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Obamacare bans new physician-owned hospitals

09/04/2012 - 4:07pm
Kathleen Sebelius, Secretary of Health and Human Services

HHS Secretary Kathleen Sebelius(HHS/Chris Smith)

In 2010, Obamacare limited the expansion of physician-owned hospitals (POHs) and banned the establishment of new ones. By the end of 2010, Obamacare forced up to 84 new POHs in various stages of development to be abandoned.[1] These hospitals would have provided nearly 30,000 jobs.[2]

Prior to Obamacare, POHs had been increasing rapidly. Just between 2002 and 2004 the number of POHs nearly doubled, going from 46 in 2002 to 89 in 2004.[3] Then, by the spring of 2010 the number of POHs reached 265, nearly tripling in number from 2004.[4]

Physicians are restricted from referring Medicare patients to practices in which they have a financial interest. But there is an exception where the doctor owns part of a whole hospital.

Section 6001 of Obamacare changes this by banning new POHs from accepting Medicare payments. In addition, expansions of existing POHs must first seek approval from the Department of Health and Human Services (HHS) if they expect to accept Medicare. Even then, Obamacare restricts expansion to 200% of the capacity the hospital had in 2010.

Critics of POHs, such as the American Hospital Association and the Federation of American Hospitals, see POHs as a threat. They argue that POHs, while taking only the more profitable medical procedures, don’t give as much uncompensated care as do non-profit hospitals.

It is true that POHs don’t give as much uncompensated care. But unlike non-profit hospitals, POHs pay millions in taxes every year. Physician Hospitals of America reports that on average each POH pays $3 million per year in local, state, and federal taxes.[5]

A study conducted by the Centers for Medicare and Medicaid Services (CMS) concluded that POH uncompensated care, plus the taxes they contribute to the community, surpasses the uncompensated care of non-profit hospitals.[6] The CMS study further noted that:

Even expanding the definition of uncompensated care to exclude Medicare DSH payments and to include Medicaid revenue shortfalls, the physician-owned specialty hospitals in the sample, still exhibited higher levels of net community benefits….[7]

Banning new POHs is not about good policy but about hospitals using the federal government to eliminate their competition.

This is particularly disturbing because competition lowers prices while improving quality.

A recent Wall Street Journal article reported that, as doctors sell their practices to hospitals, their new hospital-set prices are skyrocketing compared to what they were formerly charging in private practice for the same services.[8]

And POHs are known for their high-quality service. While there are only 275 POHs spread across 33 states, in 20 of those states Consumer Reports ranked a POH first in quality of care.[9] The high-quality of POHs is confirmed by the afore-mentioned CMS study which concluded that POHs “provide a high level of quality care.”[10 ]

The restoration of better quality and lower costs through hospital competition is just another reason the “Affordable Care Act” should be repealed.



[1] Physician Hospitals of America v. Sebelius, No. 6:10-cv-00277-MHS, Complaint for Declaratory and Injunctive Relief, (E.D.Tex. June 3, 2010) at 6-7.
[2] Physician Hospitals of America, “Physician Hospital Impact of Implementation of Section 6001,” (Feb. 17, 2011) at 3-4.
[3] Medicare Payment Advisory Commission, “Report to the Congress: Physician-Owned Specialty Hospitals Revisited,” (August 2006) 3-4 available at http://www.medpac.gov/documents/Aug06_specialtyhospital_mandated_report.pdf.
[4] Supra note 1 at 6.
[5] Id. at 7.
[6] RTC: CMS Study of Physician-owned Specialty Hospitals Required in Section 507 (c) (2) of the MMA (2005) at 64 available at https://www.cms.gov/reports/downloads/RTCPhysSpecHosp.pdf
[7] Id. at 64.
[8] Anna Wilde Mathews, THE WALL STREET JOURNAL, “Same Doctor Visit, Double the Cost,” (August 27, 2012) http://online.wsj.com/article/SB10000872396390443713704577601113671007448.html.
[9] Press Release, Physician Hospitals of America, “Physician-Owned Hospitals Will Continue to Push for Increased Patient Access to High-Quality Care,” (Feb. 17, 2012) available at http://www.physicianhospitals.org/resource/resmgr/Press_Releases/Exlusion_from_Bill_Press_Rel.pdf
[10] Supra note 6 at 63.


Update (9/5/2012): We state above that "Obamacare forced up to 84 new POHs in various stages of development to be abandoned." While this is not incorrect, pages 3 and 4 of Physician Hospitals of America's report “Physician Hospital Impact of Implementation of Section 6001” (Feb. 17, 2011) show this number to be 79. We do not take into account any hospitals that may have later been built after being divested of physician ownership.