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New Study Reinforces the Risks of Expanding Physician-owned Hospitals

By Chip Kahn, FAH President and CEO, and Stacey Hughes, AHA Executive Vice President

A new study funded by Patient Rights Advocate adds to the evidence that physician-owned hospitals (POHs) are not comparable to or substitutes for full-service acute care hospitals. Buried beneath its flawed conclusions on hospital prices are three simple truths: the study was based on a very limited sample size (just eight medical procedures), it relies on misleading data, and, most importantly, the study’s own data shows conclusively that POHs shun medically complex patients, as well as the uninsured and those on Medicaid.

The study finding lower prices on eight self-selected procedures obscures the reality proven time and again that expanding POHs would actually increase overall costs to patients, employers, and the federal government, and destabilize access to critical and higher acuity hospital-based services in communities across the country.

Specific issues with the study include:

  • Limited sample of procedures: The study only evaluates a small, self-selected set of eight medical procedures. Perhaps this is because the authors recognize that POHs do not provide the full breadth of services that full-service acute care hospitals provide, as a majority of POHs only offer care for specific services like orthopedic or cardiac care at their facilities. It’s impossible to draw any meaningful conclusions from such an incomplete sample.
  • Relies on misleading data: The most substantial flaw is in the authors’ reliance on price transparency data rather than claims data. The truth is price transparency data does not necessarily reflect what a provider is actually paid for an episode of care. For example, payers routinely deny claims in whole or in part, thus reducing the actual value of what is paid. The rates in the price transparency files also do not account for myriad other factors that could impact the actual amount paid, such as whether the service was one of several the patient received during an episode of care or whether the payment was based in part on performance-based adjustments.

    At the most extreme example, using the price transparency files runs the risk that the authors are comparing prices for services a POH may not even provide due to “ghost rates” that are known to exist in the transparency files. Take, for example, emergency services. The study compares prices for certain emergency department procedures but fails to acknowledge that POHs provide far fewer emergency services — if any at all — to patients than non-POHs, as prior research has found. Instead POHs generally shift costs for these services, relying on publicly funded 911 services or general acute care hospitals when their patients need emergency care.
  • Ignores POHs’ patient mix: The authors discount the impact of POHs treating a far less medically complex patient population than full-scale acute care hospitals, something that directly impacts the cost of providing care. In other words, POHs select a set of high-margin services to provide to healthier patients who have more generous insurance. For example, the study finds that full-service acute care hospitals treated more than twice as many Medicaid patients and provided nearly three times as much charity care as POHs, a population that is well-documented to be more medically complex, sicker, and higher cost to care for than other patients.

These findings, along with the fact that POHs enjoyed significantly higher financial margins as a result, are entirely consistent with prior research and with previous findings from the Government Accountability Office, the Centers for Medicare & Medicaid Services, the Medicare Payment Advisory Commission, and others. The implications of this patient selection on affordability and access to care led Congress to ban new POHs and restrict the growth of existing facilities thirteen years ago. This study only reinforces Congress’ concerns amid calls by some to repeal restrictions on POHs.

In short, this study adds to a growing body of evidence that bolsters the need to maintain current law on POHs. At the same time, it makes unsubstantiated claims based on flawed data about the value of POHs. Congress must consider the far-reaching implications of repealing current law: less access for the nation’s medically underserved, more expensive hospital care for all patients, and an increase in the federal deficit.