I received a good question from a good friend of the blog, and I will try my best to answer it:
I would like to see some details about physician owned hospitals, why they are treated differently, if they are good or bad for healthcare in general, etc. The one we had Mobile Messball #1 and TummyTimeKing #2 at is nice for the few things it specializes in but sucks ass if you need emergency care, etc. Plus they spent the whole time bitching about obamacare and how it was screwing them.
Doctor owned hospitals are a distinct subset of privately owned hospitals. They are odd in a number of ways. Roughly 5% of the entire hospital universe in the US is doctor owned hospitals. These hospitals tend to be very small (less than 20 beds) and very specialized. The common specializations are Ob/Gyn, cardiology, plastic surgery and orthopedic surgery. As you’ll note, these are all high reimbursement specialties.
On average, a doctor owned hospital has a profit margin closer to that of a drug manufacturer (20% to 35%) compared to generally privately owned hospitals with profit margins of 5% to 7% and public hospitals with contribution margins of 2% to 5%. Some of that profit margin is due to cutting out the adminstrators and Vice Presidents of Institutional Awesomeness proliferation. Most of that increased profit margin is due to taking only patients who have good insurance who reimburse at high rates. This basically means people with plans that will be paying Cadillac taxes on it or millionaires paying out of pocket.
The upside of this system is that doctor owned hospitals tend to score very well on quality metrics (although we need to be aware of the law of very small numbers here) but they are expensive as all get out. A very plausible upside is that these hospitals tend to be extremely specialized so their staff gets really good at doing two or three things including sending patients elsewhere for anything outside of their expertise. There is good evidence that doing something more often leads to much better outcomes.
PPACA is not friendly to doctor owned hospitals.
PPACA has a clause that does not allow Medicare, Medicaid or CHIP to issue contracts to new doctor owned facilities or to continue contracts with current doctor owned facilities that expand their bed count or services offered. This basically freezes most of the doctor owned hospitals in place unless they are catering solely to the millionaire set.
The bright eyed, bushy tailed good policy reasoning behind this policy is that the doctor owned hospitals cherry pick healthy, well insured patients from the general population pool and then dump the expensive problems on public resources, so public resources should not go to this segment. Furthermore, these hospitals as a set have very high provider reimbursement rates, so it would be a cost savings measure.
The cynical bastard reasoning is that this is one of the bits that got the American Hospital Association on board with PPACA.
From the point of view of a doctor who owns his own hospital, PPACA has been an unmitigated clusterfuck.
They are facing the same pressures to adapt electronic health records, take part in Accountable Care Organizations (ACOs), manage some population health, and go through more gatekeepers and levels of review for high end care as as any other hospital. Since they are smaller, absorbing a new EMR system has a much higher per bed amortization cost with far less technical support, and their population is seldom large enough to engage in statistical management. They are seeing their high end insured payers cut back on benefits and reimbursements as more employer groups are looking for ways to either avoid or minimize their Cadillac tax exposure. They are severely limited in how they can change their business if they rely on any federal money to keep their revenue model solid with a high heads in bed count.
I don’t have a strong opinion on whether or not these hospitals are a good thing or not. If there is sufficient anti-skimming/anti-dumping measures in place, I could see a strong argument to allow MA/Medicare/CHIP payments to resume to new and expanded facilities as long as those payments were at regional averages instead of facility specific levels. I don’t think it is a great problem, but it could be something worth trading for something else in actual health policy-making.
mikefromArlington
Well duh, everyone knows that! ;)
All jokes aside. I learn at least a dozen new things every time I read one of your post…for that…
Thanks
Belafon
How do doctor owned hospitals fare in countries with a strong health care system?
Richard Mayhew
@Belafon: I don’t know. This was something that came together from “I’m vaguely aware that there is a facilty like this 15 miles from my house” on Tuesday morning to doing some reading, coffee buying, and research on Wednesday and writing the post this morning. I don’t know enough to do cross-country/cross system comparisons and analysis.
rikyrah
I learn something new everyday with your posts. Thanks.
Shakezula
But the scrutiny of doctor-owned hospitals predates ACA by years, perhaps decades. The Medicare freeze on new DOHs has been an on-again, off-again thing for at least ten years.
In addition to plain old fraud caused by over-utilization and dodgy referral deals, cherry-picking is a legitimate concern for any facility. For example, “regular” hospitals, can’t offer doctors bonuses when they discharge patients within a certain time frame. And those quality of care issues come after several incidents involving harm to patients who crashed during an overnight stay.
