A decade after the Affordable Care Act prohibited the opening of new physician-owned hospitals and essentially capped the growth of existing facilities, the doctors behind two successful Arkansas ventures still believe their model works best.
Under ACA, existing physician-owned hospitals (POHs) were allowed to maintain doctor-based ownership. Such was the case with North Little Rock’s Arkansas Surgical Hospital (ASH). And prominent cardiologist Bruce Murphy actually gave up his 30-year practice as part of a quest to attain sole ownership of Little Rock’s Arkansas Heart Hospital, which he helped launch in 1997. In the aftermath of ACA, he pulled together $110 million in financing to buy out what was then the hospital’s majority-owner parent company. Murphy wanted to keep the award-winning facility local, and he wanted to grow.
Later this year, since he’s no longer a practicing physician, he’ll open the Arkansas Heart Hospital Encore Medical Center in Bryant. The four-story facility ultimately will offer 100 beds and specialize in cardiac care, bariatric surgery and peripheral artery disease.
At the heart of that 2011 legislation — Section 6001 of the ACA — was an intent to reign in physician self-referrals (the infamous “Stark Law” had already banned self-referrals for certain services paid for by Medicare). Physician-owned hospitals can still expand but will lose their Medicare eligibility if they so much as add an investor or build a new operating room. Murphy, for one, believes the legislation was motivated more by self-interest on the part of corporate institutions. “In order to compete, they got [POHs] legislated out of existence,” he said.
One can’t argue the success of ASH, the Heart Hospital and other POHs across the country which rank among the nation’s best health care providers. Both acute-care facilities in Arkansas have been awarded five-star ratings from the federal Centers for Medicare and Medicaid Services (CMS) and consistently receive five-star patient reviews. With 112 beds, Arkansas Heart Hospital last year saw gross patient revenue of more than $726 million, according to the American Hospital Directory. ASH, with just 49 beds, saw gross patient revenue of more than $212 million.
Ten years gone from that Obamacare legislation, physician-owned hospitals remain a delicate subject for many in the Arkansas health care industry. Some doctors and officials contacted for this story preferred not to go on record or even comment. The American Hospital Association (AHA) joined the Federation of American Hospitals in 2019 to lobby against proposed legislation that would have repealed the POH ban.
This non-POH, “community hospitals” lobby last year commissioned a private consulting firm to research the 68 physician-owned hospitals and 3,116 non-POH facilities tracked in the 2014 Medicare cost report. The resulting data found that physician-owned hospitals cherry-pick patients, avoid medically complex patients, increase utilization and costs, enjoy profit margins nearly three times as high as non-POHs, provide few emergency services and are penalized for unnecessary readmissions at 10 times the normal rate.
Meanwhile, the POH lobby — led by the advocacy group Physician Hospitals of America — has argued that the quality of care simply is better at physician-owned hospitals. It counters that: a focus on quality over quantity leads to better efficiency and thus outcomes; physician-owned hospitals have increased accountability, less hierarchy and red tape; insurance companies and not patients generally determine a patients’ acute-care hospital; and unlike community nonprofit hospitals, which according to AHA make up about 58 percent of all U.S. hospitals, POHs pay taxes.
But the group has been unable to persuade legislators and even judges in its efforts to repeal the ban.
Brian Fowler, CEO of Arkansas Surgical Hospital, believes patients are the ones who ultimately reap the benefits of the physician-owned model.
“Patients want and expect high-quality care. And because of our structure, we are able to exceed those expectations, all while maintaining a low cost,” he said. “Our surgeons love what they do, and their dedication to their patients consistently results in nationally recognized achievements.”
Fowler noted that the institutional infection rate at ASH is lower than the national average — less than .05 percent to 3 percent — because its doctors perform multiple surgeries each day and can replicate successful outcomes.
Dr. Scott Bowen of Little Rock’s Bowen Hefley Orthopedics partnered to help open the hospital in 2005. The POH model affords physicians the ability to make more hands-on decisions affecting patients, from hiring staff to choosing OR equipment, he said.
“As surgeons, we wanted to improve the way our patients received health care. We recognized that patients needed access to specialized care, and that we could provide that in an environment where the focus was on patient experience and quality outcomes.”
Ambulatory surgical centers, such as the remote emergency rooms that have popped up on street corners across the country, are exempt from certain aspects of the ACA ruling. Physicians can own them and perform procedures as long as patients aren’t held for longer than 24 hours. Local doctors opened Cabot Emergency Hospital last year with the POH model in mind. Dr. Justin White is one of six emergency-medicine physicians on staff, each with experience in large health care systems. And even though the Stark Law prohibits them from billing Medicare or Medicaid, he said it was just that experience that motivated them to open CEH.
“We live in a world where people expect efficiency and excellent customer service in all aspects of life. Health care and its delivery are no different,” he said. “As health care professionals, there are many times when we fall short of these basic expectations. When this occurs, it is not necessarily the fault of one individual or one aspect of care. It is simply that large health care systems were not developed to be efficient or to necessarily provide excellent customer service.”
Most importantly, ownership affords CEH doctors the flexibility to pivot, White said. He believes an ownership structure that actively involves the caregivers on a daily basis is the best way to serve patients.
“Because we are physician-owned, gone are the multiple layers of administration and bureaucracy that must be waded through in order to enact change in a rapid manner. Changes that would normally take months of committee meetings in the larger health care systems can be taken care of immediately once a problem and solution is identified.
“If something isn’t going well, you need only to look in the mirror to see who is responsible for making things better and ensuring that the job gets done.”
The physicians at CEH are looking to replicate the success of ASH and the Heart Hospital, which was the first health care facility of its kind in Arkansas and just the second in the nation. Murphy insists it was “designed by doctors, designed for efficiency,” and though he no longer practices, the hospital remains for all intents and purposes a physician-run facility.
“Our hospital was born out of a need in the community,” he said. The Heart Hospital community is expanding, but don’t expect a new physician-owned hospital anytime soon. Murphy did show it could be done, though.
The American Medical Association’s Journal of Medical Ethics opined in 2013 that Section 6001 did not “categorically eliminate further development of the POH industry,” noting federal reports that revealed physician-owned hospitals were not a threat to patient care. “Even though most POHs’ financial stability has relied on Medicare, new or expanding POHs could alter their business models,” it said.
Still, over the past decade, neither legislation nor lawsuits challenging the ruling have been fruitful, and it’s unlikely many physicians would be willing to adapt as drastically as Murphy did.
“I don’t think it’ll change,” he said. “It’s done.”
Angela Forsyth contributed to this story.
