Doctor-owned hospitals are set to proliferate now that federal funding will become available again, but the prospect of more of these profitable niche facilities is getting a mixed reaction.
Critics say these hospitals could skim off the most profitable patients from an already overburdened health care system, leaving it with the sickest and poorest clientele. Some also fear that the doctor-owners could put their financial interests ahead of their patients.
Meanwhile, proponents of the 200 or so doctor-owned hospitals in the United States say they are streamlining medical care, with their surgical centers practicing with Henry Ford-like efficiency.
“We are focused factories,” said orthopedic surgeon Blake Curd, who owns about a 2 percent stake in the Sioux Falls Surgical Center in South Dakota.
“Here I can do 10 to 12 operations by 2 or 3 in the afternoon,” he said. “In a general hospital, it would take two to three days to do the same.”
Curd is part of a wave of doctors who have become owners of hospitals that specialize in lucrative cardiac, orthopedic and other surgeries.
Physicians invested in these hospitals in part to offset declining reimbursements from Medicare, the federal health insurer for the elderly and a major health care payer, as well as from private health plans.
The hospitals grew rapidly in the 1990s, then stalled in 2003 as federal regulators imposed a temporary funding ban. The government was worried that these “specialty” hospitals would siphon resources and dollars from their general counterparts.
The U.S. Centers for Medicare and Medicaid Services concluded earlier this month that doctors were not earning disproportionate returns on their investments. The agency, which insures the poor as well as the elderly, did add new financial disclosure rules and required the hospitals to take emergency patients.
Still, the original concerns persist.
“Physicians are making recommendations which increase their income substantially,” said Robert Berenson, an analyst at the Urban Institute think tank and a former Medicare official. “It creates a ’medical arms race,’ which increases costs.”
Compared with the approximately 5,000 general hospitals, the doctor-owned group is still small. But big chains like Universal Health Services Inc. and Triad Hospitals Inc. say these specialty competitors are crimping their profits in key markets.
Texas alone has 58 physician-owned hospitals, and about two dozen others are waiting for approval upon expiration of the ban, according to the state’s hospital association.
United Surgical Partners International Inc. and MedCath Corp. both have major businesses in running the doctor-owned hospitals. Toronto-based Medical Facilities Corp. holds a controlling stake in the Sioux Falls Surgical Center.
The hospitals sprouted first in the West and South, where regulations are more lenient, but they are spreading to East Coast states like New York and Georgia, analysts said.
Critics say a potential for conflict-of-interest arises when doctors have a financial incentive to refer patients to their own hospitals for profitable procedures.
A recent report by the nonprofit Center for Health System Change found “physicians were self-referring and increasing volume because of the availability of services,” according to Berenson, one of its authors.
Critics and proponents agree that consumer demand also plays a role in driving the hospitals’ popularity, with nearly 77 million baby boomers about to reach an age when many will need new hips and their arteries unclogged.
“Consumers are positively demanding some of these services,” Berenson said.
One reason the doctor-owned hospitals are thriving is that their specialties, often heart and orthopedic care, are better reimbursed by Medicare and private insurers, compared with ailments like the flu or chronic conditions.
“It just happens from a business perspective that you can actually make a buck of two in the fields we specialize in,” said Molly Gutierrez, executive director of the American Surgical Hospital Association, the trade group for most of the specialty hospitals. “Specialty hospitals are set up to handle more-healthy patients, and I think appropriately so.”
Big hospital chains, for their part, are responding by forging their own financial deals with doctors. Triad is offering equity stakes too all physicians at its 50 or so hospitals.
The American Federation of Hospitals trade group lobbied hard for more restrictions on the niche hospitals and lamented the government’s decision to lift the ban. “It falls short by not addressing the core issue of conflicts of interest,” the group said in a statement.
But Curd, the Sioux Falls surgeon, expressed skepticism. ”To us, it is like Wal-Mart claiming the mom and pop stores are putting them out of business,” he said.
The doctors argue the expertise at their hospitals leads to better outcomes, but a recent Medicare study found that quality was mixed.
The doctor-owned hospitals tend to have lower complications but also more re-admissions, the report said. And because their patients are healthier, comparisons may be skewed.
The government said it would fine specialty hospitals $10,000 a day if they failed to file timely reports on financial compensation for their doctors.
But that is not likely to curb the physicians’ drive for ownership, analysts said.
“Physicians are trying to take things into their own hands,” said Patrick Powers of HealthLeaders/InterStudy, which provides market analysis for managed care companies. “For years, they had been passive.”
