Physician-owned hospitals, which is a hospital that has any physician with any type of ownership, began appearing more prominently in the 1990s. According to the Physician Hospital Association list of existing physician-owned hospitals, most are located in southern states, most notably Texas, Oklahoma, Tennessee, Kansas and others.
However, with less than 300 licensed, physician-owned hospitals in the United States, several thousand general hospitals — more than 5,000 overall — are overshadowing the physician-owned industry that has become restricted in the past year and a half. Despite a relatively low number compared with general hospitals, many are still surviving. Here are nine things to know about the current landscape of the physician-owned hospital industry.
1. No new industry expansion. Section 6001 of the Patient Protection and Affordable Care Act disallowed any new physician-owned hospitals from starting or existing ones from expanding, but it grandfathered in any existing physician-owned facility that was Medicare-certified by Dec. 31, 2010. While this resulted in a ramp-up of construction to meet the deadline, since December of last year there has naturally not been any new construction or development in the field, says Brett Gosney, CEO of physician-owned Animas Surgical Hospital in Durango, Colo. Mr. Gosney, the immediate past president of the PHA, says the law is a severe constraint on growth, as numerous hospitals that were in construction after the effective date had to be shut down. Additionally, physicians could not increase their percentage of ownership. However, the PHA is still looking to repeal Section 6001, the "only hope to get the industry alive and growing again," he says.
2. Existing hospitals trying to maintain entrepreneurial spirit. Scott Becker, JD, CPA, partner at McGuireWoods, says physician-owned hospitals that entered the industry are trying to keep their positive outlook of thorough, all-encompassing physician care that spurred their initial interest. "Groups that are highly independent don't want to become employed by hospitals, and they are still focused on independent practice and being entrepreneurs," Mr. Becker says.
3. Rule of thirds. While a feisty spirit is crucial to a physician-owned hospitals success, Mr. Gosney says many hospitals can be classified into one of three groups, or his rule of thirds: a) A third of hospitals that were grandfathered in are reasonably happy and profitable with room for expansion in their facilities and new physicians coming in. b) A third of hospitals are feeling the pinch of the PPACA and can't expand within their own facility but are progressing on. c) A third of hospitals are actively looking for alternative structures such as corporate ownership, merging with a community nonprofit or rescinding full ownership. Examples include Muskogee (Okla.) Community Hospital partnership with Franklin, Tenn.-based Capella Healthcare and the joint venture between physician-owned Tri-Lakes Medical Center in Batesville, Miss., and Naples, Fla.-based Health Management Associates.
4. Beachhead group is key. A good-sized hospital's beachhead group, or the executive team of physician leaders, directly correlates to a physician-owned hospital's success, Mr. Becker says. It is much easier to run a hospital with a core group of 10 to 20 physicians instead of having numerous small factions because it's easier to build around and rely on a group that isn't splintered, he says.
5. Physician recruitment is, and must continue to be, active. Michael Weaver, vice president of acquisitions and development at Symbion Healthcare, says physician-owned hospitals are continuing their active physician recruitment and must continue to do so. Trying to keep pace with the larger nonprofit hospitals' and investor-owned hospital systems' recruitment of physicians will only help to shore up a physician-owned entity's base. This may include a strategy of acquiring or employing certain physician practices, he says.
6. Supply and inventory costs must be managed. Pinching pennies is the name of the game for any healthcare entity. Larry Teuber, MD, physician executive of Black Hills Surgical Hospital in Rapid City, S.D., says minimizing inventory and having exclusive deals with implant companies is an area of significant savings and helps keep the hospital's finances at a more manageable level.
7. Can't require cases from owners. Under the PPACA, a physician-owned hospital cannot require a physician to perform a certain number of cases at the facility in order to retain ownership in the hospital, Mr. Becker says. Additionally, a hospital cannot loan money to a physician to invest in a hospital.
8. Certain specialty hospitals are thriving. Some specialties within hospitals are booming, and Dr. Teuber says orthopedics is leading the way and is the foundation of a specialty hospital. The simplicity of orthopedic operating room procedures, the autonomous culture of the orthopedic setting, the large case volumes and the ability to see patients without a feeder system or through primary care physicians are the biggest reasons why it's thriving, he says. However, spine-driven hospitals are also doing well while cardiology-driven hospitals have somewhat been struggling. Dr. Teuber says unlike orthopedic surgeons, cardiothoracic surgeons have to overcome a lot more hurdles such as the dependency on a feeder system, costly capitalization requirements, sophisticated anesthesia and intense postoperative care.
9. Lease costs and debt present challenges. Staying profitable is a challenge for any physician-owned hospital, and basic debts and lease costs are some of the biggest obstacles to any facility's solvency, Mr. Becker says. Those entities that are unable to handle sometimes irrational debt and lease costs are enduring a tougher uphill battle to stay profitable.
