Doctor-owned hospitals a lucrative practice: Taxis and Health Insurance Quotes Medicare

Doctor-owned hospitals a lucrative practice

The American Hospital Association wants to ban doctors from referring patients to hospitals they own, because “the effect on health delivery and costs in communities can be devastating.”

Doctor-owned hospitals a lucrative practice, though opinions split on benefits

The American Hospital Association wants to ban doctors from referring patients to hospitals they own, because “the effect on health delivery and costs in communities can be devastating.”

Yet Baylor Health care System says doctor-owned hospitals, like its Baylor Medical Center at Frisco, can serve patients better because they focus on doing a few things extremely efficiently and well.

If ever there was a place to test that argument, it’s Dallas-Fort Worth. No metro area has more doctor-owned hospitals, in large part because of Baylor.

About one-fifth of Baylor’s nearly $3.5 billion in annual operating revenue is tied to hospitals that it owns with physicians. About one in every nine of its nearly 4,500 affiliated doctors has an ownership stake in a system hospital.

When physicians own hospitals, critics say, the risk of medical judgment being influenced by the allure of making more money is too great. It gives doctors extra incentives to cherry-pick the best-insured and least-sick patients, and prescribe unnecessary procedures.

“I’m a free-market guy, but it’s not a good form of competition,” said Trevor Fetter, chief executive of Dallas-based Tenet Healthcare. His company owns Centennial Medical Center, 41/2 miles from Baylor Frisco.

One recent study of a Tulsa specialty hospital said that, for a patient, “the relative odds of receiving complex spinal surgery was 65 times higher” after doctors acquired ownership, according to a Georgetown University researcher.

Provisions in health care overhaul bills - including Montana Sen. Max Baucus’ recent plan - would impede the creation of new doctor-owned hospitals and limit the growth of those that already exist. Current legislation that bans doctor self-referral of Medicare patients excludes hospitals in which a doctor’s investment is in the whole hospital and not just a department of the hospital.

The AHA, which represents nearly 5,000 hospitals and health systems, supports a ban on physician self-referral, with limited exceptions for existing facilities.

Investment value

One benefit of doctor ownership, Baylor says, is that it can help the system attract and retain good doctors.

Profit potential from ownership is significant. Early physician-investors in Baylor Frisco saw the value of their investments increase by a factor of about 10 just three years after the hospital opened, according to an analysis by The Dallas Morning News.

Of 226 doctor-owned hospitals in the country, 22 are in the Dallas-Fort Worth area, according to Physician Hospitals of America, a trade group. Another 23 are in development here, the association says.

With 67, Texas has more than any other state, largely because of its entrepreneurial spirit and lack of certificate-of-need laws, which many states use to establish the need for facilities in order to avoid overbuilding, experts say.

Nine of the 24 hospitals owned by, leased by or affiliated with the not-for-profit Baylor system have some doctor ownership. Another physician-owned hospital is scheduled to open next year in Arlington. Seven of Baylor’s hospitals are held jointly with Dallas-based United Surgical Partners International, a for-profit company. Baylor has controlling interest in the hospitals.

Baylor system chief executive Joel Allison said he is aware of criticism surrounding doctor ownership. “Our models are different,” he said.

He gets support on that point from Darren Rodgers, president of BlueCross Blue- Shield of Texas, the state’s largest health insurer, which does its own assessment of new hospitals. “Physician-owned hospitals are not all created equally,” Rodgers said. Those that concern him tend to be in second-tier cities and compete against local community hospitals with duplicate services.

In the Dallas area, Rodgers said, doctor-owned hospitals generally don’t duplicate services and don’t add to cost.

Texas Health Resources, the region’s other dominant not-for-profit care provider, operates five hospitals with doctor-owners. A sixth is scheduled to open next year. In 2008, about 8.6 percent of THR’s $2.5 billion in net patient revenue was tied to physician-owned hospitals. About 400 of the 3,600 doctors affiliated with THR have an ownership stake in a system hospital.

With the exception of a carrollton acute care hospital acquired this year, Baylor’s physician-owned hospitals are focused on short-stay surgical procedures and specialties like heart care and orthopedics. Many are smaller than Baylor’s not-for-profit hospitals, but have higher profit margins and faster-growing revenues.

While Baylor Frisco has reported strong profits since 2003, its first full year open, Baylor’s not-for-profit All Saints Medical Center in Fort Worth lost money on patient services in fiscal 2008 and 2009.

