FAH Hospital Policy Blog

Perspectives on health policy affecting America's hospitals and the patients we serve.

Physician-Owned Hospitals | FAH Policy Blog Team

Physician-Owned Hospitals are Bad for Patients and Communities

Written by Chip Kahn & Stacey Hughes

For decades, the Ethics in Patient Referrals Act (“Stark Law”) has protected the Medicare program, its beneficiaries and communities from the inherent conflict of interest created when physicians self-refer their patients to facilities and services they own. Recently the Federation of American Hospitals (FAH) and the American Hospital Association (AHA) released new data from the health care consulting firm Dobson | Davanzo reaffirming what prior analyses from the Department of Health and Human Services’ Office of Inspector General, the Government Accountability Office, and the Medicare Payment Advisory Commission have all shown – physician-owned hospitals (POHs):

  • Cherry-pick patients by avoiding the less profitable Medicaid and uninsured patients;
  • Treat fewer medically complex patients; and
  • Provide fewer emergency services and often rely on publicly funded 911 services and acute care, community hospitals for these services for their own patients.

For these reasons, Congress enacted a ban on new POHs and restrictions on the growth of existing facilities. POHs are allowed to expand if they are certified as “high Medicaid facilities” and can demonstrate a need for additional beds in their service area.

Recently, the Centers for Medicare & Medicaid Services (CMS) once again reinforced the need for this law, proposing to reinstate program integrity restrictions for POHs approved as “high Medicaid facilities” due to the risk for patients and the Medicare program. In the 2024 Inpatient Prospective Payment System Proposed Rule, CMS said: “It is our position that protecting the Medicare program and its beneficiaries, as well as Medicaid beneficiaries, uninsured patients, and other underserved populations, from harms such as overutilization, patient steering, cherry-picking, and lemon-dropping outweighs any perceived burden on high Medicaid facilities.”

Despite these facts, proponents of repealing current law continue their attempts to discredit what the data clearly show. Their latest attempt completely misrepresents the findings of the Dobson | Davanzo analysis, citing outdated data and ignoring key metrics and the larger patient population included in the study. For example, they erroneously claim that the study uses only Medicare claims data for beneficiaries 85 and older. In fact, the Dobson | DaVanzo study is based on a review of all Medicare beneficiary claims; the analysis provides the additional example that POHs treat far fewer beneficiaries 85 and older (often the most vulnerable and medically complex Medicare beneficiaries) than non-POHs. Additionally, they confuse readmission rates with the percent of hospitals that experience the maximum 3% readmissions penalty, which is the metric included in the study. Once again, the data show that POHs are far more likely to experience the maximum readmission penalty than non-POHs.

It is time to face the facts and acknowledge that POHs are not good for patients, communities, the integrity of the Medicare program, or providers who are actually in the business of caring for all patients, 24/7, regardless of their ability to pay or their medical condition.

Chip Kahn is the president and CEO of the Federation of American Hospitals. Stacey Hughes is the executive vice president of government relations and public policy at the American Hospital Association.