Vol. 28, No. 1 #3 (February 2005). Financial Impact of Physician Ownership in Specialized Healthcare Centers.

• Author: By Paul Bachman

Wyoming Bar Journal

2005.

Vol. 28, No. 1 #3 (February 2005).

Financial Impact of Physician Ownership in Specialized Healthcare Centers

WYOMING LAWYERFebruary 2005/Vol. XXVIII, No. 1Financial Impact of Physician Ownership in Specialized Healthcare CentersBy Paul Bachman

The recent rapid growth of specialty hospitals has given rise to issues regarding physician ownership and self-referral to such facilities, as well as concerns regarding the financial viability of general hospitals when forced to compete directly with this new genre. Most of the growth of specialty hospitals has been in large metropolitan areas. Rural settings like Wyoming may only be indirectly affected by these new hospitals in that the neighboring states of Idaho, Montana, South Dakota and Utah either already have specialty hospitals or have them under development.(fni) It remains to be seen how Wyoming will be impacted. The United States Code defines a specialty hospital as a facility that is primarily or exclusively engaged in patient care and treatment of one of the following areas: cardiology, orthopedics, surgery, or any other designated specialized category of services.(fnii) Such hospitals are nothing new; in fact, children's and other types of specialty hospitals have existed for decades.(fniii)

Reasons For Trend

Underlying the ever increasing growth of specialty hospitals is the trend among physicians to invest in this genre of hospitals.(fniv) The most commonly stated reasons for this trend are that ownership allows doctors to gain more control over their work environment and obtain more revenue in a time of ever decreasing reimbursements.(fnv)

Physicians are becoming increasingly dissatisfied with hospitals' working environments.(fnvi) "Inefficiency, operating room block time, and waiting time for diagnostic services are common complaints."(fnvii) Physicians are more comfortable in a working environment that is centered on the procedures they most commonly perform. To use orthopedists as an example: "Orthopedists go to a hospital setting and work in the same operating room where general surgery and obstetrics are done... orthopedics is nuts-and-bolts equipment intensive. It drives them crazy to have a staff that's not familiar with a tray of multisize screws and nuts and bolts."(fnviii) Ownership as well as work opportunities in specialty hospitals can give these dissatisfied physicians the ability to gain some control over their work environment.(fnix)

The second factor contributing to the rapid growth of these facilities are cuts in reimbursements from private and public payers in response to ever increasing medical costs.(fnx) Typically, health care payers provide hospitals a fixed payment for specific medical diagnosis, regardless of the actual costs of serving particular patients.(fnxi) This system was "designed to promote hospital efficiency by discouraging hospitals from providing unnecessary services as a way to boost revenues.(fnxii) The initial response of physicians to cuts in reimbursements was simply to work harder, in order to see more patients, and thereby sustain their anticipated level of income.(fnxiii) A

more recent reaction has been the increased investment in specialty hospitals. Declining reimbursements have driven physicians to at least inquire if there are other markets for their services.

Benefits Of Specialty Hospitals

Proponents of specialty hospitals argue that this genre will improve efficiency, reduce costs, and lead to better outcomes.(fnxiv) One of the best ways to assure good outcomes is to do many processes repetitiously, involving the same teams of physicians, nurses, and technicians.(fnxv) Also, specialist physicians no longer receive stagnant incomes, but increasingly will be better compensated, enticing the best up and coming physicians to specialize in order to assure themselves better compensation for their added years of training.(fnxvi)

Issues With Specialty Hospitals

Critics have generally attacked the growth of specialty hospitals in two ways. The first issue is that physician investment in specialty hospitals is in conflict with the Stark Anti-Referral laws.(fnxvii) The second issue is a financial concern that specialty hospitals "skim the most profitable of

procedures."(fnxviii)

Conflict with Stark Law

Federal law prohibits physicians from referring Medicare and Medicaid patients for specific health care services to...