With 68 beds, Baylor Frisco is one of the larger doctor-owned hospitals in the system. It has an obstetrics department, launched in 2007, rare among doctor-owned facilities, and a small emergency room.

As a business model, doctor-owned hospitals have been under scrutiny for much of this decade, including a temporary congressional moratorium on new development.

Rate of surgeries

Finding reliable research on doctor-owned hospitals is hard. Much of what exists is outdated or limited in scope, focusing on a particular hospital, or specialty, or a small group of hospitals.

In a 2006 report to Congress, the Medicare Payment Advisory Commission looked at nearly 90 doctor-owned hospitals based on 2004 information. About half had opened in the previous two years.

The commission found that, from 1996 to 2004, the rate of inpatient cardiac surgeries grew 19 percent among Medicare beneficiaries in markets without cardiac specialty hospitals. In markets with cardiac specialty hospitals, that growth rate was estimated to be 25 percent.

Cardiac hospitals had similar inpatient costs to their competitors, while orthopedic hospitals had 20 percent to 30 percent higher costs. The report noted, however, that because some hospitals had been open only a short time, they could become more efficient. Patients at both types of doctor-owned facilities had shorter stays.

Often cited by other researchers, the report didn’t analyze outpatient surgeries because it didn’t have a reliable method to adjust for the severity of illnesses. That ignores the majority of the procedures performed by specialty facilities. Before Baylor Frisco added obstetrics, its annual outpatient revenue sometimes tripled its inpatient revenue.

“It is possible that orthopedic/surgical hospitals are less costly providers of outpatient surgeries,” the commission report says in an endnote.

“If you really want evidence, it’s almost hopeless,” says Daniel Callahan, an author and co-founder of The Hastings Center, a research institution focused on medicine and science. Callahan is wary of the commercialization of medicine. But, he says, doctor-owned specialty hospitals may succeed because repetition and experience lead to better patient outcomes. His judgment contradicts the position paper of the American Hospital Association, which says doctor-owned facilities are not more efficient and do not provide better quality.

“It’s possible to have some competition that’s good,” he said.

Good competition

Gary Brock, chief operating officer for the Baylor system, says Baylor Frisco is an example of good competition. He said the hospital has been able to turn a low-margin business, obstetrics, into a higher-margin business because of competition and the profit motive. “If these people can be more efficient, they will be more profitable,” Brock said.

Baylor Frisco offers amenities found elsewhere in the Baylor system: valet parking, an executive chef, private rooms for overnight stays by visitors and flat-screen TVs.

It also has added touches. In-room cameras allow nurses to remotely monitor patients and give grandparents in Minnesota the chance to view their new grandkids in Texas.

Rebecca Gum recently had a daughter at Baylor Frisco. She said the whole delivery experience was more “calm and relaxing” than at Baylor’s main hospital downtown, where she had her first three children. She attributed that, in part, to the in-room camera. Nurses were able to see when she was sleeping and didn’t disturb her.

Dr. Jimmy Laferney, a doctor-investor in Baylor Frisco, said it is “the most patient-centered facility” he has worked at in 26 years of private practice.

The cameras and other procedure improvements, such as shorter turnaround times for operating rooms, help the hospital operate more efficiently, Baylor says.

Efficiency

Across the Baylor system, salaries, wages and benefits equal about 47 percent of total expenses, says LaVone Arthur, a Baylor vice president who coordinates joint ventures and new business development. At Baylor Frisco, the rate is 32 percent, lowest in the system.

Based on the hospital’s $82 million in operating expenses for 2008, that 15-point difference saved roughly $12 million.

A more efficient doctor-owned hospital focusing on a narrower range of services, however, doesn’t necessarily give patients any price breaks. Because of systemwide negotiated contracts, Baylor receives the same reimbursement from a particular insurance company for a particular service, no matter where it occurs.

“Frankly, we got to have very profitable pieces of business somewhere so we can fund unprofitable lines elsewhere,” Arthur said.

Asked why, if doctor-owned hospitals are more profitable, Baylor decided to split those profits with United Surgical Partners International, Brock pointed to shared capital costs and management expertise.

Of the $91 million in capital required so far for Baylor Frisco, Brock said, the Baylor system needed to supply only about a quarter of the amount. USPI, which declined to comment for this story, and the doctors supplied the rest. That helps Baylor keep pace with the medical facility needs of the region, he says.

“We go where those communities want us,” Allison said.

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Doctor-owned hospitals a lucrative practice

Category Health Insurance Quotes Medicare

Health Insurance Quotes Medicare

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