Study: ACA stopped expansion of physician-owned hospitals

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The Affordable Care Act’s restrictions on physician-owned hospitals (POHs) appear to have worked, as a new study published in Health Affairs said the law “effectively eliminated” the formation of new POHs.

Texas Christian University professors Elizabeth Plummer and William Wempe limited their study to the 106 POHs in Texas, which they wrote accounts for 40 percent of all such hospitals in the U.S. Their data came from the American Hospital Association’s annual surveys in Texas from 2008 to 2012, evaluating the time period two years before and two years after the ACA took effect.

First, Plummer and Wempe tried to determine if the POHs responded to restrictions the ACA would bring before those provisions went into effect over the course of 2010. Those restrictions included preventing POHs from adding new procedure rooms and beds, increasing the share of physician ownership and prohibiting physician referrals of Medicare or Medicaid patients to hospitals in which they have an ownership stake if the hospital was formed after Dec. 31, 2010.

Those restrictions appear to have led to a surge in POH development in 2010 which disappeared almost immediately afterwards. In Texas, between 2004 and 2009, 64 new POHs were formed, representing just under 66 percent of all new for-profit hospitals in the state. In 2010, when those restrictions were about to come into effect, 20 new POHS were formed, amounting to more than 83 percent of new Texas hospitals. From 2011 through 2013, after the referral restriction was in place, only nine new POHs were formed, accounting for 41 percent of new for-profit hospitals, a lower share than the pre-ACA period.

“Our results indicate a flurry of activity among hospitals and their physician-owners before the ACA’s relevant effective dates,” Plummer and Wempe wrote. “Formation of the hospitals accelerated, enabling newly formed hospitals to take advantage of the whole hospital exception before the ACA eliminated it.”

Once those restrictions were in place, existing POHs could have attempted to get around them by not accepting Medicare or Medicare beneficiaries, but the study found no evidence this took place. The few POHs formed in Texas after 2011 have tried the approach, and the authors said their evidence suggests the facilities need Medicaid and Medicare patients to remain viable.

“All of these hospitals are owned by two investor groups, whose strategy of not accepting Medicare or Medicaid allows for physician-ownership. However, as of June 2016, all of these hospitals either have been sold or are part of bankruptcy filings, with the bankruptcies widely attributed to insurers’ refusing to contract with out-of-network providers,” Plumber and Wempe wrote.

What POHs have done to increase revenues is increase use of their assets. The study said the hospitals’ mean number of staffed beds increased 15.1 percent, total surgeries per operating room increased 16. 3 percent, revenue per square foot increased 21.0 percent, and revenue per full-time equivalent employee increased 20.1 percent.

While this may be a positive for a hospital’s bottom line, the authors wrote it may be a sign POH restrictions have led physicians to order unnecessary medical services to boost revenues.

“Viewed through a traditional business lens, evidence of profit-enhancing and more effective use of assets and employees is unambiguously favorable,” Plummer and Wembe wrote. “But viewed through a healthcare policy lens, these results may also suggest a new trend in operations of physician-owned hospitals: excessive asset and employee churn with potential negative impacts on healthcare quality.”

The debate over POHs doesn’t appear to be ending anytime soon. The healthcare plan proposed by House Republicans in June included a provision to remove the Medicare restrictions for those facilities as a part of the plan to repeal and replace the ACA in the next Congress.