Following the March 2010 passing of the health reform bill, the future of physician-owned hospitals is uncertain. Starting in 2011, the law prohibits existing physician-owned hospitals from expanding and prevents new ones from being built. Here, Brett Gosney, president of Physician Hospitals of America and CEO of Animas Surgical Hospital in Durango, Colo., discusses the past and future of the physician-owned hospital and details options for physician owners in the years to come.
Beginning in the 1900s, physician-owned hospitals were the predominant model of hospital ownership in America, according to Mr. Gosney. Following World War II, ownership of hospitals started to shift in a few different directions, and physicians started backing out of ownership models as faith-based and community-based organizations grew larger and began consolidating.
Beginning in the 1970s, the industry turned its attention to for-profit hospitals, and by the early '90s, most hospitals were either non-profit or for-profit, and physician ownership had waned tremendously. "Through that process of physicians dropping out of ownership, there was a fairly aggressive consolidation of hospital systems, a rapid process where one hospital becomes part of a three hospital system, then a 20-hospital system, then a 100-hospital system," Mr. Gosney says. However, growing physician specialization and sub-specialization caused a resurgence in physician-owned hospitals as physicians sought facilities dedicated to the needs of their specialty.
Between 1990 and 2000, legislation began popping up against physician-owned facilities, and Mr. Gosney says this is likely because of the competition they created for hospital members of the Federal Association of Hospitals and the American Hospital Association. All of these various bills have now been overshadowed by the Patient Protection and Affordablee Care Act.
"Now we are a severely limited industry," Mr. Gosney says. "The Obama healthcare team thought that if hospitals employed more physicians and they were just salaried employees, they wouldn't have the perverse incentive of ordering more tests and surgeries. But it's just human nature — when somebody's running their own business, they have a reputation in the community, they're more productive and efficient and quality focused."
Reform's effect on physician-owned hospitals
According to Mr. Gosney, the effect of the health reform law on physician-owned hospitals can be broken down into three parts.
Existing hospitals cannot expand. The legislation will allow existing physician-owned hospitals to keep doing business, with a few notable exceptions: starting in 2011, they can no longer expand the number of inpatient beds or operating rooms or increase the percentage of physician ownership. For example, if a physician-owned hospital is 50 percent physician-owned at the date of enactment, it will not be able to exceed 50 percent from there on.
Hospitals under development must be completed and Medicare certified by the end of December. Under the new health reform law, physician-owned hospitals currently under development will not be allowed to open if they have not achieved Medicare certification by December 31, 2010. "This is where the bill is extremely damaging financially," Mr. Gosney says. "We estimate there are over 100 hospitals under development, and about half of them can be Medicare certified by the end of the year." Mr. Gosney predicts that physicians will be forced to sell their interest in the hospital to a non-physician entity so that the facility can open instead of defaulting on loans and on its lease.
No new physician-owned hospitals. This part is very simple, Mr. Gosney says: after December 31, 2010, the only physician-owned hospitals will be those that already exist.
Physician-owned hospitals respond
There are three basic ways that physician-owned hospitals can proceed to fight the existing legislation or pursue other options, according to Mr. Gosney
File a lawsuit. Mr. Gosney's hospital, along with Texas Joint and Spine Hospital, has filed a lawsuit in federal district court claiming that the health reform law's regulations on physician-owned hospitals are unconstitutional. According to Mr. Gosney, the lawsuit says that the health reform law specifically targets physicians as being unable to own a hospital in America. "A businessman from Thailand could own a hospital, a church could own a hospital – anyone could own a hospital except a doctor," he says. The lawsuit also claims that the language on physician-owned hospitals in the healthcare bill —only one and a half pages out of 3,000 — is capricious, vague and arbitrary and therefore unenforceable.
Continue the legislative battle. According to Mr. Gosney, the Physician Hospitals of America has tackled numerous bills attempting to ban physician-owned hospitals in the last 10 years. The PHA will continue the legislative battle on Capitol Hill and use its government contacts to try and amend the language.
Explore alternative physician ownership structures. "The reason doctors get involved with physician-owned hospitals is so they can better serve practices and patients," Mr. Gosney says. For this reason, he says that his hospital is exploring ownership structures that will deliver the benefits of pure physician ownership. "Nothing quite as satisfying, clean and good for the patient as physicians owning facilities, but some kind of agreement where the physician would still have a vested interest in the success of the facility."
Beginning in the 1900s, physician-owned hospitals were the predominant model of hospital ownership in America, according to Mr. Gosney. Following World War II, ownership of hospitals started to shift in a few different directions, and physicians started backing out of ownership models as faith-based and community-based organizations grew larger and began consolidating.
Beginning in the 1970s, the industry turned its attention to for-profit hospitals, and by the early '90s, most hospitals were either non-profit or for-profit, and physician ownership had waned tremendously. "Through that process of physicians dropping out of ownership, there was a fairly aggressive consolidation of hospital systems, a rapid process where one hospital becomes part of a three hospital system, then a 20-hospital system, then a 100-hospital system," Mr. Gosney says. However, growing physician specialization and sub-specialization caused a resurgence in physician-owned hospitals as physicians sought facilities dedicated to the needs of their specialty.
Between 1990 and 2000, legislation began popping up against physician-owned facilities, and Mr. Gosney says this is likely because of the competition they created for hospital members of the Federal Association of Hospitals and the American Hospital Association. All of these various bills have now been overshadowed by the Patient Protection and Affordablee Care Act.
"Now we are a severely limited industry," Mr. Gosney says. "The Obama healthcare team thought that if hospitals employed more physicians and they were just salaried employees, they wouldn't have the perverse incentive of ordering more tests and surgeries. But it's just human nature — when somebody's running their own business, they have a reputation in the community, they're more productive and efficient and quality focused."
Reform's effect on physician-owned hospitals
According to Mr. Gosney, the effect of the health reform law on physician-owned hospitals can be broken down into three parts.
Existing hospitals cannot expand. The legislation will allow existing physician-owned hospitals to keep doing business, with a few notable exceptions: starting in 2011, they can no longer expand the number of inpatient beds or operating rooms or increase the percentage of physician ownership. For example, if a physician-owned hospital is 50 percent physician-owned at the date of enactment, it will not be able to exceed 50 percent from there on.
Hospitals under development must be completed and Medicare certified by the end of December. Under the new health reform law, physician-owned hospitals currently under development will not be allowed to open if they have not achieved Medicare certification by December 31, 2010. "This is where the bill is extremely damaging financially," Mr. Gosney says. "We estimate there are over 100 hospitals under development, and about half of them can be Medicare certified by the end of the year." Mr. Gosney predicts that physicians will be forced to sell their interest in the hospital to a non-physician entity so that the facility can open instead of defaulting on loans and on its lease.
No new physician-owned hospitals. This part is very simple, Mr. Gosney says: after December 31, 2010, the only physician-owned hospitals will be those that already exist.
Physician-owned hospitals respond
There are three basic ways that physician-owned hospitals can proceed to fight the existing legislation or pursue other options, according to Mr. Gosney
File a lawsuit. Mr. Gosney's hospital, along with Texas Joint and Spine Hospital, has filed a lawsuit in federal district court claiming that the health reform law's regulations on physician-owned hospitals are unconstitutional. According to Mr. Gosney, the lawsuit says that the health reform law specifically targets physicians as being unable to own a hospital in America. "A businessman from Thailand could own a hospital, a church could own a hospital – anyone could own a hospital except a doctor," he says. The lawsuit also claims that the language on physician-owned hospitals in the healthcare bill —only one and a half pages out of 3,000 — is capricious, vague and arbitrary and therefore unenforceable.
Continue the legislative battle. According to Mr. Gosney, the Physician Hospitals of America has tackled numerous bills attempting to ban physician-owned hospitals in the last 10 years. The PHA will continue the legislative battle on Capitol Hill and use its government contacts to try and amend the language.
Explore alternative physician ownership structures. "The reason doctors get involved with physician-owned hospitals is so they can better serve practices and patients," Mr. Gosney says. For this reason, he says that his hospital is exploring ownership structures that will deliver the benefits of pure physician ownership. "Nothing quite as satisfying, clean and good for the patient as physicians owning facilities, but some kind of agreement where the physician would still have a vested interest in the success of the facility."