Doctor and Owner

Lawsuit Challenges Physician Ownership Ban

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Law Feature – December 2011

Tex Med. 2011;107(12):23-27.

By Crystal Conde
Associate Editor   

The Texas Medical Association has taken sides in only one of the 24 lawsuits challenging the constitutionality of the Affordable Care Act (ACA). The association isn't involved in any of the cases focusing on the requirement that every American purchase health insurance. It is, however, contesting a section of the law that effectively prohibits new physician-owned hospitals (POHs) and prevents existing ones from expanding.  

Physician Hospitals of America and Texas Spine & Joint Hospital v. Kathleen Sebelius, filed in a federal court in Tyler, challenges the ACA provision that prohibits new doctor investment in hospitals that take Medicare patients and requires doctors to tell patients about any financial connections with hospitals they send them to for treatment. In March, the judge ruled that the provision is constitutional, prompting the hospitals and physicians to appeal to the U.S. Court of Appeals for the 5th Circuit.  

The ACA restrictions on POHs have potentially dire consequences for patients and physicians in Texas, which has 90 POHs, according to the Texas Physician Hospitals Advocacy Center (TPHAC). TPHAC promotes safety, quality, and innovation for patients in Texas POHs. Physician Hospitals of America figures show 275 POHs serve patients in 33 states. 

TMA and The Physicians Foundation filed an amicus curiae brief with the appeals court to support the lawsuit.  

The brief says hospitals owned by physicians have better health care outcomes, shorter hospital stays, and higher patient satisfaction ratings than do other hospitals. It contends ACA worsens rather than remedies alleged financial conflicts of interest, it removes competition, and it limits physicians' ability to make important health care decisions.  

"These aggressive non-POHs have eliminated the competition, and the result will be greater financial conflicts of interest, higher health care costs, fewer choices for patients, and less innovation," the brief says. It also applauds the significant community benefits POHs provide, contrasting it with the very profitable "not-for-profit" hospitals, which do not pay federal or state income, property, or sales tax, resulting in billions in tax breaks per year.  

"Whether through paying [billions in] taxes and employing thousands, providing hospital access in poor areas, or providing charity care, physician-owned hospitals provide a contribution to society [that] is unmatched," TMA and the Physicians Foundation contend. 

The Physicians Foundation, created by the settlement of organized medicine's federal antiracketeering lawsuit against for-profit HMOs, advances practicing physicians' work and improves the quality of health care through activities such as awarding grants. TMA Executive Vice President and Chief Executive Officer Louis J. Goodman, PhD, is the foundation president. 

"TMA stands by its policy and its members, and we're going to do everything we can to see to the success of the challenge," said TMA President C. Bruce Malone, MD. "I support the right of doctors to create a quality hospital." 

Michael E. Russell II, MD, president of the Physician Hospitals of America Board of Directors and an orthopedic surgeon and investor in Texas Spine & Joint Hospital, says ACA represents a government takeover. 

"It's the one time in history we've basically said one type of ownership can't move forward, but other forms of ownership are allowed. All that does is decrease competition," he said.  

POHs allow innovation and greater efficiency in the health care system, Dr. Russell says, by allowing physicians to make financial and purchasing decisions.  

"In the end, health care reform is about lowering cost and increasing access, which is exactly what POHs do. If you take POHs out of the health care equation, you're left with one dominant hospital in each market," he said. 

Dr. Russell says Physician Hospitals of America and Texas Spine & Joint Hospital are committed to standing up for the rights of physicians to own hospitals. 

"We have to succeed. We'll keep fighting. If we didn't fight, we'd just be letting large, for-profit hospital systems take over. Competition in the health care marketplace is important, and we've witnessed the benefits of POHs," he said.  

He's pleased TMA and the Physicians Foundation support POHs. "TMA is willing to step up to the plate and stand behind physicians' ability to own POHs." 

To read the ACA lawsuits, click here.   

Problems With ACA

Federal judges in various states have rendered split decisions on the constitutionality of the individual insurance mandate in ACA. The Supreme Court is expected to decide the constitutionally of the law before the 2012 presidential election.  

Dr. Malone says uncertainty over the outcome of the legal challenges to ACA makes doctors anxious.  

"There is so much that's unknown. Physicians want to be able to plan, and there's enough stress already on the payment for medical services," he said. 

Despite that, Dr. Malone says physicians should plan for implementation of ACA by 2014. 

"The rest of society is planning for this new law, and medicine should be doing the same. The good news is the Supreme Court ruling will occur before the general election next year, and that will affect whether we have a viable commercial insurance market," Dr. Malone said. 

Susan Strate, MD, a Wichita Falls pathologist and member of the TMA Council on Health Care Quality, says legal scrutiny and debate over ACA made physicians more aware of the dramatic impact the act could have on the health care system. 

"Physicians feel if the law goes into effect as it is written, that will be the end of the practice of medicine and delivery of health care as we currently know it," she said. 

She's not surprised by the magnitude of legal challenges to ACA. 

"I think the law cuts to the core of our basic rights in regard to our most valuable possession – our health. The suits that have been filed say the law infringes on our constitutionally protected individual rights and on state sovereignty," she said. 

Dr. Russell says that POHs are under attack in ACA because "the American Hospital Association and the Federation of American Hospitals successfully lobbied the federal government to reduce competition faced by large for-profit hospitals."  

Bobby Hillert, executive director of TPHAC, agrees. 

"Despite all of the major issues facing the hospital industry in Washington … the hospital lobbying groups have kept fighting physicians at the top of their agenda. They are continuing to work with members of Congress to keep the POH restriction in place," he said. 

