Investing in Hospitals May Hurt Doctors

Physician's Money DigestMarch15 2003
Volume 10
Issue 5

New York Times

Stick to what you know. That's exactlywhat some doctors are doing, as evidencedby their rush to invest in specialtyhospitals. While this may be lucrative forsome physicians, according to a recentreport, it is also strewnwith potholes. Physicians are meeting withopposition from community hospitals benton protecting their patient base.


Driven by falling Medicare reimbursements,physicians are partnering with anumber of small companies to build hospitalsspecializing in orthopedics, cardiology,and oncology. At the same time, they aredrawing ire from community hospitals forsending their patients to these new facilities.Doctors generate substantial revenuefor the health care facilities with whichthey are affiliated—averaging $1.5 millionper physician, per year, according to a surveyby Merritt, Hawkins & Associates, aphysician research and consulting firm.

A war in the medical field is unfolding,as established institutions struggle to keeppatients from being diverted. They fearthat doctors are sending profitable patientsto the new hospitals, and sendingcostlier cases to the community hospitals.

Many hospitals have long ignored doctors'transitions into competing businesses,such as outpatient surgery. But as the numberof specialty hospitals continues to rise,more nonprofit hospitals are taking actionagainst what they view as disloyalty on thepart of colleagues. Hospitals are afraid thatthey will lose patients whose fees subsidizemoney-losing services like emergencydepartments and care for the poor. Manyare responding by depriving doctors ofprivileges, or by establishing physiciangroups to compete against them.

Some hospitals are taking it a step further.Hospitals in Columbus, Ohio, arelaunching a campaign to convince thecommunity, including state legislators,that a new for-profit orthopedic hospitalthreatens their ability to provide necessaryservices for the poor. The doctors whohave a stake in New Albany Surgical arguethat they are only trying to offer theirpatients the best care. Ohio Health, whichoperates 3 hospitals in Columbus, estimatesthat the nonprofit hospital groupcould lose as much as $25 million a year inrevenue to the new hospital.

The American Hospital Association hascreated a task force to investigate whataffect these new facilities are having oncommunity hospitals and the people theyserve. Carmela Coyle, a senior vice presidentat the association, says the trend"may exacerbate the development of a2-tiered health care system."


The article notes that althoughfederal law prohibits doctors from referringMedicare patients to facilities inwhich they invest, there are exceptions.US Representatives Gerald D. Kleczka (DWis)and Pete Stark (D-Calif) sponsoredlegislation last year to amend the originallaw to include specialty hospitals. Kleczkacontends that doctors "are taking theeasiest and most profitable cases out ofthe community hospital." He believesthat the proliferation of specialty hospitalsmay be contributing to theMilwaukee area's rising health care costs.


Partnerships between for-profit companiesand doctors are especially on the risein states such as Ohio, Indiana, and NewMexico, where there is little official reviewof new hospitals. New York, Connecticut,and New Jersey have certificate-of-needlaws that have kept for-profit venturesfrom becoming a significant problem.

Hospitals abuse their power when theyrevoke medical privileges, doctors argue.They say that if patients are forced tochoose between their doctor and the hospitalbest suited to treat them, their carecould suffer. Furthermore, hospitals maybe violating anti-kickback laws if they tiehospital privileges to a doctor's pattern ofreferrals, Chicago lawyer Mark Rust says.

Many doctors claim they are not sendingonly the most profitable patients totheir facility. Existing regulations, they say,will prevent abuses by physicians. Closescrutiny by insurers and the governmentwill also keep doctors on the up and up.

Available statistics indicate that hospitalsmay have good reason for concern.Patient counts at Sioux Valley Hospitalsand Health System in Sioux Falls, SD, fellsharply when a group of cardiologistsrecently invested in a new cardiovascularhospital nearby. Sioux Valley retaliated byopening a competing cardiology practice.

Hospital executives acknowledgethat the physician plays a large role inmany patients' choice of hospitals. Sobefore making that decision to invest ina new specialty facility in your community,it might be a good idea to seewhat your current hospital's take on thematter is.

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