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“The government says, 'You are the best of the best, but we don't want you to compete in the community,' ” says Nick Genna (front), CEO of Treasure Valley Hospital in Boise, Idaho. On the medical staff of the physician-owned hospital (back row, from left): Paul Montalbano, MD; Jeffrey Hessing, MD; Mark Clawson, MD; and Thomas Lark, MD. Photo by Matt Cilley / AP images for American Medical News

Physician-owned hospitals seize their moment

Supplied with government data ranking them among the best for value of care, doctors at these facilities keep fighting to lift expansion restrictions.

By — Posted April 29, 2013

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When the federal government sorted through the first round of clinical information it was using to reward hospitals for providing higher-quality care in December 2012, the No. 1 hospital on the list was physician-owned Treasure Valley Hospital in Boise, Idaho. Nine of the top 10 performing hospitals were physician-owned, as were 48 of the top 100.

With only 238 physician-owned hospitals in the U.S., the facilities said scoring so well on a list with more than 3,000 entries shows the doctor-owned hospitals in a very positive light. The list was released by the Centers for Medicare & Medicaid Services in December 2012 in a report on hospital value-based purchasing.

But the new information comes nearly three years after a section of the Affordable Care Act effectively banned these facilities from expanding and prohibited new majority physician-owned facilities from opening their doors.

“The government says, 'You are the best of the best, but we don't want you to compete in the community.' It's an oxymoron,” said Nicholas Genna, CEO of Treasure Valley Hospital. “I would like to see the moratorium on growth lifted, because we are one of the examples of low cost and high quality.”

Efforts to lift the 2010 restrictions have proven unsuccessful so far. A lawsuit challenging that portion of the ACA was dismissed by the 5th U.S. Circuit Court of Appeals in August 2012, citing a lack of jurisdiction. Physician Hospitals of America, the trade group representing physician-owned facilities, said it would continue to study its legal options.

Efforts to have Congress repeal what has come to be known as Section 6001 of the ACA also have been unsuccessful. Michael D. Maves, MD, MBA, then-executive vice president and CEO of the American Medical Association, wrote a May 2011 letter to Congress supporting a bill to end the ban on new physician-owned hospitals and lift the expansion restrictions on existing facilities, but the measure went nowhere.

The American Hospital Assn. and the Federation of American Hospitals continue to back that section of the ACA. Several key lawmakers, including Senate Finance Committee Chair Max Baucus (D, Mont.) and panel member Chuck Grassley (R, Iowa), are in strong support of community hospitals in the debate.

Leaders of physician-owned hospitals, however, said the new government quality figures reinvigorate their quest to persuade lawmakers to overturn that portion of the law.

Payment tracking quality

Medicare's hospital value-based purchasing program aims to start paying facilities based more on the quality of the care they provide, rather than paying solely based on the volume of services. Under the initiative, hospitals will see pay rates increased by as much as 1% or reduced by as much as 2% based on how well they score on process measures, such as the percentage of patients given an antibiotic within an hour of surgery. Readmission rates for certain types of conditions and patient experience scores also figure into whether a facility's pay rate increases or decreases.

“With this new data, physician-owned hospitals show very favorably. We will try to use that on the Hill,” said PHA President Paul Kerens, senior executive officer of the Kansas City Orthopedic Institute in Leawood, Kan., a physician-owned facility. “It is CMS' own data that [state] we are providing the quality. To me, it doesn't make sense that you say to the best-quality hospital: 'You can't expand.' ”

With 30 million people expected to gain health insurance in the years after the ACA goes into full effect in 2014, there is no justification to hold back physician-owned hospitals, said orthopedic surgeon John W. Dietz Jr., MD, chair of the board of managers for Indiana Orthopaedic Hospital in Indianapolis. His hospital ranked in the top 10 of Medicare's value-based purchasing program list.