Unfortunately, Mr. Hillert says, lawmakers and hospitals in states with few, if any, POHs are pushing the effort to impede growth of the facilities.  

"They do not want to bring new health care choices into the market. In Texas, nearly every federal lawmaker who has been asked to go on record on the issue has supported POHs," he said.  

Instead of fighting the innovative physician ownership model, Mr. Hillert adds that some traditional community hospital systems partnered with physicians to create joint venture hospitals.  

"In the Dallas-Fort Worth area, nearly every nonprofit hospital system has recognized the value of having physicians playing a key role in leadership by having physician-owned joint venture hospitals," he said. 

David Teuscher, MD, an orthopedic surgeon and owner and investor in Beaumont Bone & Joint Institute, calls the ACA provision "very anticompetitive." Dr. Teuscher is a member of the TMA Board of Trustees and the TPHAC Board of Directors. 

"Who's going to stand up for patients if only administrators and big businesses can own hospitals?" he asked. "My job is to take the best care of my patients, and I won't shirk that duty just because I have an investment in a hospital. In fact, I'll make sure that hospital is high quality so I can deliver high-caliber care for patients." 

Quality, Safety Cornerstones

Dr. Malone is an orthopedic surgeon with Austin Bone & Joint Clinic, a private practice owned by six physicians.  

"I'm against ACA's restrictions on physician ownership. Texas is home to a lot of POHs that benefit patients," he said. 

According to a 2009-10 study by health care consulting firm Oxford Outcomes, POHs in Texas employ 24,189 people and have 20,627 credentialed physicians and 4,627 physician investors. The facilities' combined payroll accounts for about $1.23 billion annually. 

Texas' POHs rank highly in patient satisfaction and medical outcomes, Mr. Hillert says. Indeed, they dominate the Centers for Medicare & Medicaid Services (CMS) patient satisfaction ratings on the Medicare Hospital Compare website, 

Medicare created patient satisfaction ratings as a tool for patients to learn more about the experiences of others at hospitals. Since CMS began publishing the scores online in 2008, Mr. Hillert says, Texas POHs have scored some of the highest ratings in the field. 

For instance, 82 percent of Medicare patients who stayed overnight in one of 16 Dallas-Fort Worth POHs between July 2009 and June 2010 indicated they'd definitely recommend the hospital to others. Nationally, only 69 percent of Medicare patients would definitely recommend a hospital to others. (See "Medicare Patient Satisfaction at POHs.") 

Dr. Malone practices with Austin Surgical Hospital. The facility opened as a POH but now is a joint venture owned by physician investors and a management company, according to Dr. Malone.  

The hospital received accolades from HealthGrades, an independent health care ratings organization, for quality of care. Last year, HealthGrades ranked the hospital No. 1 in Texas for its total joint program, awarded it the Joint Excellence Award, and ranked it among the top 5 percent in the Unites States for total joint replacement and among the top 25 percent in Texas for back and neck surgery.

"POHs allow physicians to create high-quality, innovative practice environments. Patient safety is also a cornerstone at these institutions," Dr. Malone said.

Dr. Strate is an investor in and practices at Kell West Regional Hospital in Wichita Falls. She says ACA's ownership constraints, should they withstand legal challenge, will decrease patient choice, drive out competition, and prohibit doctors from owning facilities that "optimize the ability of physicians to collaborate to provide cost-efficient, high-quality care and high patient satisfaction."  

To some extent, she says, the limitations placed on construction and expansion of POHs lead to discriminatory treatment of patients covered by government programs.  

"We must remember that if restrictions on POHs prevail, they will have a big impact on future patients covered by Medicare, Medicaid, and TRICARE. This law will discriminate against these patients who won't have access to physician-owned facilities," she said. 

Based on her experience as a POH investor, Dr. Strate says these facilities benefit patients, physicians, and Texas communities. 

"I think they definitely offer patients and physicians a choice, and more importantly, they increase competition and offer physicians a way to work together to cut costs without cutting quality. In this type of setting, patients benefit from having a team of doctors who can optimally implement the most cost-effective method of care based on scientific evidence. They benefit communities through payment of sales tax, property tax, and income tax and employment of many people," she said. 

Joe Valenti, MD, a Denton obstetrician-gynecologist and member of the TMA Council on Socioeconomics, owns his clinic, Caring for Women, and has an ownership interest in North Texas Hospital, a POH. 

He says facilities owned by physicians inspire competition and increase access by providing patients more options for care. 

"POHs attract quality physicians to areas that need them. For example, once North Texas Hospital started paying physicians to take call, Denton Regional Medical Center followed suit and started paying. That had never happened before North Texas Hospital set the precedent, which ended up being a good way to retain physicians and to give patients more choices," he said. 

POHs also can improve patient care and outcomes in a community. Dr. Valenti says North Texas Hospital made a substantial financial commitment to patients when it purchased the da Vinci robot, a medical device that enables surgeons to perform delicate and complex operations through a few tiny incisions. 

"No hospital in Denton had the robot before North Texas Hospital purchased one. Using the robot for hysterectomies, for example, decreases morbidity, hospital stays, and recovery times. What takes six weeks to recover from with an open surgery takes only two weeks with the robot," he said. 

Four years after North Texas Hospital invested in the da Vinci robot, Dr. Valenti says Denton Regional Medical Center bought one.  

"What that shows is POHs are committed to bringing state-of-the-art devices to patients, providing a higher level of care they wouldn't have had access to," he said. 

Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email.

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