Competition in Healthcare - Physician Hospitals as Instigators of Change

We cannot solve our problems with the same thinking we used when we created them.
- Albert Einstein

As we are all aware, America’s healthcare system is due for change.  The problems of high cost, mediocre quality care, and lack of transparency, not to mention the un-insured, have accumulated and caused a public outcry of dissatisfaction with the system.  To add madness to misery, our federal Medicare and Medicaid systems are on the path toward inevitable disaster.  Economic failure of both systems is set to occur as early as 2018, “unless we’re prepared to make our children and grandchildren the most heavily taxed people in American history,” according to a April report from the Brookings Institution.

In the face of these issues, there are physicians who have seen the need for improved patient care – better quality services, increased efficiencies, and choice.  Many of these independent and entrepreneurial physicians have taken matters into their own hands and initiated long overdue change by building their own hospitals. 

In fact, many of the 185 existing physician hospitals in this country were started simply because physicians in the community saw a need.  Whether the need was for improved access, improved quality, or for greater physician control and autonomy, these smaller hospitals are starting to fill the gap caused by the large bureaucratic institutions to which “change” is at best an unpleasant concept.  

Since 2001 many of the corporate hospitals represented by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH) have cried out to Congress to prevent this hindrance to their institutional sanctity.  They have argued that physician hospitals will damage their ability to fulfill their charitable purposes.  And yet, as was recently noted in The Wall Street Journal, “Non-profit hospitals, originally set up to serve the poor, have transformed themselves into profit machines.”

In addition, physician hospitals clearly benefit their communities.  When including both uncompensated care and tax payments, physician hospitals returned a net community benefit almost 8 times higher than non-profit hospitals, averaging 7.23% in net community benefit as compared to .87% for non-profit hospitals, according to a 2005 report from the U.S. Department of Health and Human Services.

Physician hospital opponents also have argued that physicians are improperly motivated to self-refer patients to their own hospitals due to additional economic incentive, resulting in over-utilization and increased cost.  However, both the Centers for Medicare and Medicaid Services (CMS) and the Medicare Payment Advisory Commission (MedPAC) found that referral and utilization rates were not significantly affected by entrance to the market place of a physician hospital.  In addition, a recent study considering all currently existing physician hospitals, determined that there was no association between the presence of a physician hospital and Medicare cost.  

Unfortunately, the current trend in the corporate-driven general hospital industry is vertical integration – enlarging the institutional structure of healthcare.  Bureaucratic minded hospitals feel it proper to employ physicians and require (typically indirectly) that their physicians refer all patients within that particular system.  In addition, many of these systems have their own system-specific insurance plans, where patients cannot leave the system without paying an out-of-network penalty. 

These are two examples of outright self-referral that certainly operate to the detriment of patient choice. And yet, these bureaucratic systems have the audacity to accuse independent, entrepreneurial physicians who own hospitals of improper self-referral.  Where is the logic? 

Isn’t it time we embrace the concept of change in healthcare?  As was the case in the telecommunications industry in the 1980s, technological advancements, product innovation, and a shift in the consumer mindset have lead to less demand for the vast corporate hospital, which was for many years the “Ma Bell” of the healthcare world.  Such advancements lowered recovery time for many procedures, lessening the need for long hospital stays and resulting in fewer hospitals playing host to a sea of beds. 

In addition, higher quality care with better equipment and less risk have provided options for physicians who are always looking for new and better ways to treat their patients. Such positive changes created physician frustration with the bureaucratic hospitals whose organizational structure was not set up to allow for quick turn-around time and new technological expenditures.  These are just a few examples of the evolution in healthcare from which the physician hospital industry has arisen. 

The primary interest of physicians who own hospitals is to improve healthcare and offer a positive choice.
This choice can be available while our physician owned hospitals and our corporate hospitals both work toward solutions regarding important issues such as covering the uninsured and lowering healthcare costs.  Physician hospitals have been proven time and again to be good for patients, physicians, communities and the healthcare industry in general. 

It is time that Congress, the public, and all players in the healthcare marketplace recognize our opponents’ arguments against physician hospitals for what they truly are … a basic struggle against change.