Research & Commentary: Physician-Owned Hospitals and the Affordable Care Act

Published July 22, 2014

Physician-owned specialty hospitals have faced several major challenges since the implementation of Patient Protection and Affordable Care Act (ACA). Although all hospitals have faced problems caused by the influx of new patients, a shortage of doctors, and inadequate Medicare and Medicaid reimbursements, only physician-owned specialty hospitals are barred from entering Medicare. 

Section 6001 of ACA effectively bans new physician-owned hospitals from starting up, and it keeps existing ones from expanding. According to Physician Hospitals of America, these restrictions have already stopped the development of 24 new physician-owned hospitals and forced another 47 to rush to meet the law’s deadline to complete construction. 

The strongest opponents of physician-owned hospitals are large health care corporations whose community-based hospitals are the primary competition of physician-owned facilities. These opponents accuse doctors at physician-owned facilities of “cherry-picking” affluent patients, ignoring patient welfare, and shifting the financial burden of lower-income patients to their community-based counterparts. 

Supporters of physician-owned hospitals say their service model provides high-quality care without interfering with community-based hospitals, that conflict of interest is minimal, and that motivation behind creating specialty hospitals is not solely profit.  Greater control over patient care is also a major concern. The share of ownership that each doctor holds is small, and each doctor earns more from his or her professional fees than from an ownership stake, much like physicians in community hospitals. 

Despite many restrictions working against them, physician-owned hospitals have thrived, and in many instances, they provide service superior to traditional hospitals. According to American Medical News, nine of the top 10 performing U.S. hospitals listed in late 2012 by the government’s Centers for Medicare & Medicaid Services were physician-owned hospitals. Of the 238 physician-owned hospitals in the United States, 48 were ranked in the top 100. 

Under ACA, hospitals are provided an incentive to improve their processes and patient satisfaction through an initiative, the Hospital Value Based Purchasing program. When a hospital performs well, it receives a small percentage increase in its total Medicare payments; poorly performing hospitals are penalized with a cut. Nine out of the top 10 hospitals in the program, out of 3,400, were physician-owned hospitals. 

The success of physician-owned facilities demonstrates their model can deliver health care services of superior quality at lower prices compared to general hospitals. Congress should end ACA’s burdensome restrictions on physician-owned specialty hospitals and let the health care industry develop a competitive market that cuts costs and increases benefits for all patients.

The following documents examine physician-owned hospitals, their effectiveness as health care providers, and the effects of Obamacare on physician-owned facilities.

Healthcare’s Free-Market Alternative
Writing for the July 7, 2014 issue of The New American, William F. Jasper discusses the Surgery Center of Oklahoma and quotes several patients who have had procedures done there: “testimonials are found on the website of Samaritan Ministries, a Christian healthcare alternative to insurance that now boasts a membership of more than 35,000 member households.” Jasper writes about the potential of SCO and other physician-owned facilities as an alternative to Obamacare.

Another Attack on Innovative Care
Grace Marie Turner of Galen Institute criticizes an article from The Wall Street Journal that attacked physician-owned hospitals, which are among the most-efficient hospitals in the country with the highest degree of quality.

Congress Should Repeal Limits on New Doctor-Owned Hospitals
David Hogberg of the National Center for Public Policy Research argues the purpose of Obamacare’s restrictions on physician-owned hospitals was to appease powerful political interests, not to serve patients’ needs. Obamacare’s Hospital Value Based Purchasing program “shows that the Obamacare restrictions on physician-owned hospitals are an impediment to providing quality care. Congress could improve health care by eliminating them,” he writes.

Physician-Owned Hospitals Fire Back at Obamacare Restrictions
Writing in the Heartlander, Kenneth Artz reports on physician hospital organizations firing back at President Barack Obama’s health care law in the press and the courts, seeking a repeal of what they argue are “exclusionary and unconstitutional” restrictions on the expansion of physician-owned hospitals. 

What Obamacare’s Pay-For-Performance Programs Mean for Health Care Quality
Kathryn Nix of the Heritage Foundation examines Patient Protection and Affordable Care Act’s pay-for-performance programs designed to bring about higher quality in health care and improve value in the system. She argues the pay-for-performance model is not the correct way to improve quality. Nix recommends Congress pursue market-driven reforms of Medicare and the rest of the health care system in order to realign incentives for providers and insurers with those of the patient, thereby rewarding providers that strive toward high-quality, lower-cost care.

Are Physician-Owned Hospitals Dinosaurs from the Past or Models for Our Future?
Dr. Goya Raikar provides his view of the value of physician-owned hospitals and efficiency of health care delivery: “Since the introduction of the Affordable Care Act 3 years ago, we have seen sweeping changes to health care, focusing on efficient quality care and not pure quantity. Perhaps our nation’s health care system still has something to learn from physician-managed entities.” 

Physician-Owned Hospitals Seize Their Moment
Tanya Albert Henry of American Medical News examines the success of physician-owned hospitals and their efforts to overturn ACA regulations banning their expansion. “Supplied with government data ranking them among the best for value of care, doctors at these facilities keep fighting to lift expansion restrictions,” he notes.

Specialty Hospitals: Information on National Market Share, Physician Ownership, and Patients Served
U.S. General Accounting Office examines the prevalence of specialty hospitals, their characteristics in terms of ownership and patients treated, and the effect specialty hospitals have on hospital communities in which they operate. 

The Case for Specialty Hospitals
American Surgical Hospital Association outlines the benefits of specialty hospitals and recommends the government support its development. 

Specialty Hospital Evaluation
This report from Research Triangle Institute (RTI) was funded by Centers for Medicare & Medicaid Services in response to a Congressional mandate to evaluate performance and impacts of physician-owned specialty hospitals. 

Economic and Policy Analysis of Specialty Hospitals
Health Economic Consulting Group examines economic theory and published evidence regarding specialty hospitals, including a review of evidence on efficiency, demand, case mix, and quality.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Health Care News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at 

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