Yes, it sucks for doctors that their payments keep getting cut. A lot of the cuts are due to decades of people who were either crooks or the kind of assholes who felt they were entitled to a certain amount of money. But listening to orthopods stomp their feet because they hafta be millionaires – ugg. Shut up.
big ole hound
Doctor owned hospitals/clinics have no interest in patient care and are mislabled. As Mr Mayhew stated they are mostly for a single specialty and if something goes sideways they ship you to a regular hospital so they are no more than a dentist’s or eyesight office with a bunch of techs with six months training stockpiling patients in rooms waiting or recovering from a hurried cosmetic surgery. Stay away, very far away as they only want your money.
Tripod
Is this different from MD owned medical groups or ambulatory surgery centers?
Michael Bloom
Off topic, but I just saw a story from CNBC on why small business isn’t creating more jobs, and the first reason listed (and backed up by a quote from a small businessman) was rising health care costs due to PPACA. Your reportage shows that health care costs have basically stopped rising (at least compared to inflation) since implementation. Is this story hogwash/propaganda, or does the small business community believe their costs are rising because they’re susceptible to this sort of propaganda, or are they genuinely seeing different numbers than you are?
GHayduke (formerly lojasmo)
Looks like physician owned hospitals are doing pretty well under Obamacare
Citizen_X
Shorter/translated to Wingnutese: BEST HEALTHCARE SYSTEM IN THE WORLD AND OBAMA WRECKED IT!
rmirth
is this the kind of facility where Joan Rivers had the cardiac arrest and had to be rushed to a real hospital (Mt. Sinai)?
Shakezula
@Tripod: Yes.
JCJ
As @Shakezula pointed out in #5 this is a long time concern. There is frequently noise made about self-referral in radiation oncology. A few years ago some urology groups started setting up radiation treatment facilities and then would refer patients with prostate cancer for treatment. As Mr Mayhew has pointed out in the past there are charges for both the doctors and the facility. Sometimes they are separate, sometimes they are combined (bundled.) Radiation departments are big money makers for whoever owns the equipment. This was a way for a urologist to refer someone with good insurance to the facility where he/she had a financial interest and refer other patients with no insurance/bad insurance/medicaid to a different facility. I would imagine the same thing could happen with these hospitals.
Richard Mayhew
@Michael Bloom: CNBC is in their own world — some small businesses that offer health insurance will see significant rate increases as there is a change in underwriting standards. Small business that mainly employ healthy 20 and 30 something males will see rate shock as they are taking on new pregnancy and ill health risk under community rating instead of experience rating.
But I’m in line with Krugman that CNBC et al are engaged in affinity fraud.
patrick II
“The New Yorker” had a long story about doctor owned hospitals in McAlister, TX, and the cost of profit driven care when doctors both own the facility and prescribe the treatment.
In my own life I have twice been given totally unnecessary MRI’s by doctors who owned a small corporation with an MRI machine stuck it in an office in a strip mall and sent me there for a $2000 scan.
kindness
Kaiser is owned by it’s physicians.
piratedan
follow the money, always follow the money… it’s just as true in healthcare as elsewhere and this is still the essential problem with healthcare in the US, that someone gets to make a profit on your health and well being, regardless if the services that they are performing or providing are in your best interest. This ties into that question of “why did you become a physician.. was it because you can help people or is it because it can be lucrative to do so”. I got no problem with docs being handsomely compensated for all of those years of school and training to get that certification but they’re not all suffering from Mother Theresa syndrome either.
Richard Mayhew
@kindness: But the structure is significantly different as Kaiser is not a closely held nor specialty only system. It is more an ESOP model with general purpose hospitals.
The Ancient Randonneur
I would think that MD owned labs would be more of a problem. It encourages the docs who own the labs to ask for more lab tests that may or may not be required for a diagnosis. Atwul Gawande (sp?) did a series of articles about these very issues about a year ago.
Richard I would also be curious to know what your take is on companies like Theranos that are revolutionizing the lab test regime. Theranos is now opening lab testing in hundreds of Walgreens store around the country. If you aren’t familiar with the company I do suggest you click the link and read up about them on their website.
Shakezula
Which is a good wheeze, until you get busted, but until very recently no one bothered with doctors unless they hurt somenoe.
