The future of physician-owned hospitals

At a time when delivering high quality healthcare is a top priority for every hospital executive, physician-owned hospitals are having much difficulty gaining traction for future expansion and development in light of healthcare reform.

Physician-owned hospitals are hospitals that have any physician with any type of ownership, and are known for top-notch healthcare. In fact in January of this year, the Physician Hospitals of America (PHA) announced that 16 of the 37 winners of the prestigious Inpatient Patient Satisfaction Summit Award were physician-owned hospitals. Essentially, 45% of the most satisfied patients are coming from facilities that compose less than 5% of hospitals nationwide. Physician-owned hospitals credit their high patient satisfaction rates due to freedom from administrative layers between patients and doctors. However, even though they demonstrate good results, not everyone is a fan.

History and Current State of Affairs:

Pressure came against physician-owned hospitals in 1989 when Congressman Pete Stark introduced a law, referred to as the Stark Law, that would prohibit physicians from referring their Medicare and Medicaid patients to facilities which they had a financial interest. The mindset was that physicians would make unnecessary self-referrals, increasing utilization of medical services causing a burden on taxpayers.

However, there is an exception for every rule. For a number of years, the "whole hospital" exception allowed a referring doctor to have a financial stake in a hospital, as long as the referring doctor was licensed to perform services at the hospital and the ownership or investment interests was in the hospital itself and not simply a subdivision of the hospital. When healthcare reform came along though, there came increased requirements for this exception.

According to the Patient Protection and Affordable Care Act, no physician-owned hospitals may start or current ones expand. However, like I said earlier, there is an exception. In this case, any existing physician-owned facility that was Medicare certified by December 31, 2010 would be exempted. This in turn caused a growth of new construction and expansion to meet that deadline, but since then, there really hasn’t been any new developments on the medical real estate side. Today, physicians who have a vested interest in this field are continuing to lobby congress as they fight an up-hill battle, especially after a very recent set-back.

Pros and Cons of Physician-Owned Facilities:

Opposition is great for why physician-owned facilities should remain on the sideline. Along with the possibility for the increased utilization of medical services, opponents criticize physician-owned hospitals for selecting the healthiest and high-reimbursed patients leaving low-reimbursed and unhealthy patients for the community hospital to treat. When Richard J. Umbdenstock, president of the American Hospital Association, voiced against the bill for expanding rights to physician-owned hospitals, he stated that it would cut Medicare payments to hospitals.

On the reverse side, physician-owned hospitals provide some of the highest quality care while increasing patients’ choices for affordable care. Should Congress grant relief to physician-owned hospitals, a vast majority would take advantage. Of the 70 physician-owned hospitals polled by PHA, 55% would want to upgrade their infrastructures immediately and 35% would want to upgrade within the next 5 years. According to the PHA, these expansions would result in $450 million spent on new medical construction generating over 1500 positions added to the healthcare job market.

What are your thoughts on whether physician-owned hospitals should be allowed to expand?

James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.


Aaron Razavi is Associate Marketing Director at Health Care Realty Development.



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