Are Physician-Owned Hospitals Good for Healthcare?

A report on physician-owned hospitals (POHs) -- commissioned by two hospital associations that don't include POHs -- has reignited the debate over whether such facilities are good for healthcare.

The report, issued last month by the Dobson | DaVanzo research firm, was commissioned by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH), a trade group of for-profit hospitals. It found that compared with non-POHs, the POHs "generally treat a population that is younger, less complex or comorbid, and less likely to be dually eligible or non-white, and that POHs have higher margins and lower unreimbursed and uncompensated care costs as a percent of net patient revenue compared to non-POHs."

The researchers looked at data from a variety of sources, including fiscal year 2020-2021 Medicare Hospital Cost Report data, fiscal year 2022 Medicare claims data, Medicare beneficiary data, and fiscal year 2023 Medicare Hospital Inpatient Prospective Payment System Impact File data.

In addition to the above findings, the authors also found that POHs had "a lower percentage of hospitals located in rural areas, a higher percentage of hospitals with Medicare maximum readmission penalty of 3%, higher patient care and overall Medicare margins, and lower unreimbursed and uncompensated care costs as a percent of net patient revenue than non-POHs."

In a blog post on the AHA's website, Chip Kahn, MPH, president and CEO of the FAH, and Stacey Hughes, the AHA's executive vice president of government relations and public policy, wrote, "It is time to face the facts and acknowledge that POHs are not good for patients, communities, the integrity of the Medicare program, or providers who are actually in the business of caring for all patients, 24/7, regardless of their ability to pay or their medical condition."

Kahn and Hughes noted that the Centers for Medicare & Medicaid Services (CMS) recently proposed reinstating program integrity rules for POHs that have been approved as "high Medicaid facilities" because of the risk to both patients and the Medicare program. "In the 2024 Inpatient Prospective Payment System Proposed Rule, CMS said: 'It is our position that protecting the Medicare program and its beneficiaries, as well as Medicaid beneficiaries, uninsured patients, and other underserved populations, from harms such as overutilization, patient steering, cherry-picking, and lemon-dropping outweighs any perceived burden on high Medicaid facilities,'" they wrote.

Physician-Led Healthcare for America (PHA) -- a trade group for POHs, ambulatory surgery centers, and office-based surgery facilities -- was quick to respond. "In response to the growing call for the repeal of the arbitrary ban on the physician ownership of hospitals, the hospital monopoly powers are ramping up their efforts to stifle the growing call for competition," PHA said in a press release, adding that the report "relies on cherry-picked data to spin the issue in favor of hospitals without physician ownership."

For instance, "an analysis of patients 85 years and older, who only represent 11% of the Medicare population, served as one of their primary data points to push the issue in the report's favor," according to the release. "In addition to selecting certain patient populations, such as those 85 and older, the report also seemed to isolate certain hospitals in the report. Curiously, with over 200 physician-led hospitals in the nation, the report selected data from various segments of hospitals, neglecting to account for nearly 25% of physician-led hospitals nationwide."

The AHA fired back, saying in the blog post that POH proponents "erroneously claim that the study uses only Medicare claims data for beneficiaries 85 and older. In fact, the Dobson | DaVanzo study is based on a review of all Medicare beneficiary claims; the analysis provides the additional example that POHs treat far fewer beneficiaries 85 and older (often the most vulnerable and medically complex Medicare beneficiaries) than non-POHs."

The American Medical Association (AMA) declined to comment on the report, instead referring a reporter to a statement that the association submitted for a March 28 House Energy & Commerce Subcommittee on Health hearing on transparency and competition in healthcare. The statement urged Congress to lift the current ban on new construction of POHs and expansion of existing ones, adding that doing so "will both stimulate greater competition and provide patients with another option to receive high-quality healthcare services."

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