Like a Bad Penny: Physician Hospital Ownership Ban Likely to Resurface

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Medical Economics Feature - May 2009  


Tex Med . 2009;105(5):35-39.  

By Ken Ortolon
Senior Editor  

Organized medicine succeeded earlier this year in stripping a hospital association-backed attempt to keep physicians from owning financial interests in new hospitals from the bill Congress passed to reauthorize the State Children's Health Insurance Program (SCHIP).

However, the American Hospital Association (AHA) and other proponents of the physician-ownership ban make it clear they are not giving up. In fact, both American Medical Association and Texas Medical Association officials anticipate several attempts to revive the issue as Congress debates a number of health care bills later this year.

"I expect they will continue to try any and all vehicles," said Beaumont orthopedic surgeon David Teuscher, MD, a member of the TMA Council on Legislation. "I hope the sanity of the voice of the AMA and TMA will prevail."

While physicians have been successful thus far, Dr. Teuscher and others warn that the political landscape in Washington, D.C., changed dramatically with the November general election. Organized medicine will have its hands full trying to fend off the hospitals, which have made the ban one of their top legislative priorities.

Changes in ownership rules already are occurring.

Medicare rules [ PDF ] that take effect June 8 require Medicare physicians to tell their patients - in writing at the time of referral - if they or their immediate family members have an ownership or investment interest in the hospital to which they are referring them for treatment. They will lose their medical staff membership and admitting privileges if they don't. The rules also require physician-owned hospitals to tell patients the names of owner physicians who make referrals to the hospital and their immediate owner/investor family members.

"CMS believes that providing patients with early notification of the physician's (or his or her immediate family member's) ownership in the hospital is beneficial to the patient's decision-making concerning his or her treatment," said CMS spokesperson Ellen Griffith. "Thus, requiring physicians to notify patients of the ownership at the time of referral will afford patients the opportunity to discuss the ownership or investment interest in the hospital and make a more informed decision."

Ms. Griffith said CMS told Congress in August "that we would promote transparency of investment through disclosing physician ownership to patients."

CMS defines a physician-owned hospital as any Medicare hospital in which a physician or physicians have an ownership or investment interest. The ownership or investment interest may be through equity, debt, or other means, and includes an interest in an entity that holds an ownership or investment interest in the hospital.

TMA promotes responsible ownership of all health care facilities, whether owned by a physician, hospital, or other provider. The association believes physicians should fully disclose any interest in a facility to which they refer patients. TMA's policy states that physician-owned entities should adhere to all state and federal regulations; provide appropriate credentialing of physicians, clinical, and support staff; perform systematic, ongoing monitoring of utilization and quality; and adhere to relevant TMA and AMA ethical guidelines including adhering to responsible ownership policy.

Taking Pot Shots

After failing to keep the physician ownership ban in the SCHIP bill, AHA officials in February told Modern Physician that they intend "to strongly pursue all avenues" to ban physicians from self-referring to hospitals in which they own an interest.  

AMA officials say that for at least the past year AHA and the Federation of American Hospitals (FAH) have pursued a "shotgun approach," trying to attach the provision to any legislation that looks likely to make it to the president's desk to be signed into law.  

In 2008, in what AMA Past President William G. Plested III, MD, called a "sneak attack," they tried to attach the measure to a farm bill.  

"As we work to improve the health care system, it is bad policy to take away patients' health care choices by banning specialty hospitals - especially under the cover of the farm bill," Dr. Plested said at the time.  

This year, hospitals already have attempted to slip the ban into the SCHIP bill, and Darren Whitehurst, TMA vice president for advocacy, says it will definitely come up again. "It's going to show up in the health system reform package that's being put together. If it doesn't show up there, it's going to show up in some other piece," Mr. Whitehurst said. "There's the [Medicare] Sustainable Growth Rate fix that's got to be done by the end of the year. There are going to be some other vehicles, as well."  

The issue already has surfaced in the budget debate. President Obama included restrictions on physician ownership in his $3.6 trillion budget proposal to save money on Medicare, although AMA officials say no dollar amount of savings was indicated.  

Dr. Teuscher, who owns an interest in Beaumont Bone and Joint Institute, a physician-owned hospital, says the Congressional Budget Office (CBO) originally estimated several billion dollars in savings by banning physician ownership, but that total seems to go down each time the issue resurfaces.  

The only way they could achieve that level of savings is if the ownership ban prompted physicians to perform more procedures in ambulatory surgical centers (ASCs), thereby shifting costs from Medicare Part A, which covers hospital costs, to Part B, which covers ASC and physician services, he says.  

Mr. Whitehurst says the argument that banning physician-owned hospitals will save money is bogus. "The savings largely appear to be due to the CBO saying that if these services weren't being provided in physician-owned facilities they'd be provided in ASC outpatient settings," he said. "The reality is that's not what would happen. If they weren't provided in physician-owned facilities, they would be provided at a nonphysician-owned facility."  

The hospital associations argue that physician-owned hospitals drive overutilization and harm the financial health of community hospitals by cherry-picking the best paying patients, leaving the community hospitals with Medicare, Medicaid, and charity care cases.  

But Mr. Whitehurst is skeptical that anyone on Capitol Hill really takes those arguments seriously anymore. "They don't really have any data that supports that," he said.  

In fact, in a Feb. 9 editorial, Modern Physician called those arguments a "red herring" used by large for-profit hospitals to drown out their competition.  

