitals. However, the legislation appears to have died in committee. It’s unclear whether the bill’s sponsors intend to re-propose the bills for the 2025-2027 sessions. In the meantime, there are multiple opinion pieces supporting both sides of the issue; unsurprisingly, the opinions fall in line with whether an organization is oriented toward hospitals or oriented toward physicians.
I’m personally inclined to allow physician-owned hospitals simply because that will create wider hospital ownership in general. Wider ownership will lead to increased competition, which is a critical need in today’s healthcare landscape. If combined with the abolition of Certificate-of-Need requirements (which I will cover in the next post), this could solve the “natural monopoly” of the large hospital corporations in this country.
That said, I also think that the reasons why physician-owned hospitals were abolished still exist. Thus, if we act to allow them again, there would still be a continued need for clear restrictions to prevent adverse selection (the cherry-picking that they were previously accused of doing).
Health insurers have a dog in this hunt, just as healthcare providers have one when it comes to insurer regulation. It will be interesting to see which way the pendulum swings during the next few years.