Exactly. Dr. X can make a couple hundred dollars off of conservative treatments or a few thousand off of surgery. What’s going to happen?
Sure, it won’t be every doctor, but based on past and current experience regulators know that it will be enough doctors that it is easier to put a limit on things ahead of time.
I should have said earlier that the freeze on facilities was also in response to a sudden boom in DOHs.
Everyone wanted one because of the money, or the fear of being run over by a competitor. And really, I don’t mean to rag on doctors as a group (much) but as a group they can be very dumb and greedy. And they’re very vulnerable to sales pitches and often sign off on deals without receiving proper counsel.
So then they have something – a piece of equipment or even an entire facility – and they’ve been promised they’ll make truckloads of money off of it and they’d better if they want to keep the thing so they start using the hell out of it and it does make money and so the sales rep goes to the next schmuck and the next and they’re all using the shit out of whatever and making lots of money and you bet they get carried away.
Meanwhile the insurers are looking at the use of whatever the hot new thing is and looking at each other thinking “Fuck, here we go again.” And eventually the insurers (often it is Medicare) – Fuck you, we’re only going to pay for this if a red-haired left-handed doctor named Maurice performs this service during a full moon in July.” And all of teh other insurers say “Yeah, what he said.”
So that party ends and three minutes later another vendor comes along with another thing that is sure to make a truckload of money and the doctors, stinging from the loss of hundreds of thousands of doctors says “Yes please!” and it all starts over again.
TLDR: When legislators say no to powerful, rich business owners who are predominantly white males, you know something is rotten.
Mnemosyne
@kindness:
Kaiser is run as a non-profit, though. It’s more of a collective or a co-op, plus they focus on primary care and health maintenance. That’s why people who have an unusual or complicated condition can end up getting screwed at Kaiser — they’re great at things like diabetes management, not so great if you have something that’s not common.
Shakezula
@The Ancient Randonneur: Labs (in office and independent) have been a huge source of overuse. Medicare has already started clamping down and next year will not be fun for doctors who bought lab equipment in order to earn more money.
Mnemosyne
@The Ancient Randonneur:
Personally, I’m really curious to see if Richard can write about the rise of primary care clinics at pharmacy chains — both Walgreens and CVS now have them. One of the reasons that CVS decided to stop selling tobacco in their stores is that they’re making more money from their Minute Clinics than from tobacco sales, so they decided to start positioning themselves as a healthcare provider, not just a retailer. From what I’ve heard, those kinds of clinics are a fine place to go if you need a vaccination or a sports physical for your kid but don’t want to take time off from your workday to go to your regular doctor.
Mnemosyne
D’oh! Why does FYWP ban the word that describes places that sell medications when we’re trying to discuss healthcare!?! Please to release from moderation for my crime.
patrick II
I once went to a world famous physician and he clearly had serious profit centers associated with his practice, such as an MRI testing lab.. I have very good insurance and he soaked it for a lot of money. The other side of that was that if you had no insurance he would work something out with you and also did work in poor areas around the world.. He was a one man soak the rich and give to the poor operation. I wonder how he is going to do in the new, tighter regulation environment.
Someguy
Why are any doctors or dentists allowed to own their practices? Seems to me that it’s just a license to rip off insurance companies or in more delicate terms cherry pick good patients.
Tony61
Too broad a generalization. The quality and convenience is superior to most other facilities.
Richard Mayhew
@Mnemosyne: I don’t have any special knowledge on this. Vox had a good explainer on CVS a week ago.
The big hope is that places like CVS, and Walgreens as well as other convienence care clinics can serve the very low end need market (strep throat, sprained ankle etc) and end up as a diversion from urgent cares and emergency rooms.
Walmart is actually way more interesting in that they are attempting to go the primary care provider route as routine care in their stores instead of sporadic/episodic care. One stop shopping with groceries and a doctor’s office that is very flexible and probably fairly cheap (mainly staffed by non-MD/non DOs) could be a BFD on chronic disease management esp. with Medicaid expansion populations.
Unsympathetic
Objectively wrong, “Tony61.”
When doctor-owned [anything] is compared to only the precisely similar departments AND PATIENTS from the general hospitals, the doctor-owned hospitals are vastly more expensive and achieve exactly equal quality.. no better, no worse.
If a doctor-owned imaging center is compared to a nearby hospital… of course the location that has an ICU is going to have patients that are sicker… because that nearby hospital is where the doctor-owned imaging center ships anyone who has a complication of any sort.
