It's the Care That Counts: Doctor Hospital Ownership Fight Draws Near

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Legislative Affairs Feature - April 2008  



By  Ken Ortolon
Senior Editor  

When Congress temporarily suspended a Medicare physician fee cut and extended the State Children's Health Insurance Program (SCHIP) last December, many physicians breathed a sigh of relief.

No, it wasn't just that a 10.1-percent cut in Medicare physician fees was averted for six months or that SCHIP funding was guaranteed for another 18 months. Instead, physicians managed to keep out of the bill a lesser-known provision severely restricting physicians' rights to own hospitals, ambulatory surgical centers, and other health care facilities.

Like so many other legislative issues, however, the battle over physician ownership of health facilities has not gone away. In fact, physicians are gearing up for another tough fight over ownership when Congress resumes debate on a permanent fix for Medicare's flawed physician fee formula this spring and summer. Some physicians say the battle over who owns medical facilities could be the defining issue for medicine in 2008 and beyond.

"If we, as physicians, are to adhere to our oath to be 'advocates for our patients,' then it not only behooves, but demands, that we be at the table in a decision-making role in the decisions concerning how health care delivery will evolve and manifest for our patients," said Dallas cardiologist Rick Snyder, MD, FACC, president of the Texas Chapter of the American College of Cardiology (ACC). "We must be stakeholders as owners of the system in this process to be effective, not hired hands." 

CHAMPing Down  

As originally passed by the U.S. House of Representatives, the Children's Health and Medicare Protection Act (CHAMP) of 2007 banned physician-owned hospitals not already designated as Medicare providers as of July 24, 2007. It also prohibited expanding existing physician-owned facilities that already had Medicare provider numbers and limited physician ownership in any such facilities to 40 percent, with no individual physician owning more than 2 percent.

The Senate refused to go along with the ownership language, drastic cuts in fees for imaging services, or other provisions that would have negatively impacted physicians.

Instead, lawmakers settled for legislation that postponed the Medicare fee cuts for six months and replaced them with a 0.5-percent increase, and extended SCHIP for 18 months.

But the failure to solve the Medicare physician fee issue means lawmakers must act again by July 1 to keep the cuts from taking effect. Leaders of ACC and other physician organizations say that opens the door again to attempts to ban physician ownership.

Dr. Snyder says ACC expects U.S. Rep. Fortney "Pete" Stark (D-Calif.), who authored last year's physician ownership ban, to introduce similar language this year. What's worse, key members of the Senate Finance Committee also appear committed to such a ban.

Texas Medical Association President William W. Hinchey, MD, of San Antonio, says Medicare fee legislation is expected to originate in the Senate Finance Committee this year, where Chair Max Baucus (D-Mont.) and ranking minority member Sen. Charles Grassley (R-Iowa) have been vocal critics of physician ownership. Representative Stark chairs the health subcommittee of the House Ways and Means Committee, meaning that all three are in key positions to influence the debate, Dr. Hinchey says.

An aide to Senator Baucus confirmed he is working on Medicare legislation now and that ownership is likely to be addressed. 

Ownership or Quality?  

Physicians are adamant that the quality and appropriateness of the care patients receive should be more important than who owns a facility.

"It's not who owns it, it's what's done there that ought to count," Dr. Hinchey said. "Whoever owns the hospital ought to make sure that it's good quality and there's proper utilization."

Some critics, including organizations that represent community hospitals and hospital systems, contend that physician-owned specialty hospitals are "cherry picking" paying patients and sticking community general hospitals with the uninsured or with patients covered by Medicare and Medicaid, which frequently pay less than private health plans.

Others have criticized specialty hospitals for lacking adequate emergency departments or for providing poor quality of care and overusing services ordered by physician owners. The Congressional Budget Office estimates that banning physician-owned facilities could save nearly $3 billion over the next 10 years. Darren Whitehurst, TMA vice president, public affairs, doubts those figures. He says patients are going to get the services they need regardless of who owns the health care facilities.

