Is More Physician-Owned Hospitals the Solution to our Health Cost problem? – The Health Care Blog


Robert Frost once said,  “Home is where, when you have to go there, they have to take you in.”

Increasingly, in our struggling society, that place is your local full service community hospital.  During COVID, if it wasn’t your local hospital standing up testing sites, pumping out vaccinations and working double overtime helping patients breathe, we would have lost several hundred thousand more of our fellow Americans.  

But it wasn’t just COVID where hospitals leaped into the breach.    As primary care physicians’ practices collapsed from documentation overburden and chronic underpayment, hospitals took them in on salary.  If it wasn’t for hospitals, vast swatches of the northern most three hundred miles of the US and large stretches of our inner cities would be a physician desert.  Hospitals subsidize those practices to a tune of $150k a year to have a full service medical offering and keep their own doors open.  

As our public mental health system withered, the hospital emergency department  (and, gulp, police forces). became our main mental health resource.   Tens of thousands of mentally ill folks languish overnight in hospital observation units because, despite not being “acutely ill”, there is nowhere for the hospital to place them.  And as our struggling long term care facilities withered under COVID, those mentally ill folks were joined in observation by seriously impaired older folks too sick to be cared for at home.  As funding for public health has withered on the vine, hospitals have become the de facto public health system in the US.  

In a responsible society, those public health expenses would be funded directly as a system of social care, or paid for by local tax levies.  In the system we have, paying for all this rests on hospitals caring for a small number  of privately insured patients.  Their health coverage pays hospitals rates in excess of the actual cost of care for the covered and relatively wealthy folks in the community.   Private insurance is the real safety net in a health system which lacks both universal coverage and a commitment to public health as a social responsibility.
This is where the controversy over permitting more physician owned hospitals comes to rest.

There are over a hundred physician owned hospitals in the US.  Their number was frozen by the 2010 Affordable Care Act (aka ObamaCare), over concerns that increasing their number would destabilize our health financing system. This prohibition is being challenged 13 years later by folks who believe the “competition” between hospitals is good, regardless of the downstream consequences, and  would thus reduce society’s cost of care.  

Not all physician owned hospitals are alike.   Some have emergency rooms and take all comers.
Most do not.  Some service a full range of the community-regardless of their insurance coverage.  Most do not.  Rather, most physician owned hospitals focus on providing privately insured folks elective  imaging, surgery and other forms of intervention that generate large margins at relatively lower unit costs than the local community hospital.  Physician owners  get paid twice- once when they render the care, and again when they collect their partnership dividends at the end of the year, creating a compelling incentive to treat the marginally necessary cases.  
Caring for the “worried wealthy” is a much more profitable business than caring for the poor or the multi-functionally impaired chronically elderly. It is also cleaner, whiter, more orderly and less disturbing to patient ambience. You won’t find a lot of them in our inner cities, or for that matter, working class neighborhoods, let alone in small rural communities,     Catering more or less exclusively to the privately insured is actually  “skimming the cream” which provides the vital nutrients to the local community hospital. 

The smaller the community hospital, the more damage that cream skimming does.  

Perhaps a thousand rural hospitals are dangling by a thread post-COVID, and the loss of any of their patients to “exclusive” physician-owned facilities thirty or sixty miles away may be the difference between life and death for the hospital.   So the idea that “competition” from physician-owned hospitals will force community hospitals to lower their costs is a toxic illusion.  

Have circumstances changed in the thirteen years since ACA froze the development of physician-owned hospitals?   Yes,  circumstances have markedly worsened.   Despite ACA and COVID era coverage expansions, in 2022, hospitals in the US faced the worst economic crisis since Medicare and Medicaid were create in 1965. Some have recovered so far in 2023, but many have not.   The smaller the hospital, the harder it is to find clinical staff, purchase needed supplies and pay their bills.  

It is difficult to imagine a worse time to siphon off the tiny number of privately insured elective patients that cover the cost of hospitals’ staying open.  Re-opening the ACA’s ban on physician-owned hospitals would markedly worsen the economic circumstances of struggling rural and urban safety net, and damage the public health.  

Jeff Goldsmith is President of Health Futures, Inc. and a long time THCB Contributor.

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