HOT SPRINGS—When Ralph Beaty learned about potential changes to physician-owned hospitals resulting from national healthcare reform, he breathed a heavy sigh.

 

Beaty, CEO of HealthPark Hospital, a 20-bed physician owned medical/surgical hospital in Hot Springs, one of the leading hospitals in Arkansas ranked by patient satisfaction, recognized that healthcare reform, as it was written in mid-January, wouldn’t make that much of an impact on current operations. Yet he knew it could very well change the hospital’s long-term strategy.

 

“We won’t bring on other investors or expand beds or services,” he said. “We wouldn’t meet the four conditions to build extra space.”

 

Consumer Reports revealed last September the top two hospitals in Arkansas are physician owned, as are four of the top seven hospitals in the state.

 

“Our patient satisfaction scores are the highest of any hospital that I’ve worked in, and higher than the other two community hospitals in Hot Springs, and that’s largely due to the way we create the patient experience,” he said.

 

Harvard Business School professor Regina Herzlinger, a leading expert on the nation’s healthcare system, refers to physician-owned hospitals as “focused factories,” because the physicians who own and practice in them don’t strive to serve all needs. She said that instead, physician-owned hospitals emphasize certain services and focus on providing a superior level of patient care in an environment they often create. Based on their model, they operate more efficiently than acute-care hospitals.

 

Yet physician-owned hospitals are often hindered by problems that alter the playing field.

 

“One problem we’re dealing with is the inequity of Medicare reimbursement for physician-owned hospitals versus investor-owned/not-for-profit hospitals,” said Beaty. “For example, for a total joint replacement (hip or knee) inpatient procedure, we’re reimbursed $1,672 less than an investor-owned hospital, and $586 less than a not-for-profit hospital. Moving to an example of an outpatient procedure – laparoscopic cholycystectomy (gall bladder), an investor-owned hospital receives $1,043 more than us, and a not-for-profit receives $366 more. We’d love to see the difference, and of course the higher differential, come to us. Right now, we’re dealing with private insurers in the state on the subject of inequitable reimbursement via litigation not yet resolved (by comparison to reimbursement rates for investor-owned and not-for-profit hospitals).”

 

In a separate litigious matter, the Department of Justice (DOJ) announced recently the whistleblower settlement with for-profit Universal Health Services and its subsidiaries for violations of the False Claims Act, the Anti-Kickback Statute, and the Stark Statute between 1999 and 2006. During that time period, illegal compensation was paid to doctors referring patients to hospitals within the group at the corporation's hospitals in McAllen, Texas, also known as South Texas Health System.

 

“As the DOJ settlement demonstrates,” said Molly Sandvig, executive director of Physicians Hospitals of America. “... the problem has never been physician ownership. The real problem lies with big corporate hospital chains.”

 

Beaty said there’s a misperception about physicians that own hospitals stashing cash in their pockets on a quarterly or annual basis.

 

“To my knowledge, there’s been no distribution from hospital profits to physicians that own HealthPark Hospital, and many people believe, as I once did, that profit distribution drives the desire for physicians to create their own hospitals,” he said. “But now I see that physicians own hospitals for two primary reasons: ease of operation, to make sure they can get in and out of the hospital and back to their clinics; and to know that their medical patients are being treated with good nursing care because they have such a strong relationship with the nursing staff.”