Physician-owned hospitals under fire
Houston Business Journal - by Mary Ann Azevedo Date: Sunday, May 22, 2005, 11:00pm CDT - Last Modified: Thursday, May 19, 2005, 11:04am CDT .Related:
Hundreds of local doctors are breathing a temporary sigh of relief as a storm of controversy that has been brewing over a proposed state moratorium on physician-owned health care businesses has taken a turn in their favor.
For months, legislators have been examining the growing number of physician-owned limited service health care facilities in Texas and across the country.
Opinions in the medical community on the issue have been varied and intense, with some groups seeking a halt to construction of such facilities while others continue to defend a doctor's right to ownership.
Last month, the Texas Senate passed Senate Bill 872, which requires the Texas Department of State Health Services to conduct a comprehensive study of the impact of niche hospitals on the financial viability of other general hospitals in Texas.
The bill, sponsored by Sen. Jane Nelson, R-Flower Mound, also requires physicians to disclose to patients their ownership interest in a hospital.
S.B. 872 is pending in the House Public Health Committee, which was scheduled to hold a public hearing on the issue on May 18. If the bill is reported favorably by the committee it will go for a vote on the House floor by May 24. If it passes there, it still has to go to the governor's office before being passed into law.
As it stands now, S.B. 872 would be effective Sept. 1, 2005. The Department of State Health Services would be required to submit a report regarding the results of the study to the Legislature by no later than Dec. 1, 2006.
As a state that does not require a "certificate of need" to build hospitals, Texas leads the nation in the number of doctor-owned, limited service health care businesses, such as surgical or diagnostic centers, according to THA. Out of 100 such facilities that operate across the nation, about 50 are in Texas, with at least another 30 proposed or under development. Specifically, in the Houston area, there are currently 10 existing physician-owned hospitals and at least 12 that are pending, according to the Texas Hospital Association.
The proposed hospitals include the 105-bed Houston Town & Country Hospital, a $70 million joint venture between about 90 doctors and Nashville, Tenn.-based developer GP Medical Ventures that is scheduled to open in October, and another physician-owned hospital in Kingwood is set to open this fall.
The Texas Hospital Association has been vocal in its support of the bill, suggesting that the legislation "go a bit further."
Indeed, a controversial amendment to S.B. 872 included a proposed two-year moratorium on the construction of physician-owned "limited service" or niche health care facilities, which THA charges are having a negative impact on full-service community hospitals, especially those in smaller urban and rural markets. The moratorium was rejected on the Senate and House level.
For now, the moratorium proposal has hit a dead end on the state level, although a federal moratorium is now on the table.
"Sen. Nelson has made it very clear that she does not support a moratorium," says THA General Counsel Charles Bailey, who says his group is no longer actively pursuing its statewide passage. "The good thing that has occurred with this is that there has been an opportunity to educate the Legislature on a pretty complicated issue they weren't familiar with before."
The bill is just one of several concerning physician-owned hospitals that went before the Texas House Public Health Committee earlier this month.
Building blocks
In the short run, S.B. 872 probably won't have a dramatic impact on physician-owned businesses.
In addition to the impact study and required disclosure, the bill calls for comparing the referral patterns of physicians with an ownership interest in a niche hospital to the referral patterns of physicians with privileges at a niche hospital who do not have an ownership interest.
Despite THA's attempts to push a two-year moratorium, S.B. 872 does not halt the construction of doctor-owned "limited service" health care facilities while the study is being conducted. At least not for now.
On May 11, national lawmakers introduced a bipartisan bill that would restrict development of new physician-owned specialty or "boutique" hospitals. Those supporting the bill cite government reports that specialty hospitals generally treat patients who are less sick, and therefore more profitable to treat.
A December 2003 Medicare drug bill passed by Congress included a moratorium until June 8, 2005, on construction of specialty hospitals, which are small, usually for-profit facilities that offer one branch of medicine -- typically cardiac care, orthopedics or surgery. Some are lobbying for that moratorium to be extended, while others contend that such hospitals operate more efficiently and have higher-quality outcomes.
On May 13, The Wall Street Journal reported that the Centers for Medicare and Medicaid Services will stop processing specialty hospital applications -- which are needed for Medicare reimbursement -- while it considers changes to payment rules for the facilities. The agency will reportedly examine whether specialty hospitals meet Medicare's definition of a hospital and therefore qualify for the higher payments hospitals receive. The center also plans to alter some of the payment rules that might encourage physicians to form specialty hospitals.
Doctor is in
The THA's Bailey points out that a number of such hospitals were still built in the past 17 months because "creative investors" created hospitals that focused on more than one service.
For its part, THA remains concerned that a physician with ownership interest in a health care facility may face "an ethical conflict of interest."
"If a doctor is benefiting financially from that investment, a referral to a particular hospital in which they have ownership may or may not be in the best interest of the patients," Bailey says. "We think this is an important public policy question."
Few physician-owned hospitals offer emergency care, which THA says presents an even greater burden on other hospitals to accept uninsured or indigent patients. A THA study found that many physician-owned limited service facilities treat fewer Medicaid and uninsured patients than full-service community hospitals.
THA has 60 member hospitals in the Houston area. The association also has another 23 nonmember hospitals, which are mainly smaller, specialized facilities such as rehab hospitals.
Meanwhile, Texas Medical Association President Dr. Bohn Allen says the fact that general hospitals are not getting reimbursed enough for taking care of the uninsured and Medicaid population is not a good enough argument against physician-owned businesses.
"These hospitals already receive funds from the state and receive tax-exempt bonds to build," says Allen, a general surgeon from Arlington who does not have ownership in any medical facilities. "They are also allowed to accept donations that are tax-free. So they clearly have other sources of funds that specialty and physician-owned hospitals don't have access to."
Local family doctor Dr. Tony Popek, a partner in the Houston Town & Country Hospital project, believes that community hospitals -- whether they are physician-owned or not -- do a better job of rendering care in a more efficient and less costly manner. (See "Doctors develop medical complex," Sept. 3, 2004.)
"Smaller community venues in general are going to be able to address the needs of patients differently than the bureaucratic quagmires that these huge hospitals have become," Popek says.
He, too, takes exception with the role of the uninsured, saying that the argument is "hollow and a strawman with no basis."
At the Houston Town & Country Hospital, Popek says, there will be an open emergency room that will not turn away indigent patients.
He believes major hospital systems often hide behind their nonprofit status.
"Our hospital will be paying a huge amount of taxes, unlike the big hospital systems," Popek says.
Still, an increasing number of hospitals have been forming joint ventures with doctors on medical office building projects and outpatient centers in a perceived response to the growing trend.
"It will be interesting to see if the new venture is willing to take its share of the uninsured population," says Dan Wolterman, president and CEO of the Memorial Hermann Healthcare System. Memorial Hermann Memorial City Hospital is in close proximity to the proposed physician-owned Houston Town & Country Hospital.
Meanwhile, Dr. Robert Vanzant, president of the Harris County Medical Society, says the issue of monitoring the competition between these two kinds of hospitals remains a delicate point.
"It should be an impartial third party, not an insurance company," Vanzant says, pointing to entities such as the State Board of Medical Examiners and the Texas Medical Foundation. "Hospitals are cost-shifting to cover expenses, so the public safety health net needs to be stretched to provide care for those who need it."
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