How Health-Care Reform Could Hurt Doctor-Owned Hospitals

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"When these specialty hospitals come in, they take out the better reimbursed cases, the easier ones with less complications, and they're able to benefit financially by skimming the cream," says Rick Pollack, executive vice president of the American Hospital Association.

Perhaps an even more pressing problem in the context of health reform is the risk of overutilization of services. According to a 2006 report from the federal Medicare Payment Advisory Commission, just the presence of a doctor-owned heart hospital in a community increases the rate of cardiac surgery by 6% among Medicare beneficiaries. The upshot, according to a House staffer involved in health reform, is that "people are getting things they probably don't need." Plus, says the staffer, "the community hospitals go to war, bulk up their own specialty centers and all of a sudden you see these ads around town that 'You should get your heart checked.'" (Read "How Not to Get Sick.")

For their part, doctor-owned specialty hospitals say they're providing more access to better quality care — and in some respects, this may be true. Patient satisfaction rates at such facilities are generally high and it's logical that a facility dedicated to just one or a few specialties could operate more efficiently. "Rather than compete in the marketplace they want to legislate us out of business," says Dr. John Harvey, president and CEO of the Oklahoma Heart Hospital.

But it's the built-in conflict of interest that causes some patient advocates to bristle. In effect, they contend, doctors double dip — earning money from procedures as well as the overall operation of the hospital, of which they are shareholders. That provides plenty of incentive for physicians, who typically also work part-time at the local community nonprofit hospital, to recommend their easy-to-treat patients go across town to have procedures done at the private hospital where the doctors are investors. The House bill would address this issue by closing a loophole that has allowed doctors to send patients to hospitals they had a stake in, so long as that hospital served a rural population, or the stake was in a "whole hospital," not just a wing or department; the Congressional Budget Office predicts closing this loophole would mean fewer overall procedures, saving $1 billion in Medicare costs over ten years.

The controversy over physician-owned hospitals isn't actually new. Representative Pete Stark, a Democrat from California, began a crusade against doctor conflicts of interest more than two decades ago, and successfully got legislation passed in 1989 that prohibited doctors from, among other things, having a financial stake in labs that performed tests for their patients. The Stark Law, as it became known, has been strengthened over the years to include more facilities and apply to Medicare and Medicaid payments. But the loophole allowing for doctor-owned specialty hospitals has remained open despite repeated attempts to close it. Now that the country is grappling with how to reform the entire health-care system, Congress has another chance to decide whether the costs of this kind of proprietary specialized care are simply too high to bear.

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