End Restrictions On Physician Owned Hospitals To Expand Quality Care

Charges at existing physician-owned hospitals for eight common procedures were one-third lower than what a traditional hospital charged in the same markets…..”

AUG 10, 2023 . 5 MIN READ

ByJesse M. Ehrenfeld, MD, MPH, President

The trend toward sharply higher levels of hospital market concentration around the nation has not benefited patients, who experience higher costs and poorer health outcomes in highly concentrated markets. Fostering greater competition by dismantling barriers to physician ownership of hospitals will provide patients with another option to receive high-quality care through integrated, coordinated care delivery.

Competition, not consolidation, remains a key factor in providing higher-quality care at a lower cost to a wider cross section of patients. Multiple studies have demonstrated that hospital mergers in the same market yield higher prices (PDF)—in some cases, 10% to 40% higher—and that prices continue to increase for at least two years after the merger is completed.

Even when hospital mergers result in cost savings, these benefits are not usually passed along to patients. In recent years, hospital groups have sought to further increase their market share by acquiring privately owned physician practices of all sizes and absorbing them into their operations. This works to marginalize physicians who seek to maintain their independence while further sacrificing patient choice.

More alarmingly, hospital market consolidation has been shown to produce poorer health outcomes for patients. For example, one study determined that deaths following heart attacks were significantly higher in markets with a high level of hospital concentration, while a second study showed a correlation between higher hospital market concentration and increased mortality rates for patients with cardiovascular disease. Reduced competition can lower the incentive to boost quality and improve outcomes to attract new patients.

In short, greater hospital market concentration harms both patients and our nation’s overall health care system through increased prices, higher costs for federal programs as well as for patients and their families through increased premiums and cost sharing, and lower quality outcomes. That’s the conclusion reached not just by the AMA, but a host of others including the Medicare Payment Advisory Commission, the Congressional Budget Office and multiple, independent academic research studies.

Cost savings are yet another plus. Charges at existing physician-owned hospitals for eight common procedures were one-third lower than what a traditional hospital charged in the same markets, according to a peer-reviewed analysis published in JAMA Network Open this summer.

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Legislative background

The fairly rapid growth of physician-owned hospitals, from less than 70 nationwide in the early 2000s to roughly 250 by 2010, was spurred by a number of factors. These included demand for additional general acute care hospitals in some markets, and opportunities to boost clinical operations and surgical procedures through facility specialization.

The expansion of physician-owned hospitals stopped abruptly in 2010, however. Intense lobbying by traditional hospital trade associations based upon concerns about comparative cost and quality of care in physician-owned hospitals resulted in a provision within the Affordable Care Act (ACA) that effectively banned the expansion of existing physician-owned hospitals and prevented any new doctor-owned hospital from opening.

Subsequent research has demonstrated the benefits of physician hospital ownership, with a systematic review of 30 years of research demonstrating that physician-owned specialty hospitals or so-called “focused factories” offer higher-quality care at comparable or lower cost, while physician-owned community hospitals are no worse than their counterparts. With decades of research demonstrating the benefits of increased competition bringing lower prices and higher quality, leaders from a litany of physician specialties agree: removing the ban on physician-owned hospitals can help reverse consolidation.

Competition policy experts also have since concluded that this ban, the product of legislative horse-trading to gain the support of traditional hospital groups to secure the ACA’s passage, is unjustified. Permitting new physician-owned hospitals could promote desperately needed innovation in care delivery, flexibility in hospital supply during emergencies, and increase competition for physician labor, presenting a counterweight to the existential crisis of our time: burnout and the loss of physician autonomy.

Now momentum is building to remove this provision of the ACA, which is known as Section 6001. The AMA and more than 90 state and national medical associations have pledged their support for a measure now pending in Congress. The Patient Access to Higher Quality Health Care Act (S. 470/H.R. 977)—introduced by Sen. James Lankford, R-Okla., and Reps. Michael C. Burgess, MD, R-Texas, Henry Cuellar, D-Texas—will inject much-needed competition into the market by allowing physician-owned hospitals to compete.

Lifting the ban on physician-owned hospitals would allow physicians to open new hospitals as well as acquire existing hospitals, and in doing so implement alternative care delivery and payment models that create efficiencies that benefit consumers while enhancing care. Competition created by new or expanded physician-owned hospitals through lower costs or higher quality services—or both—will induce traditional hospitals to upgrade their offerings or risk losing market share. Allowing physicians to acquire hospitals, particularly those in rural areas whose future might be uncertain, would protect access to care that might otherwise be lost.

The nation’s very first hospitals were owned by physicians, starting with Dr. Thomas Bond, who founded Pennsylvania Hospital in 1751 with the strong support of Benjamin Franklin. Physicians are trained to lead team-based care, having achieved the highest level of education and training in health care. A study by the Department of Health and Human Services outlines multiple factors driving the higher performance of physician-owned hospitals, including specialization, an emphasis on monitoring quality, better patient communication and education, and improved patient amenities.  

And of course, the patient-physician relationship lies at the center of effective health care through shared decision-making informed by evidence-based science and shaped by patient autonomy. Restoring the ability of physicians to own hospitals will improve patient care, access, and choice, all of which are core tenets of the ACA. Congress should prioritize passing the Patient Access to Higher Quality Health Care Act because it is a long-overdue step in the right direction for our nation’s health care system.