Physician-Owned Hospitals

The issue of self-referral to physician-owned hospitals and the inherent conflict of interest it presents have been a concern for policymakers for well over a decade. Physician-owned hospitals have existed because of a loophole — which is now closed — that allowed physicians to self-refer patients to hospitals they own. However, some members of Congress seek to reopen the loophole, which would have serious negative consequences for our health care system.

The impact of self-referral to physician-owned hospitals on health care consumers and taxpayer spending have been the subject of numerous congressional hearings and analyses by independent and government researchers.

According to the Congressional Budget Office (CBO), Medicare Payment Advisory Commission (MedPAC) and independent researchers, self-referral resulted in higher utilization of services and higher costs for the Medicare program. The Government Accountability Office (GAO), Centers for Medicare & Medicaid Services (CMS) and MedPAC all have found that physician-owned hospitals were treating healthier patients with the same diagnosis; MedPAC and GAO also found that these physician-owned hospitals were treating far fewer Medicaid patients.

The net result of these behaviors: More costly, complex, uninsured, underinsured and indigent patients were left to be treated at competing full-service community hospitals. The cherry-picking of patients to maximize financial gain creates a destabilizing, unsustainable and anti-competitive environment which has been especially damaging to full-service community hospitals. Self-referring threatens hospitals’ ability to continue to serve the needs of the community.

Furthermore, the Department of Health and Human Services Office of Inspector General (OIG) issued a report regarding the ability of physician-owned hospitals to manage medical emergencies. The study found that, in part, physician-owned hospitals frequently use #911 as part of their emergency response procedures, thus funneling critical patients to full-service community hospitals. Patient safety is at risk when a physician-owned hospital is unable to provide proper care.

The current law represents a compromise that protects established physician ownership arrangements, promotes financial and patient safety transparency and permits expansion of certain physician-owned hospitals based on demonstrated community need. Efforts to repeal or weaken the current law would not only take our health care system in the wrong direction on health care spending, patient safety and conflict of interest, but undermine the full-service community hospitals that are the bedrock of health care across America.