Pride of Ownership

Hospitals, Physicians Wrangling Over Who Owns the Shop   

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Legislative Affairs Feature - June 2006  

By  Ken Ortolon
Senior Editor

When a group of Austin cardiologists banded together in 1997 to build the Austin Heart Hospital, they wanted a greater role in managing the care their hospitalized patients receive.

"Even though we were involved in hospital committees and so on, as a group of cardiologists we didn't feel like we had aligned interests with the hospitals," said George P. Rodgers, MD, one of the hospital's partners. "The opportunity arose to invest in a specialty hospital, and to us it sounded like a great model because we would be intimately involved in the management of the hospital and how care was delivered to our patients."

As a result, Dr. Rodgers says, Austin Heart Hospital patients receive superior care at a lower cost than at other Austin medical centers. The hospital was rated as the top overall cardiac program in the state for 2004, 2005, and 2006 by HealthGrades, a leading national provider of independent hospital ratings, and twice has been selected among the top 100 cardiovascular hospitals in the country by Solucient Center for Healthcare Improvement.

Over the past several years, there has been an explosion of physician-owned medical facilities across the country, including specialty hospitals, imaging centers, and ambulatory surgical centers. Despite several studies indicating specialty hospitals provide better care than other facilities, not everyone is happy about the new trend. And the hospital industry has used its considerable lobbying clout to convince Congress to put the brakes on new physician-owned hospitals.

The Texas Medical Association blocked an effort in the 2005 session of the Texas Legislature to impose a state moratorium on physicians referring patients to physician-owned specialty hospitals and other facilities in which they hold financial interests, and to stop construction of new physician-owned facilities. TMA presented evidence that physician-owned specialty hospitals enhance quality of care, improve patient safety, increase patient satisfaction, and lower costs.

While opponents say specialty, or niche, hospitals hurt community-based hospitals by siphoning off the better paying patients and leaving behind the poor and the uninsured, physicians say the general hospitals simply are afraid of competition. Ultimately, patients will lose if physician ownership dries up, because innovation in health care may disappear as well, supporters of physician ownership say.

"Competition has always been good," said Abilene otolaryngologist Austin I. King, MD, chair of TMA's Council on Legislation, part owner of an ambulatory surgical center in Abilene. "Most of the innovations in providing more efficient health care have been physician driven - ambulatory surgical centers, freestanding imaging centers, gastroenterology centers. If you start taking out physician-driven competition with regular hospitals, you're not going to have any innovation, and ultimately you're not going to save any money." 

Drawing theBattle Lines

Earlier this year, Congress directed the Centers for Medicare & Medicaid Services (CMS) to stop approving any new Medicare participation applications from specialty hospitals for another six months or until the agency releases a report on how to regulate future physician investment in such facilities. The measure, part of the same budget reconciliation bill that reversed the 4.4-percent cut in Medicare physician payments, extended a previous ban on physician referrals to facilities in which they have an ownership interest that Congress passed at the end of 2003.

That moratorium expired in June 2005, but CMS quickly announced it would not approve any new applications for specialty hospitals through the end of 2005.

The new moratorium was a big victory for groups like the American Hospital Association (AHA) and the Federation of American Hospitals (FAH), which have lobbied for an outright ban on physician referrals to specialty hospitals in which they own an interest. They say such referrals are subject to inherent conflicts of interest that harm patients and deprive communities of vital health care services.

"The public must be assured that a physician's decision to refer patients is not influenced by financial conflict of interest," FAH President Chip Kahn and Rick Pollack, AHA executive vice president, said in a joint statement applauding the CMS decision.

Opposition to physician-owned hospitals is not confined to the general hospital competitors. Many physicians also have raised concerns, saying physician-investors are interested in investing only in facilities to which they can provide a steady stream of patients. Other physicians say they are concerned about patients with multiple, complex conditions going to a specialty facility that is capable of treating only one of those conditions.

American Medical Association President-Elect William G. Plested, MD, acknowledges disagreement among physicians on the issue, but says most of the opposition comes from physicians who work for or practice in the general hospitals. The Santa Monica, Calif., thoracic and cardiovascular surgeon says the bottom line is that general and community hospitals simply don't want any competition.

