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Physician-owned hospitals debate revived by House bill

If adopted, the bill would repeal sections of the ACA that, since 2011, prevented new physician-owned hospitals from participating in Medicare.

Jeff Lagasse, Associate Editor

Shortly after Valentine's Day, Representative Sam Johnson, R-Texas, introduced a bill to the House of Representatives that put a spotlight on a contentious debate regarding the propriety of physician-owned hospitals. If adopted, the Patient Access to Higher Quality Health Care Act of 2017 would repeal sections of the Affordable Care Act that, since 2011, have effectively prevented new physician-owned hospitals from participating in the Medicare program.

Prior to the ACA, the "whole hospital" exception to the federal physician self-referral law known as the "Stark Law" permitted, under certain conditions, a physician to have an ownership or investment interest in a hospital to which the physician refers "designated health services" that are covered by the Medicare program. Specifically, physicians could refer patients to hospitals in which they had an ownership interest so long as the ownership interest related to the entire hospital facility as opposed to a hospital department.

Section 6001 of the ACA amended the whole hospital exception to prohibit the exception's applicability to new physician-owned hospitals -- in general terms, physician-owned hospitals that did not have Medicare provider agreements in effect as of Dec. 31, 2010.

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[Also: Molina, an ACA success story, backs fixing the law over replacing it]

The section also imposed additional requirements on eligible hospitals -- physician-owned hospitals that did have Medicare provider agreements in effect as of Dec. 31, 2010 -- including limitations on new construction and facility expansion, limitations relating to conflicts of interest, and limitations on new bona fide investments.

Those who support the limitations on physician-owned hospitals view Section 6001 as closing a glaring loophole in the Stark Law. For example, a recent factsheet published by the American Hospital Association, a Section 6001 proponent, highlights several common criticisms based upon studies that show physician-owned hospitals experience greater utilization and greater costs than non-physician-owned hospitals. The cited studies also show that physician-owned hospitals commonly provide limited or no emergency services; and they're more selective as to the patients they are willing to treat. In other words, physician-owned hospitals treat healthier patients and fewer Medicaid patients than their non-physician-owned counterparts.

Opponents of Section 6001 argue that physician-owned hospitals provide higher quality care in a more cost-effective way than non-physician-owned hospitals. That's usually attributed to the impact of increased physician participation in hospital governance and decision-making at physician-owned hospitals.

[Also: ACA repeal threatens finances for rural and urban hospitals, experts say]

Moreover, it is argued that the increased quality and cost effectiveness experienced by physician-owned hospitals are the reasons that physician-owned hospitals have better patient care outcomes than non-physician owned hospitals. The thinking here is that the argument offered by Section 6001 proponents, that better patient outcomes are driven by the admission of only healthy and affluent patients, is false.

The campaign against Section 6001 has been played out in various forums: court cases have challenged the provision on multiple grounds; both proponents and opponents have engaged in significant lobbying activities; and previous legislative action has been proposed by Section 6001 opponents (an earlier version of the Patient Access to Higher Quality Health Care Act that was introduced in 2015).

Whether this latest initiative to free physician-owned hospitals from their current statutory leash is successful, the debate for and against physician-owned hospitals will likely continue. 

Twitter: @JELagasse