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David Hogberg: Lift limits on physician-owned hospitals March 7, 2013

David Hogberg makes a strong case in a Washington Examiner op-ed for repeal of the current ban on physician-owned hospitals.  ObamaCare banned new physician-owned hospitals, even though existing ones were among the top recipients of bonus payments from the new Hospital Value Based Purchasing Program – which rewards hospitals for providing higher quality of care.

ObamaCare bans creation of any new physician-owned hospitals and prohibits existing hospitals that were grandfathered under the law from expanding to meet demand in their communities.

These are top-quality hospitals that provide state-of-the-art care.  David explains why repeal of the ban should be a top priority in his March 6 op-ed, “Congress should repeal limits on new doctor-owned hospitals.”  Here is his article:

Congress has already repealed some undesirable parts of Obamacare, such as its meddlesome tax form requirements for small businesses (the “1099 rule”) and the unsustainable long-term care program known as the CLASS Act. Others, such as the medical device tax and maybe even the Independent Payment Advisory Board, are inching their way toward the chopping block.

Congress should next eliminate Obamacare’s crushing restrictions on physician-owned hospitals. The restrictions were the result of a campaign by the Big Hospital lobby to stamp out smaller competition. And interestingly, Obamacare has already produced new evidence that physician-owned hospitals provide better quality than traditional community hospitals.

Obamacare’s Hospital Value Based Purchasing program attempts to reward hospitals for providing quality care. HVBP measures hospital quality by metrics involving hospital processes and patient satisfaction. Hospitals that perform well on HVBP receive a bonus in the form of a small percentage increase in their total Medicare payments. Hospitals that do poorly are penalized with a similar cut.

The Department of Health and Human Services announced the first set of bonuses and penalties late last year for the more than 3,400 hospitals in the program. Based on the size of the bonuses awarded, nine out of the top 10 and 48 out of the top 100 hospitals as ranked by the HVBP were physician-owned hospitals.

Paul Kerens, president of Physician Hospitals of America, says physician-owned hospitals performed so well because they “have more focus on patients and patient care. They put more money at the bedside. Unlike major hospitals, we don’t have as many bureaucratic layers to go through to get quality to the patient bedside.”

Physician-owned hospitals are often relatively small establishments. Most are specialty hospitals focusing on a few areas such as orthopedic or cardiac care.

While physician-owned hospitals provide better care, they are at a political disadvantage. Their limited number and small size meant they had fewer political resources with which to lobby Congress during the Obamacare debate. They were outmatched by the Big Hospital lobby — groups such as the American Hospital Association and American Federation of Hospitals.

For years, the Big Hospital lobby tried to use government to squelch physician-owned competitors. It finally succeeded with Obamacare, which bars physician-owned hospitals that did not have a Medicare provider number by the end of 2010 from receiving Medicare funds in the future. This effectively prevents any new physician-owned hospitals from being built.

During the Obamacare debate, the Big Hospital lobby also won the inclusion of massive regulatory hurdles that physician-owned hospitals must overcome to expand. For example, new physician-owned hospitals must be in counties where population growth is 150 percent of the overall state’s growth in the past five years. Their bed occupancy rates must be higher than the state average. They must be located in states where hospital bed capacity is below the national average. And, even if they satisfy these and other requirements, physician-owned hospitals are limited to an expansion of no more than 200 percent.

To justify this anti-competitive campaign, the Big Hospital lobby charged that physician-owned hospitals “cherry pick” the more profitable patients, avoid Medicaid patients and provide lower quality care.

But a serious examination of the evidence shows that such assertions are bogus. In fact, the Big Hospital lobby likely feared physician-owned hospitals would provide better quality service — a fear that appears justified given the results of Obamacare’s HVBP program.

The physician-owned Indiana Orthopedic Hospital ranked 11th in the HVBP. Dr. John Dietz, an orthopedic surgeon and part owner of the hospital, said, “Quite contrary to the provisions of Obamacare, we should be promoting the model of physician-ownership as an opportunity to create high-quality, highly efficient hospitals where Medicare recipients can get the best possible care at the least cost.”

Obamacare’s restrictions on physician-owned hospitals were never about serving the needs of patients but rather about appeasing powerful political interests. The HVBP shows that the Obamacare restrictions on physician-owned hospitals are an impediment to providing quality care. Congress could improve health care by eliminating them.

David Hogberg is a senior fellow for health care policy at the National Center for Public Policy Research.