Effects Of Physician-Owned Limited-Service Hospitals: Evidence From Arizona
By Jean M. Mitchell
Health Affairs
October 25, 2005
In recent years physician ownership of so-called limited-service hospitals has become commonplace in many states lacking certificate-of-need regulations. Empirical evidence documenting the effects of these facilities is sparse. This study compares practice patterns of physician-owners of limited-service cardiac hospitals and physician-nonowners who treat cardiac patients at competing full-service community hospitals. Analyses of six years of Arizona inpatient discharge data show that physician-owners treat higher volumes of profitable cardiac surgical diagnosis-related groups (DRGs), higher percentages of low-severity cases, and higher percentages of cases with generous insurance compared with physician-nonowners who treat cardiac patients in community hospitals.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.481v1
And…
The Rise Of The Entrepreneurial Physician
By Allen Dobson and Randall Haught
Health Affairs
October 25, 2005
…after reviewing the evidence, we note that physicians’ demands for more clinical autonomy and control over their incomes will not go away if specialty hospitals are “banned.” The emergence of specialty hospitals is a manifestation of a larger issue: the rise of the entrepreneurial physician. In response, community hospitals are partnering with physicians in numerous creative ways. Thus, the future outlets for physician demand for clinical and economic control may go beyond specialty hospitals to include variants of partnering between community hospitals and physicians, and perhaps gain-sharing arrangements or pay-for-performance systems as advocated by the CMS and MedPAC.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.494v1
Comment: There is no dispute that physicians who own specialty hospitals admit higher volumes of more profitable patients with better insurance coverage while avoiding less-profitable, complex cases. Although advocates of physician-owned specialty hospitals argue that market competition with community hospitals results in a higher quality product, there is no evidence for that.
The true reason for skimming off more profitable patients is very clear. The physician is using the single patient to provide fees for professional services and to provide investment income for a parallel entrepreneurial venture. Professional fees and investment income are each legitimate, independent sources of income. But does it matter that they arise from the same patient source?
Advocating for the best care for the patient has traditionally been rewarded with professional fees. Although fee-for-service can result in excessive services, and salaries can result in sloth, in general, payment for professional services serves the patient fairly well.
What about receiving entrepreneurial income in caring for the same patient? In order to create a maximum return on investment, decisions are made on a business model basis. That may or may not benefit the patient, but that doesn’t matter as long as it has a positive impact, or at least no negative impact, on the specialty-hospital market. It does not take much imagination to think of measures that would increase revenues (e.g, high-tech services of questionable value) and other measures that would decrease expenses (e.g., a cheaper but less-tested, implantable cardio-defibrillator). Since the patient-care algorithm and the business-decision algorithm frequently depart at various junctures, a physician could never escape the fact that a conflict exists, no matter how altruistic that physician is.
A greater concern for many of us is the financial burden that is placed on community hospitals when the profitable patients are diverted away. Community hospitals already have the burden of providing uncompensated care which, hopefully, can be offset by insured patients. But when they lose the better-insured patients, their safety-net function is threatened. Do we really want to support a few specialty hospitals as a tradeoff for accepting under-funded mediocrity for the rest our community hospital needs?
Dobson and Haught suggest that, since we are in the age of the entrepreneurial physician, community hospitals can compete by making “gain-sharing arrangements” with physicians. When we accept the fact that market competition must be the driving force in health care, it leads to perverse concepts such as the need to supplement professional income with entrepreneurial gain-sharing income. Kickbacks and fee-splitting are historical terms that have no significance in today’s entrepreneurial environment, but maybe we should give more thought as to why they were made illegal.
We need comprehensive structural reform in the way that we fund health care. We should pay physicians, and pay them well, simply for caring for their patients. A national health insurance program would do that, but it would also establish safeguards against perverse non-professional income that might be deleterious to the patient or to the health care system as a whole. And, besides, physicians would have complete freedom to invest elsewhere.