Experts push to remove barriers for physician-owned hospitals

Physician-owned hospitals might make a comeback thanks to congressional action supported by data crunched by lawyers and experts with the Department of Justice (DOJ), the Federal Trade Commission (FTC) and the American Medical Association (AMA).

Last week, the Patient Access to Higher Quality Health Care Act (PDF) was reintroduced in Congress by Sen. James Lankford of Oklahoma. The act would remove restrictions on the creation of physician-owned hospitals enstated in the Affordable Care Act.

Meanwhile, in a white paper that has not yet been peer reviewed, antitrust lawyers and experts with the DOJ, the FTC and the AMA laid out the case for these hospitals, concluding that “by removing the POH ban, Congress would free physicians to invest and innovate in the hospitals where they apply their expertise every day. Congress should unleash their potential to inject much-needed competition into healthcare markets.”

Jack Resneck Jr., M,D., the AMA’s president, said in a press release that “physician-led hospitals meet community needs by focusing on the most important relationship in health care—the patient-physician relationship. Yet, the combination of current law and hospital consolidation is making these success stories rare.”

The arguments that the white paper made for physician-owned hospitals include assertions that physicians who own the hospitals they work in will have more incentive than those working for large hospital systems and that an influx of these hospitals into the marketplace could address access challenges, especially in rural areas.

Physician-owned hospitals grew rapidly in the early 2000s, from 67 in 2000 to about 250 by 2010, when there were just over 6,000 hospitals in the country.

“However, this market entry story came to an abrupt and enduring halt following intense lobbying by incumbent healthcare providers and regulatory scrutiny,” the white paper said. “A peripheral provision in the 2010 Patient Protection and Affordable Care Act effectively prohibited expanding existing POHs or opening new ones.”

The white paper was written by Brian J. Miller, an assistant professor of medicine at the Johns Hopkins University School of Medicine; Matthew Mandelberg, a DOJ appellate attorney with the agency’s antitrust division; Michael H. Smith, an FTC attorney; and Jesse M. Ehrenfeld, M.D., the AMA’s president-elect.

The white paper said: “This [ACA] provision, a biproduct of legislative horse-trading, was entirely inconsistent with the laudable goals of the ACA, which were to expand coverage and promote competition in insurance markets to drive down costs and improve quality.”

All of this can be done if legislators now lift the barriers to physician-owned hospitals, said the white paper. Two of the main arguments against these facilities, according to the white paper, are that they would care only for healthier patients who wouldn’t drive up costs and would encourage the ordering of unnecessary treatments and procedures.

That presumes that physician owners would be motivated by incentives that don’t come into play in not-for-profit or investor-owned hospitals, according to the paper. However, the authors countered that “both non- and for-profit hospitals face similar incentives to encourage their doctors to perform more treatments in order to increase billings and the volume of care in the pursuit of greater revenue.”

In addition, the argument that these hospitals would cherry-pick healthier patients and increase use of unnecessary tests and treatments assumes current hospital systems have an ethical standard physician-owned facilities don’t, the writers said.

“Physicians are bound by principles of medical ethics that prioritize patient needs, and they can risk their medical license when they violate medical ethics,” the white paper said. “Similarly, lawyers are bound by detailed ethical obligations, including duties of competence, diligence, loyalty, and confidentiality."

"As such, the legal profession not only allows lawyers to own law firms, but actually prohibits non-lawyers from having an ownership stake, or even taking a share of the revenue or otherwise exercising control over legal judgment," the paper said.