According to a recent study by the British Medical Journal ("BMJ") titled Access, Quality, and Costs of Care at Physician Owned Hospitals in the United States: Observational Study ("Study"), physician-owned hospitals ("POHs") generally do not treat a higher volume of the most profitable patients (commonly referred to as "cherry-picking") than other hospitals1.  The Study disputes findings made by several prior reports and concludes that although POHs may generally treat healthier patients, they do not systematically cherry-pick patients based on a patient's income level or the profitability of their treatment.  The Study follows a recent House bill seeking to repeal the POH provisions of the Affordable Care Act ("ACA"), including the expansion prohibition that has impacted POHs since early 2010.  The results of the Study demonstrate that the patient populations, costs of care and quality of care are all similar between POHs and non-physician owned hospitals ("non-POHs") and, therefore, suggest that POHs should be subject to the same level of regulation as non-POHs.

The Study

Researchers performed the observational Study by comparing POHs with non-POHs on several metrics, including patient population, quality of care, cost and payments.  According to researchers, the Study was one of the largest and most comprehensive assessments of POHs ever completed and was unique due to its focus on all POHs rather than just a sampling of single service line or specialty hospitals.  The Study included 95 hospital referral regions within the United States and examined 2,186 acute care hospitals (219 POHs and 1,967 non-POHs).  According to the Study, POH patients are generally younger and less likely to be admitted through an emergency department.  However, the Study also found that both POH patients and non-POH patients have a similar likelihood of chronic conditions, predicted mortality scores and patient experience scores.  Both types of hospitals also score similarly on care processes, 30-day readmission rates, costs and payments for treatments.

In contrast to previous findings, the Study found that POH patients were just as likely to be Medicaid patients and to be from racial minority groups.  Researchers believe that the results of the Study contradict previous reports because the Study reviewed all types of POHs rather than solely focusing on POH specialty hospitals.  The Study concluded that regulatory restrictions placed on POHs by the ACA may be more applicable to specialty hospitals and, as a result, may inappropriately target all POHs.  

Prior Research

Previous reports have suggested that physicians at POHs cherry-pick the healthiest and most profitable patients.  In 2005, Congress's independent Medicare Payment Advisory Commission ("MedPAC") looked at 48 specialty POHs and found evidence that those hospitals may have taken more profitable cases2.  MedPAC found that specialty POHs generally: (i) tend to have lower proportions of Medicaid patients than community hospitals; (ii) treat patients with lower acuity conditions; and (iii) tend to have shorter lengths of stay than Medicare patients in community hospitals; however, specialty POH costs of care were not lower.  Additionally, in 2008, the Department of Health and Human Services Office of the Inspector General released a report concluding that specialty POHs typically lack emergency rooms and around-the-clock emergency staff and, therefore, tend to take care of fewer low income and chronic disease patients3

Legislative and governmental agencies have attempted to regulate POHs in an effort to curb cherry-picking in response to findings by prior studies.  The most restrictive regulations were enacted in 2010 in connection with the ACA banning the creation of new Medicare-certified POHs, restricting existing POHs from expanding and further limiting referrals by physicians to Medicare-certified facilities to which those physicians had ownership interests.

Practical Takeaways

It is possible that legislative efforts in favor of POHs may gain additional support in light of the Study by creating an opportunity for POHs to persuade Congress that physician-owned entities have the ability to produce low cost, high quality results.  In the meantime, POHs should continue to ensure compliance with all regulations set forth in the ACA and other related legislation.