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How doctor-owned hospitals are circumventing ObamaCare
Despite Washington's efforts to limit their growth, many doctor-owned hospitals are thriving
 
Doctors who have a financial stake in a hospital are arguably incentivized to send patients there because they share in hospital profits.
Doctors who have a financial stake in a hospital are arguably incentivized to send patients there because they share in hospital profits. Thinkstock/iStockphoto

Despite the wishes of Democrats, hospitals owned by doctors are prospering.

The Affordable Care Act, signed into law more than three years ago, sought to squeeze doctor-owned hospitals, both by blocking the building of new facilities and preventing existing ones from adding and changing equipment to help qualify for Medicare payments.

Why did Democrats target hospitals owned by doctors? The New York Times explained the rationale in a 2008 article:

Critics say that when doctors have a financial stake in a hospital, they have an incentive to send patients there because they not only receive professional fees for their services, but also can share in hospital profits and see the value of their investment increase. Such arrangements can lead to greater use of hospital services and higher costs for Medicare and other insurers, say the critics, including many in Congress. ...

Doctor-owned hospitals "create a potential conflict of interest between a patient's health care needs and the physician's financial interests," said Richard J. Pollack, executive vice president of the hospital association. Moreover, he said, doctor-owned specialty hospitals tend to skim off the more profitable cases, "siphoning resources away from full-service community hospitals." [New York Times]

Largely for those reasons, ObamaCare sought to crack down on doctor-owned hospitals. That hasn't happened. If anything, doctor-owned hospitals are prospering.

According to the American Hospital Directory, a private firm that provides data about 6,000 U.S. hospitals, many physician-owned hospitals have enjoyed profit margins of 20 to 35 percent in recent years, says the Wall Street Journal. Meanwhile, community hospitals had profits of just 7 percent in 2010.

How are they doing it? It seems that doctor-owned hospitals are cashing in on other measures of the new health law — particularly one that rewards hospitals based on quality measures, and another that penalizes hospitals with high re-admittance rates, says the Washington Post. These programs require the government to lavish funds on the same hospitals they're trying to limit.

Dr. Ashish Jha, a professor at the Harvard School of Public Health, has documented how the readmission penalties are hitting safety net hospitals particularly hard. "Providing extra rewards for hospitals that treat the healthiest, wealthiest patients just seems unfair," he said.

Past research has shown that physician-owned hospitals score highly in following basic clinical guidelines and pleasing patients — the factors that Medicare is using to determine bonuses and penalties in its "value-based purchasing" program. Those successes are made easier by the fact that many of their patients come in for elective surgeries rather than emergencies, allowing for more orderly preparations than at a typical acute-care hospital. [Washington Post]

Even beyond collecting bonuses from Washington, some of the roughly 275 doctor-owned hospitals in the U.S. have found creative new ways to push growth. They're "expanding operating hours, increasing procedures in ways not restricted by the law, and rejecting patients on Medicare, the federal insurance program for the elderly and disabled," says the Wall Street Journal. This includes performing more same-day procedures, installing more rooms for MRI tests, and more. Other doctor-owned hospitals have cut themselves off from Medicare payments entirely, to free themselves from oversight. 

Of course, this trend does have its proponents. Dr. Kevin Pho, who runs the medical news site KevinMD.com, says, "Ignoring the quality outcomes that doctor-owned hospitals are producing smacks of arrogance," and that health reformers could "learn a little something from those who seem to be doing it right."

 
Carmel Lobello is the business editor at TheWeek.com. Previously, she was an editor at DeathandTaxesMag.com.

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