Congress eyes physician ownership of hospitals

Hualapai Mountain Medical Center is scheduled to open its doors in the fall of 2009, joining Kingman Regional Medical Center in serving healthcare needs of a growing community.

However, plans for the Northwest Independent Physicians Association, a local doctors' group, to have just over a 20 percent ownership interest in HMMC could change.

The U.S. House of Representatives recently approved HR 3162, which is the Children's Health and Medicare Protection Act of 2007. It has a rider attached identified as Section 651, which is Limitation on Exception to the Prohibition on Certain Physician Referrals for Hospitals.

The rider amends some parts of Section 1877 of the Social Security Act. One is that the exception would apply to hospitals with a provider agreement in effect on July 24, 2007.

In order to prevent conflicts of interest, the hospital must submit to the Secretary of Health and Human Services an annual report containing a detailed description of the identity of each physician owner and other owners, along with nature and extent of such ownership.

Additionally, the hospital must have procedures in place to require any referring physician owner to disclose to a patient being referred, by a time that permits the patient to make a meaningful decision regarding receipt of care, as determined by the Secretary.

Investment and patient safety are other matters addressed by the rider.

"Senate and House conferees have agreed to strip non-Medicare provisions in order to expedite passage, so the provision on limited-service hospitals will be dealt with later," said John Rivers, president and chief executive officer of the Arizona Hospital and Healthcare Association.

In the future, hospitals must operate on a model that does not include physician investment, he said.

"Self-referral has come under intense federal scrutiny the last 3-4 years and without question investment and self-referral is going to come to an end," Rivers said. "People may disagree as to when and what legislative vehicle will make that happen, but self-referral is going to be outlawed in the not-too-distant future."

North Carolina-based MedCath Corp. announced plans in August to build HMMC. MedCath owns and operates 11 hospitals with varying degrees of physician-ownership in Arizona and six other states, president and CEO Ed French said.

"We're concerned about the legislation," French said.

"We like physician partnerships, which includes both economics and shared governance.

"While we believe economic partnership is justified and appropriate, we can't control what the federal government does and we certainly disagree with the hospital association there. The American Medical Association agrees that investor-ownership is good."

If future legislation should ban physician-ownership of hospitals, it will end the economic aspect of such a partnership. However, HMMC still would have 50-percent representation on its board of directors by doctors, French said.

Physician-owned hospitals already operating would be "grandfathered in," meaning they would face new restrictions under State Children's Health Insurance Program guidelines. Hospitals on the drawing board, such as HMMC, should not count on grandfathering, Rivers said.

"What it all means is that MedCath can operate acute care hospitals, but not with physician investment, or if there is, those physicians would not be allowed to refer patients (for admission, tests or procedures)," Rivers said.

"Under new legislation to be enacted soon, doctors would be able to invest in hospitals or refer patients if they choose, but not both."

Rivers said physician-referral, by definition, is a conflict of interest.

The Arizona Hospital and Healthcare Association issued a position paper on the matter several years ago that is updated annually, Rivers said.

An excerpt from it reads as follows: "The policy issue facing Congress is the fact that current law governing hospital-physician business relationships - and the consequential growth of limited-service hospitals - have resulted in a distortion of the healthcare marketplace that threatens the financial viability of community hospitals and raises serious implications for patient safety. In short, current laws allowed limited-service hospitals to enter into precisely the same business arrangements with physicians that are illegal for general acute care hospitals."

"I'm glad we don't operate limited-service hospitals," French said. "We run acute care general hospitals open 24/7 that treat everyone.

"Even though 70 percent of our care is heart-related, several of our hospitals provide more than half their care outside the heart area. We're changing the model so we don't build hospitals that are only heart care, and Hualapai is our new model."

MedCath has lobbyists in Congress articulating the corporation's support for physician ownership, he said.

Patients take great comfort in knowing doctors want to invest in a hospital. It demonstrates they care about all aspects of its operation and is an extension of their professional practice, French said.

French also said the House bill is stripped of its physician-ownership language, although it could come back later.

"We would expect there would be some degree of grandfathering in the new legislation, and I have no idea what may be in place when HMMC is ready to open," French said.

"For us at present it's business as usual. We're proceeding with architectural engineering, physician recruitment, and the permits and zoning process. I sense strong support in the community and we'll go right down the path."