Photo courtesy: Forest Park Medical Center

Healthcare Reform

The Doctors Are In, and They Own the Hospital

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Photo courtesy: Forest Park Medical Center

As we’ve noted before, doctors at a physician-owned hospital have an idea about how to improve care or create more efficient surgery schedules, and they don’t have to go through layers of bureaucracy to make it happen. The trend had sprung up in Oklahoma. Now it seems to be spreading across the border.

Doctor-owned hospitals are small and nimble organizations, which often can put new procedures into action quickly. That’s something Robert Wyatt, chief medical officer at Forest Park Medical Center in Dallas, sees every day.

“We’re able to do very, very well because of the close connection between the hospital, the staff, the administration, and the patients.” 

An ear, nose, and throat specialist, Wyatt and a group of doctors decided they wanted to run a hospital their way, and they opened for business in 2009 with eight operating rooms and 24 beds. Before long, the licensed and accredited hospital nearly reached capacity, and the partners opened two other Dallas locations in Frisco and Southlake.

“We’re able to do very, very well because of the close connection between the hospital, the staff, the administration, and the patients,” says Wyatt. “We’re able to react quickly and provide high-quality care.”’

The Forest Park model has been so successful, it will open hospitals in San Antonio and Fort Worth next year and another in Austin in 2015. Another group, Victory Medical, also is growing rapidly in Texas, expanding to nine surgical specialty centers owned by doctors. In all, there are 260 physician-owned hospitals in 33 states.

This growth in physician-owned hospitals comes despite the 2010 Affordable Care Act, a minor goal of which was to tamp down a boom in their expansion. The law made new physician-owned hospitals ineligible for Medicare or Medicaid reimbursement. It grandfathered in existing doctor-owned hospitals, but they can’t add beds or operating rooms without an exception.

In states where there are looser regulations related to certificates of need— currently Texas, Oklahoma, Arizona, California, Nebraska, Kansas, Indiana, and Louisiana—physician-owned hospitals continue to expand, says Ashley Swanson, an assistant professor of health care management at the University of Pennsylvania’s Wharton School.

“Does an ownership incentive involve doctors altering their course of care?”

The Medicare / Medicaid ban came about as proponents argued that physician-owned hospitals tend to “cherry pick” the most profitable patients—specifically orthopedics, general surgery, and cardiac surgery—while leaving more expensive surgeries, conditions, and emergency room care to community hospitals, Swanson says.

Others raised the issue of conflicts of interest. “Does an ownership incentive involve doctors altering their course of care for something that is more favorable for the hospital, such as by doing more profitable procedures?” Swanson explains. “I don’t think that the evidence we have on potential conflict of interest is as clear cut as the regulations would indicate.”

Wyatt, a co-owner of Forest Park, says his hospital doesn’t cherry pick. It runs an emergency room, offers 24/7 care, and takes on all manner of cases, from neurology to oncology and pediatrics, including charity care. Wyatt and Paul Kerens, president of Physician Hospitals of America, argue that doctor-owned hospitals continue to thrive because they offer efficient, patient-centered care that wins high quality marks from patients and the government.

In December 2012, the federal Centers for Medicare & Medicaid Services issued its value-based purchasing awards that recognize the best quality acute-care hospitals in the country. Nine of the top 10 hospitals cited for quality, out of 3,428 hospitals, were physician-owned. In addition, 80 percent of physician-owned hospitals scored positively, compared to 35 percent of traditional hospitals, says Kerens, who is senior executive officer of the Kansas City Orthopaedic Institute.

Wyatt attributes that success to pride of ownership and a close-knit staff. Kerens echoes that, adding that doctor-owned hospitals spend their resources differently, such as on more nurses and less administration. “The physicians are ultimately responsible for their patients’ care, and that physician is also responsible for the governance of the hospital,” Kerens says. “That’s not the model necessarily in a traditional hospital.”

Nine of the top 10 hospitals were physician-owned. 

Citing CMS quality measures, physician-owned hospitals are lobbying hard to get the ban lifted. In the meantime, they plan to continue expanding without taking more Medicare patients. And that’s not necessarily bad for communities, says Michael Russell, an orthopedic surgeon, co-owner of the Texas Spine & Joint Hospital in Tyler, and past president of Physician Hospitals of America.

“In our city, patients have benefitted greatly. We’ve taken what we’ve learned at our hospitals and taken it to hospitals in other systems, and they’ve embraced it,” says Russell. “Competition has made them better. It’s good for the patient, it’s good for the system, it lowers prices, and it improves quality for everybody.”