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Consolidation concerns encourage proponents of physician-owned hospitals

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Consolidation concerns encourage proponents of physician-owned hospitals

Alarms being sounded in Congress over hospital mergers and other forms of healthcare industry consolidation are raising the hopes of those who want to make it easier for physicians to open and expand their own hospitals.

"I do think the winds are changing," said John Richardson, executive director of the Physician Hospitals of America, which advocates for creating more hospitals to stimulate competition.

The 2010 Affordable Care Act put restrictions on opening new physician-owned hospitals or expanding existing ones. Loosening those restrictions could mean a return to potential abuses such as physicians referring patients to hospitals in which they have a financial stake and ordering expensive procedures, said the Federation of American Hospitals, or FAH, whose members include the largest publicly traded hospital chain in the U.S., HCA Healthcare Inc.

But advocates of physician-owned hospitals, facing the opposition of bigger hospital groups such as the federation, failed to get weaker restrictions on creating new hospitals in the stopgap spending measure passed earlier this month, even though Congress included a number of healthcare provisions in that bill.

Richardson said he is still hoping that lawmakers will include a provision on physician-owned hospitals in the spending bill Congress must pass by March 23 to keep the federal government running.

But FAH Executive Vice President Jeff Cohen said a sign that proponents may be shifting their hopes to persuading the Trump administration to loosen the regulations came during a Feb. 14 House Ways and Means Committee hearing.

'Inspiring competition between providers'

Rep. Sam Johnson, R-Texas, prodded U.S. Department of Health and Human Services Secretary Alex Azar at the hearing to say that allowing more physician hospitals would encourage competition.

Azar responded, "Yes. I do believe physician-owned hospitals can provide effective competition for other hospitals." He added, "We ought to be inspiring competition between providers."

Azar said he would work with Congress "on any changes we can make to ensure we're allowing good competition, and we're allowing physician-owned and other-owned facilities to compete and deliver the highest quality, lowest-cost service for our beneficiaries."

What that means remains unclear. An HHS spokesman declined to elaborate, and both Richardson and Cohen were unsure what steps, if any, the administration would take. Cohen questioned whether HHS without congressional action could legally make it easier for physicians to own hospitals.

Richardson, however, said the Centers for Medicare and Medicaid Services the federal agency that oversees the government's health insurance programs for elderly and low-income people could expand the conditions and procedures covered by Medicare-bundled payments, a source of revenue for physician-owned hospitals in the U.S. That would allow some of those hospitals to grow, he said.

The agency, known as CMS, could also consider more broadly interpreting exemptions to the ACA restrictions to allow existing physician-owned hospitals to expand if they serve large numbers of Medicaid patients or are crowded and in fast-growing areas, Cohen said.

Concern over physician-owned hospitals dates back to the 1990 Stark Law, which prohibits physicians from referring Medicare patients to healthcare facilities in which they or their family members have financial interests.

The law, however, allowed physicians to refer patients if they held stakes in an entire hospital, as opposed to a section of the hospital.

Specialty hospital boom

A proliferation of specialty hospitals in the 1990s mostly owned by physicians, according to a 2003 report by the Government Accountability Office, Congress' watchdog raised concerns that physician-owned hospitals cherry-picked profitable patients from other hospitals. The hospitals, specializing in lucrative treatments such as cardiac care or performing certain procedures such as orthopedic surgery, were also accused of not treating as many low-income patients a charge proponents of such hospitals continue to deny.

Hospital groups say the law is working.

"The instability created by the proliferation of self-referral has calmed. Patients can choose the appropriate facility for the procedures and treatments they need, and healthcare spending has been kept in check," the Federation and the American Hospital Association wrote in a June 1, 2017, letter opposing a Senate bill that would undo the restrictions.

However, Richardson said, hospital consolidations have ramped up since the ACA went into effect.

"You have these massive systems that are growing," he said. "People are coming to understand what consolidation means for communities. Study after study shows it means less quality and higher prices."

On the same day as Azar's testimony, a separate House subcommittee was raising the alarm on consolidation in the healthcare industry. Citing Medicare Payment Advisory Commission data, Rep. Gregg Harper, chairman of the Energy and Commerce Committee's Oversight and Investigations Subcommittee, said a single hospital system accounted for a majority of Medicare discharges in 146 of 391 metropolitan areas.

"While there are numerous factors contributing to the rising costs of healthcare, reports and studies show consolidation is a contributing factor," Harper said.

He also expressed concern over hospitals purchasing physicians' practices, saying that according to the Government Accountability Office report, the number of physicians working for hospitals nearly doubled from about 96,000 to 182,000 in 2007-2014.

"We live in a world where, unfortunately, it's possible for hospitals to own doctors, but it's not possible for doctors to own hospitals," Rep. Michael Burgess, a Texas Republican and a physician, said at the hearing.