Hospitals Public Policy

Congress Pushes Curbs on Doctor-Owned Hospitals

The N.Y. Times reports (“Concerned about costs…“) that Congress is trying to impose new restrictions on physician-owned, for-profit hospitals. The legislators fear that these hospitals 1) drive up costs and 2) provide poor quality.

Legislators worry that when physicians own the hospital, they may have more of an incentive to order more procedures to increase their profits. If this is true, I am not sure that physician owned hospitals are the problem, it may be the case that Medicare or insurance companies need to change how they compensate physicians in these hospitals.

The second case is also of dubious merit. It was shown in a previous post that ambulatory surgery centers and hospital outpatient departments have similar quality levels. It is true that ambulatory surgery centers generally have a healthier patient base, but treating healthier patients in a lower cost setting is not necessarily a bad thing. It is true that many of these physician-owned hospitals not equipped to handle complications requiring emergency care, but if the complications are lower, then the cost savings may be worth not having the emergency care equipment.

Of course, not all physician-owned hospitals will be subject to these new restrictions. Lobbyists have convinced politicians that facilities such as Aurora BayCare Medical Center in Green Bay, Wisconsin and Wenatchee Valley Medical Center in Wenatchee, Washington should be exempt from these restrictions.

Michael C. Burgess a Texas Republican and an obstetrician-gynecologist states that “This is a free country…If you want to invest in a hospital, if you are willing to put personal capital at risk, you should not be forbidden to do so just because you are a doctor.”


  1. “[D]octor-owned specialty hospitals tend to skim off the more profitable cases, ‘siphoning resources away from full-service community hospitals.”

    I’m wondering why you didn’t directly address this ongoing argument about specialty hospitals somehow taking away the ability of large hospitals to cross-subsidize across patient care departments. Seeing that there are even studies where specialty hospitals are able to achieve a higher quality of care because of the efficiency gains of specialization, I think people are worried that these very hospitals threaten the economics of the traditional large community hospital. Large community hospitals have to support departments that have been known to be strictly unprofitable like emergency departments, psychiatric wards and detox centers, and often do so knowing they can recoup some of the losses in profitable departments like interventional cardiology and orthopedic surgery. Some hospitals have even been forced to close ER departments because they are just resource sinks. Of course, we can question itself the value of housing all patient care departments under one roof and whether that is truly efficient, but for some areas in the country, a single large community hospital is all they have. Any thoughts?

  2. You miss the major points entirely.

    The physicians who own these hospitals have a fiduciary relationship with their patients. They use (or abuse) that trust position for personal financial gain. The physicians are in an obvious conflict of interest position. They use their position of power and trust to direct patients to facilities where they then profit from those referrals.

    Such practices are strictly forbidden in the legal, banking, finance, and real estate worlds.

    The increased volume of procedures performed as a result of self referral has been shown over and over again in the medical imaging arena. Several major papers have been published recently confirming this. It is basic common sense and economic reality.

    The effect of these specialty hospitals has been to take the profitable lines of business out of the community hospitals, severly restricting their ability to meet the community need. The owners of these facilities feel no obligation to provide the non-profitable or poorly profitable, but yet necessary forms of care that a community needs.

    Unfortunately health care is not a free market and hospital and physician reimbursement is an arcane maze of regulation and pricing. There are many areas of service where reimbursement far exceeds costs, and others where reimbursement is well below expenses. For the full service hospital it all balances out. Most well run community hospitals end up with operating margins in the 2-5% range. Some of these specialty hospitals have operating margins in excess of 35%.

    The “profits” made by the community not-for-profit hospital remain in the institution to be used for benefit of the community. These hospitals are taking those dollars and transfering them to the bank accounts of a select group of physicians.

    The problem with the legislation is that it doesn’t go far enough. Not only should physician ownership in specialty hospitals be banned, but physician ownership in a myriad of self referral relationships, including ASC’s, imaging centers and equipment, endoscopy centers, and labs, should be banned.

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