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AHA, FAH Oppose Proposed Physician Self-Referral Law Changes

Congress should not approve physician self-referral privileges to physician-owned hospitals, the AHA and FAH argued.

AHA, FAH voiced concerns about a proposed law to expand physician self-referral to physician-owned hospitals

Source: Thinkstock

- The American Hospital Association (AHA) and the Federation of American Hospitals (FAH) recently urged lawmakers to oppose a proposed bill that would extend physician self-referral allowances to physician-owned hospitals.

In late February, House representative Sam Johnson (R-TX) introduced legislation that would repeal Affordable Care Act provisions  that banned most existing physician-owned hospitals and outpatient facilities from expanding facility capacities.

The Affordable Care Act ban intended to close the gap around the “whole hospital” exception for physician self-referral laws. Prior to 2010, providers could refer patients to hospitals where they had an ownership or financial interest as long as it was in the entire hospital and not just a department.

The physician-owned hospital expansion ban responded to potential conflicts of interests inherent in the physician-owned hospital arrangement. With providers holding ownership interests in the hospital, they may have a financial incentive to refer patients to the hospital since they would receive some of the revenue generated by the referral and subsequent services.

Representative Johnson drafted the recent legislation to eliminate the ban and promote more healthcare competition by allowing physician-owned hospitals to expand.

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“I’m sure all Americans can agree that everyone deserves access to quality, affordable health care,” stated Johnson on his website.  “And I’m sure we also agree that competition in the marketplace is a good thing.”

“Unfortunately, Obamacare has been picking winners and losers when it comes to healthcare – and American families are paying the price due to this lack of competition,” he continued. “Physician-owned hospitals are small in number, so there is plenty of room in the health care market.  It makes no sense to prohibit good hospitals from serving their communities.”

However, the AHA and FAH opposed the recently proposed changes to the physician self-referral law and any future legislation that would expand self-referral to physician-owned hospitals.

“For more than 15 years, community hospitals, policymakers, the business community and governmental advisory bodies have grappled with overutilization and higher healthcare costs caused by self-referral to physician-owned hospitals,” the organizations stated in a letter to Congress. “Conflicts of interest are inherent in these arrangements, whereby physicians refer their patients to hospitals in which they have an ownership interest.”

Despite the Congressional move to prevent physician self-referral conflicts among physician-owned hospitals seven years ago and a decade of research prior to that, some industry groups have still tried to “unwind the law” and their “proposals would harm patients, community hospitals and local businesses.”

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To support their opposition to the legislation, the organizations cited a recent Dobson DaVanzo report that found physician-owned hospitals tend to cherry-pick patients and limit healthcare services.

The report showed that physician-owned hospitals avoid Medicaid and uninsured patients, treat fewer medical complex patients, and provide fewer emergency services, all while maintaining all-payer margins almost three times higher than those of non-physician owned hospitals.

Physician-owned hospitals were also more likely to receive the 3 percent maximum Medicare readmission penalty. About 10 percent of physician-owned hospitals were penalized at the maximum rate versus just 0.9 percent of non-physician-owned hospitals.

The most recent data supported research from nearly 15 years ago, the organizations added. For example, a 2003 Government Accountability Office (GAO) report uncovered that specialty hospitals typically owned by physicians tended to treat a lower percentage of Medicaid patients among all patients with the same conditions compared to general hospitals in the same area.

“In short, the dangers of self-referral remain, and the foundation for current law must be fortified, not weakened,” the organizations contended.

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Eliminating the Affordable Care Act provision would also destabilize healthcare competition, the organizatons contended. The physician self-referral law allowed for some physician-owned hospitals to expand as long as they demonstrated that the expansion would meet a community need according to CMS.

But opening the expansion projects up to all physician-owned hospitals would stifle fair healthcare competition because providers would be able to refer their patients to hospitals where they have financial interests.

“The law as it stands protects patients, businesses and taxpayers,” the organizations concluded. “It also helps ensure that full-service hospitals can continue to meet their mission to provide quality care to all the patients in their communities. We urge you to oppose any and all attempts to weaken it.”

Supporters of the recent legislation, however, have spoken out against the AHA and FAH, arguing that physician-owned hospitals provide high-quality care and lower costs like non-physician-owned hospitals.

Physician Hospitals of America commended lawmakers for proposed the legislation and stated that the lifting of the physician-owned hospital expansion ban would promote healthcare competition, giving patients more choice for healthcare services.

“Despite AHA and FAH’s unfounded claims to the contrary, physician-owned hospitals continue to lead the nation in quality of care, cost efficiency, and patient satisfaction,” the group wrote. “They provide a competitive alternative for patients who want the choice of where they receive care, and they preserve the doctor-patient relationship by giving physicians greater autonomy in patient care decisions.”

Several House committees are currently reviewing the legislation.

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