Physicians and Hospitals Battle Over Lucrative Procedures, Well-Insured Patients

Last Updated May 11, 2010 4:06 PM EDT

Doctor-owned "specialty" hospitals are unhappy about the fact that healthcare reform is going to begin leveraging them out of their lucrative -- but economically destructive -- niche. No surprises there, because the provisions are specifically intended to limit their ability to skim healthier and better-insured patients from general hospitals.

In fact, reforms in the Affordable Care Act may not go far enough, because they leave untouched a parallel system of ambulatory care centers that do much the same thing for outpatient surgical procedures.

All this is just the latest chapter in an ongoing battle between hospitals and physicians for the most remunerative part of healthcare: expensive procedures and all of the ancillary services that go with them. This struggle will be decided only if and when hospitals succeed in employing most physicians--which they're well on their way to doing in some markets.

The Affordable Care Act bans construction of new specialty hospitals -- most of them cardiovascular, orthopedic, and gastrointestinal facilities -- after the end of this year. It also prohibits expansion of or new investments in existing facilities. Twenty-eight new facilities are scheduled to open by Aug. 1, and another 74 are planned to open later. In addition, 58 of the 260 current physician-owned hospitals are undergoing expansion. Not surprisingly, there's a scramble to open or expand facilities by Dec. 31, but some new hospitals and planned additions are on hold. According to one report, construction has stopped on 27 facilities.

The reform legislation curbs specialty hospitals because they boost healthcare costs by providing an incentive for physicians to refer patients to facilities in which they have a financial interest. The Congressional Budget Office said that limiting the number of specialty hospitals would save $2 billion over 10 years, but defenders of these facilities disagree. The research to date doesn't resolve this dispute conclusively, but a study of the Indianapolis market a few years ago noted that an explosion of hospital capacity -- including construction of several heart hospitals partly owned by doctors -- had resulted in demands for large payment increases.

Specialty hospitals are also likely drain the most lucrative procedures and the most profitable patients (well-insured and not too sick) from traditional hospitals. Moreover, the physician-owned facilities don't have to maintain emergency departments or take care of indigent patients as full-line hospitals do. Specialty hospital supporters accuse traditional hospitals who make this argument of protecting their own business. Of course, the physicians who own hospitals are doing the same thing.

In any case, specialty hospitals are just one locus of the conflict between traditional hospitals and physicians. Ambulatory surgery centers, for example, have spread across the country like kudzu vines, and they certainly compete with hospital outpatient departments just as much as specialty hospitals compete with inpatient departments. Yet the reform law doesn't limit the expansion of ambulatory surgery centers.

The uninitiated may think that competition between hospitals or between hospitals and surgery centers should bring down prices. In fact, the more capacity there is to hospitalize patients or do expensive tests or procedures on them, the more admissions, tests, and surgeries there are. The reason is transparent: When providers invest in facilities and equipment, they have to market those services more heavily, and then charge more and do more to pay off their loans and generate profits.

So the battle continues, as healthcare players seek to maximize personal and institutional advantage. The health and welfare of patients has little to do with it. Money is what this is all about.

Image supplied courtesy of Wikimedia Commons.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.