"The fact is," said Dr. Teuscher, "some people don't want competition. They want to fight through Congress and through legislation to be able to prohibit physicians from being able to exercise their right to invest in and develop these facilities."  

Proponents of physician-owned hospitals say AHA and FAH continue to push the issue even though some of their own for-profit hospital members are physician owned or partner with physicians in hospital ownership.  

One FAH board member went so far as to suggest to Modern Physician that the federation was "clearly controlled" by one organization, the hospital chain HCA.  

Dr. Teuscher says Beaumont Bone and Joint Institute is a member of both AHA and the Texas Hospital Association. "We think that there's a small element among the for-profit hospitals, such as HCA, that has been pushing the issue," he said.  

An HCA spokesperson says the company supports the AHA and FAH positions. He declined further comment.   

Navigating a Rough Sea

Regardless of the merits of the debate, physicians could face a tough battle in the new political climate. AMA officials say the election of President Obama and the wide margins enjoyed by Democrats in both the House and Senate could make it harder to fight off the ownership ban this year. They point out that the Bush administration was an ally on physician ownership, whereas the Obama administration is not.  

The issue, however, is not a purely partisan one. Some Republicans, such as Sen. Charles Grassley (R-Iowa) support the ban, while some Democrats, including Rep. Sheila Jackson Lee (D-Houston), oppose it.  

If the hospitals succeed in passing a ban, AMA and TMA will seek to protect existing physician-owned facilities or those that are currently under development. AMA officials say the language that nearly passed in the SCHIP bill would not have protected facilities under development and made it difficult for existing facilities to expand. If those hospitals can't expand, they can't compete, they say.  

Dr. Teuscher says banning physician ownership would be shortsighted while Congress is spending so much of its energy on economic development.  

"The debate in Washington right now centers on three things: one is jobs, two is small business, and three is health care. Where do those three things come together? They come together in physician-owned health care facilities," he said.  

According to a Texas Physician Hospitals Advocacy Center study, physician-owned hospitals employ more than 22,000 Texans, generate $2.3 billion for the Texas economy, and pay approximately $86 million in property, payroll, and income taxes.  

"I don't understand how if you want jobs, if you want to be in favor of health care access, and you want support for small businesses, why you wouldn't offer that opportunity for physicians to participate in the ownership and operation of those facilities," Dr. Teuscher said.  

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.   



Denton Hospital Disproves Critics' Charges

While large for-profit hospitals and the associations that represent them claim physician-owned hospitals are cherry-picking only the best paying patients and jeopardizing the financial viability of some community hospitals, the experience here in Texas appears to be far different.  

Bobby Hillert, executive director of the Texas Physician Hospitals Advocacy Center, says a recent study of the economic impact of physician-owned hospitals shows they provide many benefits for their communities.  

"The study confirms that each one of the approximately 50 Texas physician hospitals serves as a leader in its community," he said. "Not only are they revolutionizing the way that health care is delivered, physician hospitals are paying critical taxes that are reinvested in their communities and employing a significant number of Texans, and many are providing charity and uncompensated care, as well."  

One case in point is North Texas Hospital, a small physician-owned facility in Denton that opened in 2005.  

Joseph Valenti, MD, medical director for North Texas Hospital, says the hospital has been accused of cherry-picking patients, but actually takes all comers. "We take Medicare, we take Medicaid. We're in network for two of the big insurers, UnitedHealthcare and Blue Cross," he said. "We're also involved now in doing some charity work."  

In fact, North Texas Hospital was the first Denton facility to accept a patient under Project Access, a program operated by the Denton County Medical Society (CMS) that seeks to find physicians and hospitals to provide free care for uninsured patients.  

"They were the first hospital to do a surgical case for us," said Brenda Holland, executive director of the Denton CMS. "They were great."  

The case involved a colonoscopy and upper gastrointestinal endoscopy for the uninsured patient. Dr. Valenti says the hospital, the anesthesiologist, and the gastroenterologist all provided the care free of charge.  

"The physicians have a benefit from having the hospital open, and many of them feel that they should be giving back to the community, and they are," Dr. Valenti said. "They're fiscally able to do so because they don't have to spend every other waking moment in the office with paying patients just trying to keep their practices open."  

Ms. Holland says other Denton hospitals also have agreed to participate in Project Access. Some are limiting their participation to $25,000 in services, she says. Dr. Valenti says North Texas has not put a limit on its commitment to the program.  

Not only are North Texas and its physicians providing needed charity care, but they also have brought innovation to the delivery of care. The hospital is the only one in Denton County that uses a da Vinci surgical robot to provide minimally invasive care, Dr. Valenti says. "We spent $1.8 million so we could provide a level of care that was not available elsewhere," he said.  

While North Texas is helping fill the needs of the indigent and uninsured, physician ownership also has helped preserve another community hospital.  

Beaumont orthopedic surgeon David Teuscher, MD, says Houston would have lost St. Joseph's Medical Center if a group of physician investors had not stepped in to save the facility. Dr. Teuscher says the success of St. Joseph's has led at least one Houston member of Congress to become a staunch defender of physician-owned hospitals.  

"Rep. Sheila Jackson Lee is one of the biggest proponents of physician ownership because she saw that it gave health care access to her constituents," said Dr. Teuscher, a member of TMA's Council on Legislation.  



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