“We are getting more work done for less cost,” he said. “When physicians own and operate the hospital, there is a driving sense of responsibility for the outcomes.”

Physician-owned hospitals also can be more responsive, because there are fewer layers of bureaucracy, said Dr. Dietz, a member of the PHA's board of directors. “There is a short path to change. Something can be brought up on the floor at 4 a.m. and changed by 4 p.m.,” he said.

For physician-owned facilities that also are considered specialty hospitals — roughly 75% — studies have shown that their level of care specialization helps increase quality and positive outcomes and decrease complications, Dr. Dietz said.

And now new Medicare data show how physician-owned hospitals stack up. “We believe in the power of data,” he said.

Still, Dr. Dietz said, it will be a David vs. Goliath battle, with a powerful community hospital lobby intent on keeping the restrictions in place. “We are going up against a machine that generates millions of dollars.”

Already there are signs that the growth restrictions are hurting the physician-owned hospital industry. When the ACA was enacted, there were 265 such facilities; now there are only 238. “Many physician-owned hospitals are being poached by competitors because [they] need to expand and can't,” said Leslie Fossey, a PHA spokeswoman.

The quality data are telling, said David Hogberg, a senior fellow for health care policy at the National Center for Public Policy Research, a conservative think tank in Washington. But he doesn't see the new information helping get the section of the law repealed.

“Whether or not [the information] is there, it doesn't change the interest of the large hospital associations,” he said. “The interests against physician-owned hospitals are not going to change the fight.”

Accusations of unfair advantage

For years, the American Hospital Assn. and the Federation of American Hospitals have raised concerns about the practice of self-referral at physician-owned hospitals and have said these hospitals purposely serve healthier, more profitable patients, leaving sicker, costlier patients for community hospitals to treat.

The AHA said those concerns remain very much at play and that lawmakers need to keep the restrictions on physician-owned hospitals in place.

“Congress already spoke on this issue when it passed a provision to ban self-referral to new physician-owned hospitals,” the association said in a statement. “Repealing it would drive up health care costs and will make it hard for full-service hospitals to provide essential public services.”

The FAH agreed that Congress should leave the law alone.

“Any changes would go in the wrong direction,” said Jeff Cohen, FAH's executive vice president for advocacy and public affairs. “Anything they would do would cost the government more money and allow more overutilization.”

Cohen noted that the federation does not oppose specialty hospitals, just the concept of doctors referring their patients to facilities in which they have financial interests.

“We are against self-referrals in hospitals,” he said. “Hospitals — whether Catholic, community or physician-owned — should be on a level playing field. … We believe in open competition.”

Cohen said the ACA has “generous grandfathering” for physician-owned hospitals that were in business before the ACA's enactment. He noted that the law allows them to expand their facilities if there is a demonstrated need for their services in the community.

Physician-owned hospital leaders, however, strongly disagreed with the hospital organizations' arguments against their industry.

Dr. Dietz said it is offensive to hear opponents imply that physician-owned hospitals are performing unnecessary surgeries. A 2008 Robert Wood Johnson Foundation study found that physician referrals to facilities in which the doctors have an ownership interest is “becoming increasingly common and not always medically appropriate.” But the report went on to say that although evidence suggests self-referral leads to increased utilization, there is “insufficient evidence to determine whether this increased usage reflects doctors meeting an unmet need or ordering clinically inappropriate care.”

“We took an oath,” Dr. Dietz said. If the surgeries were unnecessary, he added, medical liability attorneys would be on their doorsteps. Insurance companies scrutinize surgery decisions and would steer away patients if unnecessary procedures were being ordered, he said.

“They are not. They are steering them toward us because of cost efficiencies,” he said.

Kerens said physician-owned hospitals in the U.S. accept Medicare and Medicaid and perform charity work in their communities.

“If you look at the data, we do not cherry-pick,” he said. “Physician owners started getting into the hospital business to provide better patient care and provide efficiencies of care. They are not in it for the money.”

