A recent study suggests that Medicare could save over $1 billion by directing beneficiaries with costly medical conditions to physician-owned hospitals rather than traditional ones. The research indicates that physician-owned hospitals offer lower costs, up to 15% less, for similar patient demographics. However, opposition from the American Hospital Association centers on concerns of patient selection and access in both urban and rural areas. Legislation may change regulations affecting physician-owned hospitals, potentially enhancing competition and reducing costs.
A recent study suggests that Medicare could realize cost savings exceeding $1 billion when beneficiaries with the most expensive conditions receive treatment at physician-owned hospitals instead of traditional ones. The research indicates that physician-owned hospitals, despite serving a similar patient demographic, managed to treat costly Medicare beneficiaries at reduced expenses. Two professors from UConn Health and Loyola University Chicago conducted this study, commissioned by the Physician’s Advocacy Institute (PAI) and The Physicians Foundation. It compared the cost of care between physician-owned hospitals and traditional hospitals for Medicare patients within the 20 most expensive diagnostic-related groups (DRGs) in 2019.
The findings revealed that physician-owned hospitals showed total payments between 8 to 15 percent lower than their traditional counterparts in the same market. The study’s estimates suggest that if Medicare beneficiaries sought treatment at physician-owned hospitals, it could translate into a $1.1 billion savings. This equates to about a 12 percent cost reduction if traditional hospitals were reimbursed at rates comparable to physician-owned hospitals. The research also established that patient populations served by both types of hospitals exhibited statistically similar demographics, with minimal meaningful differences in race, ethnicity, gender, age, and patient health status. As such, the payment variations identified in the study were not attributed to differences in patient characteristics or health profiles.
The study’s authors suggested that physician-owned hospitals may present an opportunity to significantly reduce the cost of care across various health conditions and patient groups. These findings come in the wake of a Congressional hearing, convened by the Subcommittee on Health of the Committee on Energy and Commerce, which debated legislative measures, including those that would relax restrictions on physician-owned hospitals, potentially expanding patient access to more affordable care.
Lawmakers are deliberating changes to Title XVIII of the Social Security Act that pertain to certain physician self-referral exemptions related to physician-owned hospitals. Implementing these amendments could pave the way for physician-owned hospitals to expand their operations, following over a decade of stringent healthcare fraud, waste, and abuse regulations.
Michael J. Darrouzet, Vice President and Board Director of PAI, as well as Executive Vice President and CEO of the Texas Medical Association, emphasized that physicians, who are closely aligned with their patients’ interests, can make informed decisions. Thus, Congress is contemplating the authorization of new physician-owned hospitals to enhance patient care. The study’s findings underscore the potential for significant cost savings and improved quality of care for Medicare patients and taxpayers through physician-owned hospitals.
However, the American Hospital Association (AHA) has expressed strong opposition to legislation that would ease growth restrictions on physician-owned hospitals. They argue that physician-owned hospitals tend to select patients who can maximize profits, potentially compromising access to comprehensive hospital care.
The AHA contends that while they welcome fair competition based on quality, price, safety, and patient satisfaction, physician-owned hospitals, by referring the healthiest and best-insured patients to facilities they have ownership stakes in, counteract the principles of healthy competition. The AHA also raised concerns about the impact on rural areas, which often have limited patient populations, making it challenging for hospitals to maintain fixed operating costs. Over the years, numerous rural hospitals and health systems have closed, negatively affecting their communities.
Another study published in JAMA Network Open earlier in the year found that median negotiated commercial prices and cash prices were lower at physician-owned hospitals compared to other hospital types in the same market. However, physician-owned hospitals treated fewer Medicaid patients and provided less charity care, potentially enabling them to accept lower commercial rates.