But advocates of physician-owned hospitals dispute both the quality and utilization arguments. Dr. Snyder indirectly owns a stake in Baylor Heart and Vascular Hospital in Dallas through his medical group. He says that facility's scores on U.S. Centers for Medicare & Medicaid Services quality indicators, such as appropriate use of aspirin and beta blockers, far exceed both national and Texas averages for other hospitals. Dr. Snyder, who doesn't practice at Baylor, calls its scores on those indicators "world class."

Dr. Snyder says high quality at physician-owned hospitals largely results from the physicians being stakeholders in the facility. "When you get physician buy-in, it changes physician behaviors," he said. "They tend to round earlier, see their patients earlier. You get better consensus on defibrillators and medicine because now they're stakeholders. They become more involved in their hospitals." 

Divide and Conquer  

Dr. Snyder says opponents of physician ownership use the issue as a wedge to divide the house of medicine, offering a Medicare fee fix in exchange for the ownership ban. "This is a high-stakes poker game," he said.

While they may be able to peel off some physicians, several key medical associations seem prepared to hold the course. TMA has actively lobbied the Texas congressional delegation to oppose the CHAMP ownership language.

"We certainly have expressed the opinion that physician ownership should not be tied in any way with fixing the Medicare system," Dr. Hinchey said. "Fixing the Medicare system is its own issue. It's full of tension, and nothing should stand in the way of having that occur."

The American College of Cardiology Foundation also recently adopted policy squarely in support of physician ownership, and the American Medical Association pledged during the CHAMP debate to oppose restrictions on physician ownership.

AMA "supports specialty hospitals as one way to provide patients with high-quality care," said William G. Plested III, MD, AMA immediate past president. "Studies have found high patient satisfaction with specialty hospitals, and a congressionally mandated study found that risk-adjusted 30-day mortality rates were significantly lower for specialty than for community hospitals. When patients are offered multiple high-quality options in where to obtain health care, we believe the entire health system benefits through competition that spurs innovation."  

While ownership advocates acknowledge that keeping restrictions out of this year's bill may be difficult, there appears to be considerable support for physician ownership from both Democratic and Republican members of the Texas congressional delegation. TMA officials say Sen. John Cornyn (R-Texas) staunchly opposes an ownership ban. And, in a letter to House Speaker Nancy Pelosi dated Sept. 10, 2007, 11 House Democrats, including seven from Texas, urged eliminating the physician ownership language from the CHAMP bill.

"The provision broadly affects any hospital with physician ownership, including general community hospitals, rural facilities, rehabilitation hospitals, and all other specialized hospitals, regardless of the quality of the facility's service or the needs of local patients," the letter said. Texas representatives Ruben Hinojosa, Solomon Ortiz, Nick Lampson, Chet Edwards, Al Green, Sheila Jackson Lee, and Ciro Rodriguez signed the letter.

"We understand the concern that some members have expressed regarding excessive use, cherry picking of patients, and the quality of care at some of these hospitals," the letter continued. "There is no reason, however, for Congress to broadly penalize the corporate structure of all physician-owned facilities to root out the practices of a few bad actors."

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 at  Ken Ortolon .  



Physician Ownership Saves Houston's Oldest Hospital

St. Joseph Medical Center is the oldest hospital in Houston and the only one in the downtown area. Founded as St. Joseph Hospital in 1887 by the Sisters of Charity of the Incarnate Word, the hospital was once known as "Houston's Birthplace" because so many children were born there.

But in 2005 the hospital's future looked bleak. Christus Health Group, which purchased the hospital from the Sisters of Charity about a decade earlier, decided to sell, and it was unclear whether the hospital would remain open or be forced to close.

"Christus had experienced losses and wanted to sell it as a hospital, but was not absolutely committed to selling it as an actively running, open hospital," said urologist John Bertini, MD, who practices at "St. Joe."

Organized by Dr. Bertini, the hospital's medical staff put together an investment group and approached Christus about buying the hospital. "While Christus initially was reluctant to deal with a physician group, it agreed to add them to the negotiations, which ultimately included Hospital Partners of America (HPA) in a joint venture."

