Doctors Oppose Limits on Specialty Hospitals

Published March 1, 2008

Physicians groups are working to head off federal legislation preventing doctors from investing in physician-owned hospitals, after earning a brief respite when the clock ran out on a controversial bill in the U.S. Senate at the end of the most recent Congressional session.

H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act, would have limited doctor investment in existing hospitals to no more than 40 percent while preventing the creation of any new physician-owned hospitals. The bill, sponsored by Rep. Pete Stark (D-CA) and passed by the House of Representatives last summer, reached the floor of the Senate but was not acted on before the end of the 2007 session.

The end-of-year respite was “a nice little short leeway for us,” said Molly Sandvig, executive director of Physicians’ Hospitals of America, which represents more than half the physician-owned hospitals in the country. “I shouldn’t call it a victory, but a small battle was won,” she said.

Unfair Competition Alleged

Opponents of doctor-owned hospitals claim physicians in them may order more tests or procedures than a patient needs because of the potential for greater profit. They also argue hospitals owned by physicians treat only the people they choose to treat, and that they send complex cases and poor and uninsured patients to community hospitals, which then suffer increased expenses that taxpayers have to pick up.

The American Hospital Association (AHA) has supported legislation limiting doctor-owned hospitals, saying community hospitals support free and fair competition while their physician-owned counterparts compete unfairly.

“Physician-owned, limited-service hospitals typically provide the most profitable services to patients who are less sick–essentially ‘cherry picking’ the easiest, best-paying cases and serving few uninsured or Medicaid patients,” AHA claimed in a December 2007 news release.

“The physician self-referral in which specialty hospitals engage provides an unfair advantage to physician-owned specialty hospitals by, in effect, enabling physician owners to pay themselves for referring patients to facilities they own,” continued the AHA release. “Instead of promoting fair competition, specialty hospitals actually stifle it.”

An AHA spokesperson did not respond to requests for comment.

‘Turf Battle’

The American Medical Association (AMA) has taken the opposite position, issuing a fact sheet in November 2007 pointing out there was no evidence to show specialty hospitals hurt general hospitals. According to AMA, general hospitals, not physician-owned ones, monopolize patients by adopting policies preventing staff physicians from referring patients to other facilities.

Sandvig says the controversy can be boiled down to competition, a debate that has been continuous since the Medicare Modernization Act, passed in 2002, placed a temporary moratorium on the expansion of specialty hospitals and mandated the Medicare Payment Advisory Commission conduct research into what future public policy regarding public- and doctor-owned hospitals should address.

“It’s a turf battle,” Sandvig said. “It’s a territory battle between physicians and the bureaucrats who run the hospitals, and unfortunately, our opponents are very well funded. [Non-physician-owned] hospitals want the entire ball game. They do not want to have to compete.”

More Choice for Patients

Physician-owned hospitals offer better quality care, better prices, higher nurse-patient ratios, and lower infection rates, Sandvig says. Plus, they mean more choice for patients and more freedom for doctors to treat the way they see fit.

But opponents argue specialty hospitals are less efficient than community hospitals, and that their physicians practice self-referral, which they say drives up costs.

“The federal government’s Congressional Budget Office [CBO] recently determined that prohibiting self-referral will result in significant savings–$700 million over five years–to taxpayers and the Medicare program,” said the AHA release. “At a time when the cost of health care is spiraling out of control, limited service hospitals contribute to increasing health care costs for Americans.”

CBO says the savings would come because doctors who self-refer can collude on pricing and refer only within their hospital or to friends and colleagues, charging high prices consumers can do nothing about. The ownership ban would ostensibly halt that, saving money for consumers and for taxpayers who foot the bill for Medicare.

But Sandvig sees doctor-owned hospitals as an alternative that could help reform the health industry by promoting competition and challenging public hospitals to improve the quality and cost of care, and she says most lawmakers agree.

“[Bureaucrats] recognize us for what we are–a positive thing for health care, a change that would really interrupt where health care is going,” Sandvig said.

Jillian Melchior ([email protected]) writes from Michigan.

For more information …

The Children’s Health and Medicare Protection (CHAMP) Act, H.R. 3162:

“How Congress Is Killing Competition: The Future of Specialty Hospitals,” The Heritage Foundation: