What if lawyers weren’t allowed to own law firms or chefs weren’t allowed to own restaurants? Why not, you might ask? But doctors aren’t allowed to own hospitals.
This is the question posed by Senator James Lankford (R-Oklahoma) and Brian J. Miller (Professor of Medicine, Johns Hopkins University) in a recent Op-ed published in The Wall Street Journal. Most people don’t know that a tiny paragraph in the enormous Affordable Care Act (ObamaCare) prohibits physicians from building or owning hospitals. Any physician-owned hospital built before 2010 is grandfathered in, but is prohibited from growing beyond the size it was when the bill passed. What sense does that make?
This law limits competition, which always promotes quality and lower prices. Isn’t that a good thing? The law defies common sense and is surely contributing to higher prices for Medicare and reduced access to treatment for millions of Americans.
Recently, I discussed the financial problems of Medicare and some ideas to solve this problem (Solving Medicare/Medicaid Insolvency). Today, we are discussing yet another way to lower the costs of Medicare and solve the insolvency problem. According to the Medicare board of trustees, we have only about six years left to solve this problem. By 2030, Medicare and Medicaid will be the largest contributors to the national debt.
The authors say the current political debate has focused on the effects of monopoly power and consolidation across industries, including healthcare. The Biden administration’s executive order on competition specifically mentions hospital consolidation and subsequent rising costs. Yet political leaders overlook the most obvious way to increase healthcare options: letting doctor-owned and managed facilities grow as they did before 2010.
Naturally, the hospital industry opposes doctors owning hospitals. They don’t like the competition. They argue that physicians cherry-pick health patients and prefer those with private insurance as a rationale for supporting the ban on physician-owned hospitals. In response to these concerns, the Centers for Medicare and Medicaid Services (CMS) in 2007 added an adjustment to hospital payments for sicker patients. Other research shows that physician-owned hospitals had no difference in the number of Medicaid patients compared with hospitals not owned by physicians.
This is not a new issue; just one that needs reconsideration. I first wrote about this problem in a blog post 11/26/15 called Physician-Owned Hospitals Deliver Quality and Value. This post was later published in my recent book, Changing Healthcare. I said then that banning new or expanding existing physician-owned hospitals makes sense only if you want higher-cost, lower-quality healthcare.
Why does the ACA ban new construction of physician-owned hospitals?
The ACA was developed in close cooperation with the major stakeholders in the healthcare industry. That means hospitals, pharmaceutical companies, and healthcare insurers. The hospital associations are dominated by large non-profit general hospitals that must compete with smaller physician-owned hospitals (POHs). They successfully lobbied the Obama administration into punishing the POHs that violate the new construction ban by prohibiting their participation in Medicare and Medicaid. In other words, the ban is based on politics, not on lowering the costs of Medicare and Medicaid or providing access to healthcare.
At the time, the hospital industry claims that POHs provided higher cost, selective care went unchallenged. But since that time, research has shown a different story. Here are some revealing new statistics:
- Seven of the top 10 hospitals receiving quality bonuses in the Hospital Value-Based Purchasing Program in 2015 were POHs.
- The Centers for Medicare and Medicaid Services (CMS) released Star Ratings in 2015 based on consumer assessment survey. More than 40% of POHs received the top 5-star rating compared to only 5% of general hospitals.
- The Department of Health and Human Services (HHS) found that patients are 3 to 5 times more likely to experience complications at general hospitals than at physician-owned hospitals.
These statistics clearly establish that POHs are providing high-quality healthcare.
But what about the cost? How do the POHs compare to the non-profit hospitals?
An analysis by Avalon Health Economics said that POHs are saving Medicare $3.2 billion over 10 years. For that reason alone, you would expect the federal government to want more, not less, of these hospitals.
Furthermore, in contrast to claims by the general hospitals, POHs provide more charity care, not less. A CMS study found that POHs spend nearly 6% of their total revenue on community benefits compared to less than 1% for other hospitals. In addition, a major study was published in The British Medical Journal that found patients at POHs and non-POHs were equally likely to have Medicaid insurance and to be from racial or ethnic minority groups. The study concluded: “POHs also performed equally to non-POHs on a wide array of measures of quality of care, costs, and payments for care.”
With this much evidence to support POHs, including high-quality care and cost-lowering measures, what is standing in the way of reform? The answer is crony capitalism – government picking winners and losers based on political support. To reverse this bad decision will take political courage. Senator Lankford is introducing the Patient Access to Higher Quality Health Care Act to solve the problem. This legislation would put patient choice back into hospital markets by allowing doctors to build efficient businesses and better serve patients. Competition always raises quality and lowers costs – and we need that in healthcare if we’re going to solve the insolvency of Medicare and Medicaid.