It’s all about the money, as always.
The Fat Kate Middleton
Just yesterday, our financial guy was suggesting we drop a chunk of our retirement savings in a REIT made up of DOHs – claimed they were a hot investment tool nowadays – which may or may not tell you something. I’m ambivalent about this investing stuff – I know we have to do it at our age – but it all seems like such a giant scam.
grrljock
@Shakezula: I tend to agree with your take on how doctors react. I’m about a third of the way through Jerome Groopman’s “How Doctors Think”* and was struck by how much he and the doctors in the book decry the market force push to fit in more patients (and payments/reimbursements) in less time. Now, of course I agree with that sentiment that rushing to see patients quality patient care, but shouldn’t the logical extension of this thinking be support for a single payer system? Instead, most of the vibe I get from physicians (apart from those in academic medical centers) is suspicion of any attempts at health insurance reform. Is it because any change would disrupt the method they’ve figured out to maximize their income? Or maybe I haven’t chatted with enough real-life doctors and have a biased perception.
*I got the book as an adjunct info source to my health informatics courses. Before starting it, I had enjoyed reading Groopman’s articles in the New Yorker. Now I have a perception of him as slightly behind the time. It doesn’t help that the book is dated (though published in 2007, it feels really outdated in its mention of HMOs etc.), but Groopman’s tone is also very much doctor-is-male by default. He does mention female physicians in the book,as well as brings up racism, but something about his prose smacks me as as having that vague older-white-male oblivion. But maybe it’s just me and my state of mind now, not connected to how Groopman really is.
gorillagogo
@mikefromArlington: seconded. I too learn a lot from reading your posts Richard. Thank you for sharing your expertise with us, and making a somewhat dense topic easily understandable to the rest of us.
jl
Thanks for informative post on an interesting niche of US healthcare.
I am more down on Doc owned specialty hospitals than Mr. Mayhew.
OK, now, I think probably doctor owned labs and examination clinics, non-arms length relationships between docs and ambulatory care clinics a bigger problem that creates significant increase in US healthcare expenditures compared to other advance high income industrial national (and some others too with care just as good as US). Doc owned speciality hospitals kind of like thick frosting on top of that cake of money. Been a substantial, but not sure can say ‘a lot’ of progress at chipping away at doc/BigPharma corruption, but definitely more done there with doc owned, or very ‘special’ relationships with hospitals, labs and clinics.
If RM can decipher a reader request out of that, I’d like some info on that dark corner of US healthcare world.
JR in WV
I’ve been seeing the same primary care Dr for better than 35 years. He is a solo practitioner, a local guy who went to the local Med school (WVU-CAMC) and set up Family Practice immediately.
He has a lab, and when you have your annual, the first thing they do is get blood and urine. By the time the Dr sees you that afternoon, he has preliminary data about your urine/blood results, knows your sugar levels, Vitamin D levels, whether you have a UTInfection, etc.
I think this is a great help to his practice. I feel sure he makes a buck or two on the tests, why shouldn’t he?
Richard, I want to join the rest of the Balloon Juice fans who always learn something from you posts. I knew almost nothing about health insurance, maybe a little more than the average person just because of my software development career. You are personally responsible for educating people about health insurance, and these educational articles will be on the innertubes for a long time to come, so the good you do will last.
Thanks!
jl
@JR in WV: Were you partly referring to my comment? A solo country doc doing a few blood and urine and other very standard and relatively cheap tests is not the kind of thing I am talking about. More like large group practices ordering multiple often expensive tests all at once, sometimes even before seeing patient. Or ordering tests to get some reimbursement instead of taking trouble to get whole medical file.
John Weiss
@The Fat Kate Middleton: You’re getting/paying for investment advice?! Golly, ma’am, look up the ‘dogs of the DOW’, take your 5% return and relax.
Ilia
For all of the commenters here bashing these hospitals, who would you rather have make decisions about what orders doctors can order, how many nurses per patient, etc.: the medical professionals who bust their asses taking care of you, or some MBA who’s last gig was running a fast food enterprise? Those are your options. I’m not so biased to think the DOHs are God’s gift to humanity, but if you’ve ever seen a moron with absolutely no qualifications in healthcare try to explain to a doctor why a certain test is too expensive for the hospital to perform, or why nurses should suck it up and take more patients so the hospital can cut staffing levels, you’ll know why so many people gravitate towards them.
Source: physician