Health Reform Forces Physician-Owned Hospitals to Change, Abandon Plans

While the new health reform law may seem threatening to many Americans, it is pure poison for physician-owned hospitals, which are being forced to drop plans for new hospitals and immediately halt expansion projects.

Some 60 hospitals in planning have only until the end of the year to be finished and existing hospitals that planned to expand have no time at all. The ban on expansions, which also limits aggregate increases in physician ownership, went into effect on March 23, the day the legislation was signed, according to Molly Sandvig, executive director of Physician Hospitals of America.

Provisions of the law "virtually destroy many of the hospitals that are currently under development, and leave little room for the future growth of the industry," Ms. Sandvig said.

PHA is hosting a conference in Dallas on May 6-7 on what physician-investors can do to meet the new requirements. Ms. Sandvig says alternatives to outright ownership include:

  • owning the building and the land but not the hospital and allowing physicians to operate under a management agreement; and
  • switching to a non-profit foundation, somewhat like Mayo Clinic.

Here are some updates on physician-owned hospitals affected by the new law.

1. Regional Medical Center (Kearney, Neb.). Construction crews recently breaking ground on the hospital would have to work "at near-breakneck speeds" to meet the Dec. 31 deadline, according to a report by Nebraska TV. Sean Denney, MD, a cardiologist and spokesman for 40 doctors investing in the hospital, told the Omaha World-Tribune that a scaled-back version of the hospital might be opened to meet that deadline.

"It'd be nice if we can get that accomplished," Dr. Denney told Nebraska TV. "If not, it's not the end of the world." He said some non-physician investors were prepared to take on ownership if the hospital did not meet the deadline.

Complicating matters for the hospital is a bill in the Nebraska legislature that would place a two-year freeze on issuing licenses for new hospitals. LB999, introduced by Sen. Kathy Campbell of Lincoln, has advanced to the full legislature, but no vote had been taken, the Journal Star reported Sunday.

2. Black Hills Surgical Hospital (Rapid City, S.D.). "We are capped," said Bill May, chief executive of the hospital, told the Rapid City Journal. "They've been trying to do it for years, and it's happened." However, the hospital completed an $8.4 million expansion last year in anticipation of the new law.

Medical Facilities Corp., which has an ownership stake in the hospital, also completed facility expansion projects at Sioux Falls Surgical Hospital, Dakota Plains Surgical Center and Oklahoma Spine Hospital in 2009, according to the company's annual report.

3. Indiana Orthopedic Hospital (Indianapolis). A three-OR expansion of the hospital is three-quarters finished but "now it can't be used for that purpose," John Dietz, MD, an investor in the 42-bed hospital, told Investors Business Daily. "We'll have to figure out an alternative for it."

4. Ohio Valley Medical Center (Springfield, Ohio).
Healthcare reform means no more growth for this 24-bed physician-owned hospital, which opened last summer and is owned by 40 local surgeons. "The bad news for us is the limits on growth — specifically limiting operating rooms and procedure rooms," Ohio Valley spokesman Steve Eisentrager told the Springfield News-Sun. "Really, we don't have a lot of hedge room to grow."

5. MedCath Corp. (Charlotte, N.C.).
The company, which partners with physicians in nine heart hospitals, has sold two hospitals and recently created a strategic options committee to consider selling off more. In addition to the new law, MedCath has also been losing money on its heart hospitals, blaming a declining surgical volume.

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