"When they talk about inappropriate referral, the ethical physician must send the patient where he thinks that patient will get the best treatment," Dr. Plested said. "If I send my patients to a facility that I think does a better job, that they'll get better care, is that inappropriate? They're [hospitals] interested in who gets the money. Is who gets the money the way to decide ethical, appropriate referral?" 

Picking Cherries

Dr. Rodgers says arguments that specialty hospitals siphon off the better paying patients are "bunk." He says his group, for example, has offices in eight rural communities in the Austin area and takes all comers, regardless of their coverage.

"We take the sickest of the patients from all of those rural areas and take them to the heart hospital preferentially because we're trying to provide the best possible care we can to these patients," he said. "We're doing reverse cherry picking."

Even if community hospitals were being left with only the poor paying patients, Dr. Plested says a better solution is for Congress and the states "to fix the inappropriate payment mechanisms" under Medicare, Medicaid, and other government programs rather than stifling physician investment.

Dr. King also believes competition from physician-owned facilities is bringing better care to patients. In the mid-1980s, Dr. King and his wife built one of the first ambulatory surgical centers in Abilene. "We did it because the hospital was charging enormous prices for putting tubes in ears, for example," he said. "We felt like we could do that more efficiently and at a much lower cost, which we did."

Dr. Plested believes Congress and CMS have studied the specialty hospital issue enough. "They've had all kinds of studies and looked at the issues," he said. "Everything that's come out of Congress essentially agrees with our position that there is nothing wrong with physician ownership of specialty hospitals, that specialty hospitals are good for competition, that they have extremely high quality and even higher patient satisfaction and acceptance, and that they should be allowed."

He says AMA will continue to lobby to lift the moratorium on specialty hospitals but warns the hospitals aren't likely to wear down. "This is a biggie for them and they've got more money than we do."

Dr. Rodgers says it simply irks him that the integrity of physicians who invest in medical facilities is being questioned.

"Can you think of any other profession in which it's a stain on the profession to own the shop? It bothers me to think that the public or legislators or whoever think the fact that doctors have ownership is a bad idea. What does that say about us as a profession? Does it say that we're inherently greedy and unethical? I think that's horrible."

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email atKen Ortolon.  


DSHS Launches Specialty Hospital Study

The Texas Department of State Health Services (DSHS) has begun a study to determine the impact that specialty hospitals have on the financial viability of other hospitals in the state.

The study was ordered by the 2005 session of the Texas Legislature after the Texas Hospital Association and the Texas Association of Business failed in their efforts to pass several other bills that would have banned physician ownership of medical facilities outright or restricted a physician's ability to refer patients to a facility in which he or she or a family member owns an interest.

DSHS has hired Mathematica Policy Research Inc. to conduct the study. Mathematica will work with the Center for Studying Health System Change, a nonpartisan Washington, D.C.-based policy research organization, in its research.

The study will look at the number of specialty, or niche, hospitals in Texas, the number of such hospitals under construction or in the planning phase, their location and proximity to other general hospitals, the financial impact specialty hospitals have on general hospitals, referral patterns of physicians who have an ownership interest, and the range of services provided by specialty hospitals, particularly emergency and charity care services.

An initial report on the economic and business analysis is expected to be issued July 1, with a preliminary report on the analysis of physician clinical and referral behavior to be issued Aug. 1. A second combined draft report is to be issued Oct. 15, with the final report submitted to the legislature by Dec. 1.

The Texas Medical Association supported the bill ordering the study. The bill also requires physicians to disclose their ownership interests to patients. The association argued in the legislature that competition promotes lower cost, timely access to services, and innovation. Many large hospital systems joined TMA in the fight restricting physician ownership, noting that partnering with physicians creates new opportunities for both parties to improve patient care and lower costs.

Austin I. King, MD, chair of TMA's Council on Legislation, says TMA supported the study even though most physicians really do not see a problem developing as a result of the growth of specialty and other physician-owned facilities.

"We didn't see any hospitals going out of business or having a lot of bad problems because of it," he said. "If there is a problem, then we want to try to be part of the solution because it's very important for communities that community hospitals do well." 

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Last Updated On

March 12, 2014

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