Are Physician-Owned Hospitals Dinosaurs from the Past or Models for Our Future?

There are currently 240 physician-owned hospitals in the United States. In this issue of Practice Management Pearls, Dr. Goya Raikar provides us with his view on the value of physician-owned hospitals and the efficiency of health care delivery. Since the introduction of the Affordable Care Act 3 years ago, we have seen sweeping changes to health care, focusing on efficient quality care and not pure quantity. Perhaps our nation’s health care system still has something to learn from physician-managed entities.

Vinay Badhwar, MD | Chair, Workforce on Practice Management

Goya V. Raikar, MD | Medical Director of Cardiothoracic Surgery, Oklahoma Heart Hospital-South | Clinical Associate Professor of Surgery, University of Oklahoma Health Sciences | Oklahoma City, OK

The Affordable Care Act (ACA) passed in 2010 has had a profound effect on health care delivery. Specifically, section 6001 of the ACA has sought to limit the expansion of existing physician-owned hospitals, and there has been a moratorium on the construction of new specialty hospitals.

If we look at metrics for quality—including patient and family satisfaction, overall hospital care, prevention of complications, and readmissions—physician-owned hospitals perform at or better than their general care counterparts. Additionally, the administrative structure is leaner in physician-owned hospitals with higher employee involvement and satisfaction.

With the emphasis on evidence-based care and best practice criteria, comparing hospitals across different ownership models and geographic regions has become more feasible and necessary. In terms of profitability, physician-owned hospitals average a 25% profit margin, compared to 5-7% profit margins for general care hospitals.

The ACA has also tried to focus on value-based health care delivery by rewarding higher-performing centers—which, as it turns out, mostly happen to be physician-owned. According to recently released CMS data, nine of the top 10 and 48 of the top 100 performing value-based purchasing hospitals were physician-owned.

There may, of course, be several confounding factors to this data, including the need for general care hospitals to be the "safety net" for underinsured or uninsured patients. But physician-owned hospitals’ outperformance of general care hospitals is hard to ignore.

My earliest recollection of medicine was being in my father’s office in a small town in Nebraska (population 1,280). He had a general practice, and the one-on-one daily interaction with patients and their families truly formed my view of how medicine and health care should be delivered. My bias, therefore, is to remove as many barriers between the physician and patient for efficient health care delivery.

I have been in practice for 14 years. Since finishing training, I have practiced in group practices and managed care settings until my recent move to Oklahoma Heart Hospital. Oklahoma Heart Hospital was formed in 2002 with the addition of Oklahoma Heart Hospital-South in 2010. It consists of 63 physician partners with a majority ownership and local hospital partners with minority ownership. In terms of clinical activity, we staffed 52 clinics and performed over 1,400 cardiac cases with five surgeons in 2012.

The challenges for health care delivery continue. Physician-hospital alignment, especially in specialty care, ultimately results in more efficient coordination of services. The more barriers and layers to physician involvement in our health care systems, the more the cost of health care rises.

As we contemplate the evolution of health care delivery in the United States from one based in private practice to an employment model, our delivery of specialty care is also changing. The debate may continue on whether physician ownership in hospitals is in the best interest of our health care system, but there are important lessons to be learned from these entities.