Physician-Owned Hospitals Prepare For Bleak Futures

The biggest losers in federal health care reform – the country’s physician-owned specialty hospitals - are on pins and needles. With a ban on new facilities, expansion plans quashed and doctor ownership curtailed, 70 such hospitals in Texas are plotting their next move.

Some plan to sell out to big hospital systems. Others are scouring the legislation for legal loopholes and technicalities. At least one of the state’s physician-owned hospitals has sued the federal government, challenging the constitutionality of health care reform. 

“They’re looking at the handwriting on the wall, where there doesn’t seem to be a long-term viable plan for their business,” says David Hilgers, an Austin-based attorney who represents hospital companies that partner with physician-owned facilities. “They’re looking for other solutions.”

Physician-owned hospitals – which are financed by doctor investors, generally in partnership with hospital companies – say they provide top-notch care and comfort for their patients. They believe massive health care corporations that have the ears of elected officials are forcibly removing them from the marketplace to eliminate competition. 

Opponents, however, say it’s high time for physician-owned facilities to disappear. They allege an inherent conflict of interest in doctors referring patients to hospitals in which they have a financial interest and argue the hospitals contribute to the country’s soaring health care costs.

They’ve made this point to lawmakers in Washington, who passed health care legislation that bans new physician-owned hospitals and curbs future growth of the country’s 260-some existing facilities. A few of these hospitals appear on the brink of throwing in the towel; they’re negotiating to be absorbed by larger, non-physician-owned hospital systems. MedCath, a hospital company and part owner of a couple of physician-owned hospitals in Texas, has revealed it is considering selling its facilities off as a result of health care reform. 

Physician-owned hospitals have “a limited ability to grow under the federal law,” says John Hawkins, the Texas Hospital Association‘s senior vice president of governmental relations. “Some of them know their days of being able to be entrepreneurial are gone and think they better align themselves with a larger organization.”

Others are taking a more indirect approach. Hilgers says health care reform doesn’t prevent physician owners from rolling a bunch of hospitals into a large corporation that could be traded on the stock market - essentially converting their physician shares into a publicly held company.

“There are other ideas that people are talking about that could perhaps serve as a work-around for ownership,” Hilgers says.

And at least one of these hospitals won’t go down without a fight. The Texas Spine & Joint Hospital, a doctor-owned specialty hospital in Tyler, has sued the federal government, claiming the piece of health care reform that crushes the growth potential of physician-owned hospitals is unconstitutional.

“The last thing I want to do when I get up in the morning is be fighting a lawsuit against the federal government,” says Dr. Michael Russell, an orthopedic spine surgeon at Texas Spine & Joint. “The only reason I’m willing to do it is because I believe that my patients deserve it.”

But most physician-owned facilities are still watching and waiting, Hilgers says, to see if Republicans can take back the U.S. House and repeal at least this piece of health care reform, if not all of it.

“They’re hunkering down to see what happens,” Hilgers says. “Many of them believe there’s got to be some alternative that pops up.”