Brett Gosney, CEO of Animas Surgical Hospital Durango, Colo., and president of Physician Hospitals of America, discusses some of the political history of physician-owned hospitals in the United States, the proposed restrictions in healthcare reform and the potential impact these restrictions could have on healthcare in America.
History of physician ownership
Through the first half of the twentieth century, it was common for physicians to own and manage hospitals, stemming from the practice of physicians caring for patients in their own homes. In-home care soon moved toward larger institutions, and some of the most influential institutions today, such as Mayo Clinic and Cleveland Clinic, were originally founded and managed by physicians.
However, in the 1940s and 1950s, many physicians abdicated the control and ownership of the hospitals and large medical institutions. This, according to Mr. Gosney, was a miscalculation. "Success of a practice depends on the physicians' efficiency and control of quality in the hospital," he says. "By giving up this control, physicians were less able to regulate efficiency and ensure quality, and that could be considered a misstep."
From the 1940s through the 1980s, other hospital models began to emerge, according to Mr. Gosney, including large religious and secular non-profits and the corporate for-profit model. Then in the late 1980s, physician ownership started to re-emerge. Mr. Gosney says that this was due to two drivers: specialization and efficiency.
"The general hospital model was monolithic and could not meet needs on a provider level as more physicians moved into specialty and sub-specialty practices," Mr. Gosney says. "Hospital support systems were generally focused and could not meet the needs of these physicians.
"As far as efficiency, specialists found it difficult to be efficient inside the chaos of the general hospitals, so surgical specialists soon opened the way for physician-owned surgical specialty hospitals," he adds. "They followed a focused factory model of doing one thing and doing it well, with lower complications, better outcomes at a lower cost."
From the 1980s until the late 1990s, Mr. Gosney says surgical hospitals were well thought of and went fairly unnoticed, until larger systems, led by the major hospital lobbying groups, started to see surgical hospitals as competition and a threat.
Efforts to limit physician ownership
Mr. Gosney sees the battle between large hospitals represented by the AHA and FAH and physician-owned hospitals as a David and Goliath situation. He notes that efforts to limit the reach of smaller, "disruptive innovators," have not been limited to healthcare, as seen with Japanese car makers in the 1970s, in the computer industry in the 1980s and currently in satellite cable television.
"[Lobbying against disruptive innovators] usually happens when larger industries that do good work and mean well don't respond positively to changes or new models," Mr. Gosney says. "For them, the cheapest and easiest way to deal with small industry is to go to Congress and say, 'These are the bad guys; shut them down.'"
In Mr. Gosney's opinion, this is how the movement to limit physician ownership began. "It didn't come from patient complaints or an organic, grassroots opposition," he says. "The hospital lobbies raised a lot of money and have succeeded in getting some sympathetic voices in Congress."
According to Mr. Gosney, the two sides of the story presented to Congress regarding physician-owned hospitals are: 1) physician-owned hospitals require patients to have "gold bars" to receive treatment, don't address indigent care issues and cause harm to community hospitals; and 2) physician-owned hospitals were formed because general hospitals couldn't meet the needs of physicians and their patients, they perform quality, cost-effective care and they bring much needed competition to community hospitals.
Because of the money and lobbying efforts, the 200-plus physician-owned hospitals have struggled to address the legislative threats posed by industry groups representing the roughly 5,800 general hospitals in the country.
However, most of these efforts have failed to pass Congress, as eight government studies have been commissioned to look into accusations by the lobbying groups, and so far physician hospitals have, for the most part, been vindicated, according to Mr. Gosney.
Effects of healthcare reform on physician ownership
In the House healthcare reform bill that was passed in November and in the Senate bill still under debate as of this story, language exists that would severely limit physician ownership of hospitals, according to Mr. Gosney.
The restrictions would affect physician-owned hospitals in every stage of development.
1. Hospitals already open and operating with Medicare certification. Physician-owned hospitals that are currently open and have Medicare certification would be grandfathered in and allowed to continue to operate. However, Mr. Gosney calls this an illusory protection as growth would be severely limited. "Few hospitals will be allowed to grow, and most will not be allowed to add additional ORs, inpatient beds or procedure rooms," he says. "In the foreseeable future, hospitals will effectively close because without growth, they will be unable to compete."
Another restriction for physician-owned hospitals will be that physician ownership can never exceed the current aggregate percentage as of the date of enactment. Therefore, new physician owners can only be added when others leave the hospital, thereby limiting recruitment efforts.
2. Hospitals under development. Under the House bill, hospitals under development that did not receive Medicare certification prior to Jan. 1, 2009*, would not be certifiable by CMS. The Senate bill pushes this deadline back to the date of enactment, according to Mr. Gosney. This restriction applies to all hospitals under development, from those that are seeking initial zoning approvals to those that are a week away from opening.
"Technically, this restriction only pertains to federally-funded insurance programs, but it will have far-reaching implications," Mr. Gosney says. "If you can't get Medicare certification, third-party payors are likely not to get on board."
Nearly 90 hospitals currently under development would be affected by the restriction, which translates into billions of dollars and tens of thousands of jobs lost, according to Mr. Gosney. "It will be a huge disaster if this gets passed," he says. "The day of enactment is bad enough, but if restrictions are retroactive, it will be even worse."
3. Future physician-owned hospitals. The bills in both houses of Congress completely disallow the establishment of future physician-owned hospitals, according to Mr. Gosney. Therefore, those hospitals that are effectively closed by the bills will not be replaced by new facilities.
Impact on healthcare
Advocates of physician-owned hospitals have long touted the facilities as an integral part of the solution when it comes to changing healthcare. "We need them," Mr. Gosney says. "They provide great care, and make their competitors better. They provide great outcomes while re-engaging the physician into the hospital."
In Mr. Gosney's opinion, the restrictions are an unfortunate part of healthcare reform, and rather than provoking "real change and reform," they support an ineffective system that isn't consumer-oriented.
"Healthcare reform should move toward innovation, decentralization, efficiency and competition," Mr. Gosney says. "With limitations on physician ownership, there will be a worse response of division, with the hospitals on one end and physicians on the other. The incentives are not aligned. Physician ownership aligns incentives, which is critical to high-quality healthcare."
Mr. Gosney is the CEO of Animas Surgical Hospital in Durango, Colo., and president of Physician Hospitals of America. Learn more about Animas Surgical Hospital at www.animassurgical.com.
*Since the writing and publication of this article, the deadline for Medicare certification has been moved back to Aug. 1, 2010. Efforts are still underway to change this language or extend the deadline in the final version of the healthcare reform bill.