End the ban on physician-owned hospitals

The passage of the Affordable Care Act in 2010 heralded the end of competition in healthcare. The act put Adam Smith’s invisible hand that guides our markets to ideal outcomes for consumers and suppliers on virtual life-support as policy-makers caved to pressure from hospital groups to stifle competition for the benefit of hospital bottom-lines to the detriment of America’s sick. This decrease in competition has increased prices and increased hospital market monopolies resulting in few choices for healthcare consumers. This is a problem that Congress must correct and it must correct it now.

Rep. Sam Johnson (R-Texas) has introduced legislation that would start to revive the invisible hand by repealing the ban on physician-owned specialty hospitals, a ban that was unjustified in 2010 and remains unjustified. I hope that the rest of Congress will join the 36 sponsors of the legislation and push for passage the Patient Access to Higher Quality Health Care Act of 2017.

{mosads}For 27 years I have been a leader in healthcare. The following is my opinion regarding the repeal of the ban on construction of specialty hospitals. The purpose of this paper is to emphasize my practice’s need, and more broadly the healthcare communities’ need, for physician-owned specialty hospitals. This is something that our group was considering before the new build moratorium was enacted in 2010 and we were unable to finalize these plans before the ban’s effective date.

Our practice was founded on July 1, 1974. The group is owned by physicians and has grown over the years. Currently, there are nine doctors, 12 advanced practice providers and seven therapists. We are in a rural area, serving the entire central and western part of the state with two permanent locations 100 miles apart. The group also flies or drives to 10 satellite locations. Some satellite locations are serviced once a month by a single doctor while one satellite is served by six doctors several times a month. Our doctors are specialists and perform many procedures that patients would need to go to a neighboring state for care if our group didn’t exist.

Over the years, the group has had a primary relationship with the Catholic hospital in town, which is now owned by a large, national hospital group. Let’s call it hospital A. Hospital A does not employ any orthopaedic surgeons. The other hospital in town is owned by a regional hospital group. Let’s call it hospital B. Hospital B employs its own orthopaedic surgeons. There has been discussion in the past with hospital B about developing a relationship. Hospital B would like to buy our group while our group wants to stay private and independent. Therefore, discussions with hospital B go nowhere.

Hospital A is now in financial distress. It is losing money and cutting back on staff. Due to this financial distress, our doctors have a two to three-month backlog of surgery. Operating room productivity is sacrificed. Our surgeons are capable of performing two to four more cases per day. Hospital A limits our surgical productivity. The cycle goes on.

So why would our group want to spend the big money to build an orthopaedic specialty hospital? The answer is simple…control. Control of operating room availability, control of the quantity and quality of staff, control of the equipment, control of the implants, control of the quality of care provided. The list goes on. Guess what, our concern has the best interest of the patient in mind.

From an economic point of view, an orthopaedic specialty hospital makes sense. Specialization of labor and economies of scale leads to quality outcomes and lower unit cost. This is a proven fact with the existing orthopaedic specialty hospitals. Indeed, CMS’ own data validates this point. In 2012, of the top 10 performing hospitals in the Hospital Readmission Reduction Program (HRRP), all but one of the hospitals are physician-owned specialty hospitals including an orthopaedic specialty hospital in Indianapolis, Indiana. Lower readmission rates equal lower costs to Medicare and other insurers.

Some might say that if our doctors had an orthopaedic specialty hospital that they would “cherrypick”, do all the high paying cases at our hospital and take all the Medicare and Medicaid cases to the Catholic hospital. The available data strongly disagrees with that, as does my experience as a healthcare administrator. Surgeons are going to perform surgery where they are most comfortable. It makes no sense to do four cases at the specialty hospital and then run over to the Catholic hospital and do one Medicare case. This is supported by data from the British Medical Journal from a group of Harvard researchers that found “little evidence that these hospitals select more profitable patients or avoid poorer patients of those from ethnic and racial minority groups.’’ This same study also found that physician-owned specialty hospital costs to Medicare were similar to, or lower than, those at non-physician-owned hospitals.

Hospital opposition to physician-owned specialty hospitals, to me, is a matter of economic protectionism. Limit the number of hospitals so the surgeons have a limited number of options and the hospitals have a revenue stream they can depend on. If this philosophy worked, our local hospital A would not be losing money. Regardless of the limitation of competition, hospitals go broke once in a while, with mismanagement as the major factor. All the protectionism you can give a business can’t compensate for mismanagement.

Our patients need an orthopaedic specialty hospital. Currently, the government says we can’t provide this service. Repeal of this ban is very important to our group to improve patient care in our rural state. I urge Congress to lift the ban on physician-owned hospitals and ensure vigorous competition in the healthcare industry. Our patients and their pocketbooks depend on it.

Richard Nelson, MS is CEO of The Bone & Joint Center in North Dakota and a member-at-large of the American Alliance of Orthopaedic Executives’ Advocacy Council.

The views expressed by this author are their own and are not the views of The Hill.