Dreams of expansion deferred

Despite what they see as a real need for them to expand their services, physician-owned hospital executives said the ACA sets the requirements hospitals first must meet so high as to be unattainable.

“It was a sham,” said Tony Wahl, CEO of Texas Spine & Joint Hospital in Tyler. “In reality, it is too onerous.”

Because of the ACA, Texas Spine & Joint was unable to complete a $37 million expansion it had in the works. It spearheaded the unsuccessful court challenge to the statute that was thrown out in August 2012.

“It is a travesty to not be able to grow. There is a serious demand for services here,” he said. “My hope is someday quality will prevail in Congress. No matter what the ownership is — whether it is a community hospital, investor-owned or physician-owned — quality should dictate what services are provided.”

When the ACA was enacted, Dr. Dietz's hospital in Indianapolis had invested $27 million in a new facility that was under construction. It was able to open as a surgery center, but that necessitated closing inpatient beds at the main hospital, “which is sad,” he said. He said the main facility now is at full capacity three to four days a week.

Treasure Valley in Idaho also had planned to add more beds and procedure rooms before the ACA became law. Instead, the hospital will spend $10 million to revamp the 15-year-old facility and will add new observation rooms in the recovery area.

“We plan on being here for a long time,” said Genna, the CEO. “The fact that we can't go and build a high-quality and low-cost facility for our community is a disservice. But we can continue to provide care and do.”

Robb Linafelter, CEO at Lincoln (Neb.) Surgical Center, said the percentage of population growth and the projected patient numbers that facilities must demonstrate before they are allowed to expand under the ACA are “outlandish.”

When legislators look at the section of the ACA dealing with physician-owned hospitals, “our hope is at least existing facilities can grow and expand,” Linafelter said. His facility, which ranked in the top 10 on the Medicare value-based purchasing program list, is seeing growth in demand, as is the entire Lincoln market.

“Physicians need to continue to stand up for what they believe in,” he said. “That is why we have physician-owned hospitals. They built the hospitals to control their own destiny.”

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For doctor-owned hospitals, Medicare quality matters

The Centers for Medicare & Medicaid Services has started increasing hospitals' pay by as much as 1% or lowering it by as much as 2% based on how well each facility scores on 12 measures of clinical care, patient satisfaction surveys and readmission rates. Here are the top-scoring hospitals based on the combined results, showing how the hospitals' pay rates will be adjusted. Among the top 10 hospitals, only Marlboro Park Hospital is without physician ownership.

Hospital City State Change in pay
1. Treasure Valley Hospital Boise Idaho 0.83%
2. Lincoln Surgical Hospital Lincoln Nebraska 0.78%
3. Baylor Medical Center at Trophy Club Trophy Club Texas 0.78%
4. Tops Surgical Specialty Hospital Houston Texas 0.75%
5. Marlboro Park Hospital Bennettsville South Carolina 0.74%
6. Baylor Medical Center at Uptown Dallas Texas 0.74%
7. Irving Coppell Surgical Hospital Irving Texas 0.73%
8. Surgical Hospital at Southwoods Youngstown Ohio 0.73%
9. Indiana Orthopaedic Hospital Indianapolis Indiana 0.72%
10. Baylor Heart and Vascular Hospital Dallas Texas 0.72%

Source: “Hospital Value-Based Purchasing: The Official Website for the Medicare Hospital Value-based Purchasing Program,” Centers for Medicare & Medicaid Services, December 2012 (link); “Medicare Bonuses and Penalties for U.S. Hospitals,” Kaiser Health News, December 2012 (link)

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External links

“Hospital Value-Based Purchasing: The Official Website for the Medicare Hospital Value-based Purchasing Program,” Centers for Medicare & Medicaid Services, December 2012 (link)

“Medicare Bonuses and Penalties for U.S. Hospitals,” Kaiser Health News, December 2012 (link)

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