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However, with less than 300 licensed, physician-owned hospitals in the United States, several thousand general hospitals — more than 5,000 overall — are overshadowing the physician-owned industry that has become restricted in the past year and a half. Despite a relatively low number compared with general hospitals, many are still surviving. Here are nine things to know about the current landscape of the physician-owned hospital industry.
1. No new industry expansion. Section 6001 of the Patient Protection and Affordable Care Act disallowed any new physician-owned hospitals from starting or existing ones from expanding, but it grandfathered in any existing physician-owned facility that was Medicare-certified by Dec. 31, 2010. While this resulted in a ramp-up of construction to meet the deadline, since December of last year there has naturally not been any new construction or development in the field, says Brett Gosney, CEO of physician-owned Animas Surgical Hospital in Durango, Colo. Mr. Gosney, the immediate past president of the PHA, says the law is a severe constraint on growth, as numerous hospitals that were in construction after the effective date had to be shut down. Additionally, physicians could not increase their percentage of ownership. However, the PHA is still looking to repeal Section 6001, the "only hope to get the industry alive and growing again," he says.
2. Existing hospitals trying to maintain entrepreneurial spirit. Scott Becker, JD, CPA, partner at McGuireWoods, says physician-owned hospitals that entered the industry are trying to keep their positive outlook of thorough, all-encompassing physician care that spurred their initial interest. "Groups that are highly independent don't want to become employed by hospitals, and they are still focused on independent practice and being entrepreneurs," Mr. Becker says.
3. Rule of thirds. While a feisty spirit is crucial to a physician-owned hospitals success, Mr. Gosney says many hospitals can be classified into one of three groups, or his rule of thirds: a) A third of hospitals that were grandfathered in are reasonably happy and profitable with room for expansion in their facilities and new physicians coming in. b) A third of hospitals are feeling the pinch of the PPACA and can't expand within their own facility but are progressing on. c) A third of hospitals are actively looking for alternative structures such as corporate ownership, merging with a community nonprofit or rescinding full ownership. Examples include Muskogee (Okla.) Community Hospital partnership with Franklin, Tenn.-based Capella Healthcare and the joint venture between physician-owned Tri-Lakes Medical Center in Batesville, Miss., and Naples, Fla.-based Health Management Associates.
4. Beachhead group is key. A good-sized hospital's beachhead group, or the executive team of physician leaders, directly correlates to a physician-owned hospital's success, Mr. Becker says. It is much easier to run a hospital with a core group of 10 to 20 physicians instead of having numerous small factions because it's easier to build around and rely on a group that isn't splintered, he says.
5. Physician recruitment is, and must continue to be, active. Michael Weaver, vice president of acquisitions and development at Symbion Healthcare, says physician-owned hospitals are continuing their active physician recruitment and must continue to do so. Trying to keep pace with the larger nonprofit hospitals' and investor-owned hospital systems' recruitment of physicians will only help to shore up a physician-owned entity's base. This may include a strategy of acquiring or employing certain physician practices, he says.
6. Supply and inventory costs must be managed. Pinching pennies is the name of the game for any healthcare entity. Larry Teuber, MD, physician executive of Black Hills Surgical Hospital in Rapid City, S.D., says minimizing inventory and having exclusive deals with implant companies is an area of significant savings and helps keep the hospital's finances at a more manageable level.
7. Can't require cases from owners. Under the PPACA, a physician-owned hospital cannot require a physician to perform a certain number of cases at the facility in order to retain ownership in the hospital, Mr. Becker says. Additionally, a hospital cannot loan money to a physician to invest in a hospital.
8. Certain specialty hospitals are thriving. Some specialties within hospitals are booming, and Dr. Teuber says orthopedics is leading the way and is the foundation of a specialty hospital. The simplicity of orthopedic operating room procedures, the autonomous culture of the orthopedic setting, the large case volumes and the ability to see patients without a feeder system or through primary care physicians are the biggest reasons why it's thriving, he says. However, spine-driven hospitals are also doing well while cardiology-driven hospitals have somewhat been struggling. Dr. Teuber says unlike orthopedic surgeons, cardiothoracic surgeons have to overcome a lot more hurdles such as the dependency on a feeder system, costly capitalization requirements, sophisticated anesthesia and intense postoperative care.
9. Lease costs and debt present challenges. Staying profitable is a challenge for any physician-owned hospital, and basic debts and lease costs are some of the biggest obstacles to any facility's solvency, Mr. Becker says. Those entities that are unable to handle sometimes irrational debt and lease costs are enduring a tougher uphill battle to stay profitable.
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