BRIEF: Market Consolidation and the Ban on Physician Owned Hospitals

Background: Market consolidation in the American health care system has occurred over the last couple of decades. From 1998 to 2012, there were a total of 1,113 hospital mergers and 2,777 acquisitions. Using the influence of the Medicare program, the federal government has favored incumbent general hospitals over their smaller competitors. At the state level, anti-competitive policy including certificate-of-need (CON) laws prevent the construction or expansion of new local hospitals. Passed in 2010, Obamacare has only accelerated the growth of market consolidation in our health care system by discouraging robust competition among providers, including a ban on physician-owned hospitals (POHs).

Obamacare and POHs: Obamacare sanctions and encourages monopolistic hospital markets in an attempt to encourage providers to use higher revenues to subsidize care for low-income individuals and emergency care. Obamacare discourages competition by forcing individuals to buy comprehensive insurance with standardized health benefits, thus constricting care options available to patients. The law also sets up in Medicare new Accountable Care Organizations (ACOs) that push physicians towards more integrated hospital delivery models.

But perhaps most blatantly egregious of all, Obamacare bans the construction of new or expansion of existing physician-owned hospitals. POHs that violate this ban are prohibited from participating in Medicare. The ban effectively protects existing general hospitals by preventing new physician owned hospitals from competing for market share.

Less Competition, Choice and Quality: Physician-owned hospitals often fill a void in the medical community by providing care at a higher quality level compared to many other general hospitals. While some politicians and special interest groups claim POHs “cherry pick” healthier patients to make higher profits, surveys and studies show that POHs provide quality care, good customer service, affordable prices on routine procedures, all the while treating identical proportions of Medicaid patients and racial minorities and providing more charity care than not-for-profit hospitals.

Another objection to POHs is that they drive up health care spending since doctors who have a financial stake in the hospital have an interest in generating more procedures, spending, and revenue. But again, the evidence doesn’t support this objection. According to a study done by the Centers for Medicare and Medicaid Services (CMS), the majority of physician owners have less than a 2% interest in their hospital. Another study conducted by the British Medical Journal, found that American “POHs also performed equally to non-PHOs on a wide array of measures of quality of care, costs, and payments for care.”

By restricting POHs, the federal government has limited the options for patients to receive high-quality care and reduced the level of competition in the hospital industry. This only serves to increase monopolies, increase healthcare spending and subsequently drive up prices for consumers.

Solutions: Congress should repeal Obamacare which, in addition to achieving a number of other desirable results, would reverse the trend of market consolidation and remove the ban on POHs and enact patient-centered health care reform that removes government barriers to high-quality care. In addition, state governments should repeal CON laws that prevent providers from introducing innovative ways of pursuing better quality health care at lower prices.

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