Physician-Owned Hospitals Could Save Medicare Over $1B

October 23, 2023 - Physician-owned hospitals treated some of the most expensive Medicare beneficiaries at lower costs compared to traditional hospitals despite seeing similar patient populations, according to a recent study.

Total payments were between 8 to 15 percent lower at physician-owned hospitals versus traditional hospitals in the same market, found the study conducted by a pair of professors from UConn Health and Loyola University Chicago. The study was prepared for the Physician’s Advocacy Institute (PAI) and The Physicians Foundation and compared the cost of care in physician-owned hospitals with traditional hospitals for Medicare patients in the 20 most expensive diagnostic-related groups (DRGs) for 2019.

The study estimated that Medicare would have saved $1.1 billion if beneficiaries were treated at physician-owned hospitals in their area. That equated to about a 12 percent reduction in costs if traditional hospitals were reimbursed at the same rate as physician-owned hospitals.

The study also found that patient populations treated by both types of hospitals were statistically similar, with few significantly meaningful differences by race and ethnicity, sex, age, and patient sickness. Therefore, payment differences observed in the study were not attributable to differences in demographic characteristics or comorbidity profiles, researchers said.

“[O]ur results suggest that [physician-owned hospitals] may offer an opportunity to achieve considerably lower costs of care across a range of health conditions and patient populations,” they wrote.

The study comes on the heels of a Congressional hearing held by the Subcommittee on Health of the Committee on Energy and Commerce that debated, among other agenda items, legislation that would loosen restrictions on physician-owned hospitals to increase patient access to care at lower costs.

Lawmakers are considering amendments to Title XVIII of the Social Security Act to revise certain physician self-referral exemptions related to physician-owned hospitals. Enacting the amendments would open avenues for physician-owned hospitals and their expansion after over a decade of stricter healthcare fraud, waste, and abuse regulations.

“Physicians are in the best position to make decisions with and for their patients, so it’s not surprising that Congress is considering allowing new physician-owned hospitals that align the interests of ownership and practicing physicians to improve patients’ care,” Michael J. Darrouzet, PAI’s vice president and board director, and executive vice president and CEO of the Texas Medical Association, said in a statement emailed to RevCycleIntelligence.

“Now, Congress has another reason to act. Hospitals owned by physicians promise significant cost savings when it comes to Medicare patients’ most expensive medical conditions. Better quality and notable cost savings to patients and taxpayers is a clear signal that physician-owned hospitals is a policy worthy of adoption,” Darrouzet continued.

The American Hospital Association (AHA), however, has strongly opposed legislation that would ease growth restrictions on physician-owned hospitals. They say physician-owned hospitals cherry-pick patients who can maximize profits, which ultimately jeopardizes access to full-service hospital care.

“America’s community hospitals and health systems welcome fair competition, where health care entities can compete based on quality, price, safety and patient satisfaction. But physician-owned hospitals (POH) — where physicians select the healthiest and best-insured patients and self-refer those patients to facilities in which they have an ownership interest — represent the antithesis of competition,” the AHA said in a statement for the Subcommittee on Health.

“Allowing more POHs in rural areas could be particularly destabilizing because these areas already have a limited patient population, with hospitals struggling to maintain fixed-operating costs. Indeed, 150 rural hospital and health systems have closed since 2010, which has had a detrimental impact on their communities,” the hospital lobbying group added.

Research published in JAMA Network Open earlier this year found that median commercial negotiated prices and cash prices were lower at physician-owned hospitals than other types of hospitals in the same market. However, the physician-owned hospitals treated fewer Medicaid patients and provided less charity care, which researchers said might allow them to accept lower commercial rates.