One of the less-discussed provisions of the Affordable Care Act is the ban on the expansion of existing physician-owned hospitals (POHs) and the formation of new ones. The ban was founded on concerns about physician self-referrals and possible conflicts of interest. Similar concerns led to the passage of the Stark Act in 1989, which prevented self-referral of Medicare patients.

One theory regarding physician behavior as it relates to demand for services is the supplier-induced demand (SID) hypothesis. The SID hypothesis suggests that physicians promote their self-interests by prescribing care beyond what is clinically necessary. When applied to POHs, the expectation is that POH physicians would disproportionately promote activities that profit the hospital. This may mean prescribing more tests or suggesting more surgery for a given diagnosis. According to claims made by the American Hospital Association, which opposes POHs, it may also mean "cherry-picking" profitable patients, such as those who are less ill or those who have private insurance.

Although previously substantiated by some studies, these concerns are not supported by recent evidence. While it is difficult to measure specific prescribing patterns for a hospital, overall costs of care can be measured.

For example, results of a 2015 study found no significant difference between POHs and non-POHs with respect to mean costs of care and mean Medicare reimbursements for acute myocardial infarction, congestive heart failure, and pneumonia admissions. In addition, data from a study that examined physician-owned and hospital-owned provider groups in California revealed that total annual medical expenditures per patient were 19.8 percent lower for physician-owned organizations.

The 2015 study also evaluated patient demographics. Patients at POHs were statistically significantly younger (77.4 vs. 78.4 years), less likely to be discharged to hospice (1.8 percent vs. 2.8 percent) and more likely to be discharged home (68.6 percent vs. 62.3 percent) than patients at non-POHs. However, no differences existed between the two groups of patients with regard to comorbidities, predicted mortality scores, insurance type, or ethnicity.

Many of these study outcomes differ from the 2006 Medicare Payment Advisory Commission (MEDPAC) findings, which reported that POHs had higher utilization of services per patient as well as higher costs of care, but little effect on the revenue on competing community hospitals. If these findings were true today, despite more recent studies to the contrary, we would expect this higher utilization and higher costs to result in worse or at least similar outcomes, per the SID hypothesis. However, by Medicare's own quality performance standards, four of the top five hospitals as rated by total performance score are physician-owned.

Thus, at least with regard to POHs, recent evidence indicates that the concerns regarding self-interests and self-induced demand may not be valid. Additionally, Medicare data on quality suggest that POHs may actually lead to innovative ways of improving quality of care without higher costs, a characteristic that makes revoking their current ban worth serious consideration.

Nicholas A. Bonazza, MD, is chair of the Health Policy Committee, Resident Assembly.

References:

1. American Hospital Association. (2017). Physician self-referral to physician-owned hospitals. Retrieved from http://www.aha.org/content/15/fs-physicianowned.pdf
2. Blumenthal DM, Orav EJ, Jena AB, Dudzinski DM, Le ST,  Jha AK: Access, quality, and costs of care at physician owned hospitals in the United States: Observational study. BMJ 2015;351:h4466. Retrieved from http://www.bmj.com/content/bmj/351/bmj.h4466.full.pdf
3. Medicare. (2017). The total performance score information. Retrieved from https://www.medicare.gov/HospitalCompare/Data/total-performance-scores.html
4. Medicare Payment Advisory Commission. (2006, August). Report to the Congress: Physician-owned specialty hospitals revisited. Retrieved from https://asipp.org/documents/PhysicianOwnedSpecialtyHospitals.pdf
5. Robinson JC, Miller K: Total expenditures per patient in hospital-owned and physician-owned physician organizations in California. JAMA, 2014;312(16):1663-1669. Retrieved from http://jamanetwork.com/journals/jama/fullarticle/1917439
6. Santerre RE, Neun SP: (2013). Health economics: Theory, insights, and industry studies (6th ed.). Mason, OH, SouthWestern, Cengage Learning.