In 2006, the sale was completed, starting what Dr. Bertini describes as an "epic turnaround." Where St. Joseph had been running in the red under Christus, it showed a $28 million profit under its new owners. And that was despite doing $13 million in uncompensated care, says Dr. Bertini, who now chairs the hospital's board of directors, as well as serving as academic chief of urology and in other positions. St. Joseph also paid $3 million in taxes in 2007.

Now, the hospital that might have closed is not only increasing services at its downtown campus, such as a new breast center catering to women who work in the downtown area, but it also is looking to shift some of its unused bed capacity to create a new hospital in the nearby Heights neighborhood, where a hospital recently closed.

"If it weren't for the doctors, St. Joseph would have gone away," said Dan Finch, director of TMA's Legislative Affairs Department, who formerly was with the Harris County Medical Society. "It's a real tribute to the doctors for keeping that hospital alive."

Dr. Bertini admits that St. Joseph's story is different from most physician-owned hospital ventures in the state, which by and large are specialty hospitals or ambulatory surgical centers. "Number one, we are a large, major metropolitan acute care facility. We are in no way a specialty hospital," he says.

Not only does St. Joseph do a considerable volume of charity care, it also is a Level 3 trauma center that provides an important safety valve for Ben Taub and Hermann hospitals, the city's major trauma centers.

"The other issue was because we are a huge facility in downtown Houston and had desires to expand the services, not contract them, it was important for us to be partnered with someone with deep pockets," Dr. Bertini continued. "So we joined HPA so we could immediately start plowing capital into the facility for equipment, renovation, new programs."

HPA and its physician partners have set up their ownership arrangement largely to comply with the restrictions on physician ownership that Congress debated last year as part of the Children's Health and Medicare Protection (CHAMP) Act. Even though those restrictions eventually failed to pass, St. Joseph is limiting total physician ownership to 40 percent, with no individual physician owning more than 2 percent. The group started out with 44 initial physicians owners and doubled that during their first year. As of February, there were slightly more than 100 physicians in the ownership group.

Dr. Bertini says he doesn't expect any legislation restricting physician ownership to hurt St. Joseph because they already limit ownership interest, comply with safe harbor laws, and do not "cherry pick" patients. He is worried, however, that a ban on new physician-owned facilities could prevent other success stories.

"All across the country, my bias is that physician ownership will save the imperiled hospital," he said.

With its location at the edge of downtown and near low-income neighborhoods, St. Joseph serves a diverse population of patients from the most affluent to those without health coverage. The hospital also is a major provider of emergency and maternity care. Its loss would have left a "big hole" in those services in Houston, Dr. Bertini says. 


Cardiologists Formally Back Physician Ownership

Ending its neutrality on the issue, the American College of Cardiology Foundation (ACCF) in January adopted a policy supporting physician ownership that focuses on quality of care and patient access.

In its new policy statement, ACCF supports "physician ownership in facilities, equipment, or services that benefit patients through the delivery of appropriate, high-quality medical care."

Dallas cardiologist Rick Snyder, MD, FACC, president of the Texas Chapter of the American College of Cardiology and a member of the national organization's Board of Trustees, says the policy was based largely on a similar policy adopted by the TMA House of Delegates.

"We essentially took the TMA policy statement and modified it for cardiology, really emphasizing quality parameters that should be expected in every setting, physician-owned or not," Dr. Snyder said.

The new ACCF policy says facilities owned in whole or in part by physicians who then refer patients to these facilities "should strive to enhance quality of care, efficiency, and patient access, while ensuring that ownership interests are directed to improving the delivery of care through implementation of quality systems and measures. This dedication to clinical excellence should be demonstrated by adherence to ACCF's evidence-based Practice Guidelines, Quality Standards, and Appropriateness Criteria, as well as participation in quality-reporting initiatives such as the National Cardiovascular Data Registry and Society of Thoracic Surgeons National Database."

The policy also suggests physician-owned facilities pursue laboratory accreditation, conduct physician certifications, and establish credentialing of support personnel.



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January 27, 2016

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