Professional Documents
Culture Documents
Outpatient Facilities
July 2013
ederal law generally prohibits physicians from referring Medicare and Medicaid patients
to facilities in which the physicians have financial ownership. Despite these federal
restrictions and many similar state laws restricting referral of privately insured patients,
physician ownership in specialty hospitals and outpatient facilities grew rapidly in the past
decade. Prior to 2002 there were fewer than 50 physician-owned specialty hospitals, yet today
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there are perhaps as many as 235 nationwide. , Moreover, a 2008 national survey found that
one in six physicians owned or leased advanced imaging equipment, and nearly one in seven
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owned or leased three or more types of medical equipment.
When physicians refer patients to facilities in which they have ownership (self-referral), the
physicians receive payment for their professional services and share in the profits of the
facilities they own. Those in favor of physician ownership argue that such arrangements
provide financial security to facilities and physicians, and convenient access to high-quality,
one-stop services for patients. They suggest that physician-owned hospitals and outpatient
facilities introduce important competition into the health care market and allow for early
initiation of treatment. However, many from both sides of the political aisle suggest that
ownership arrangements between facilities and physicians and the resulting self-referrals
create inherent conflicts of interest since physicians directly benefit financially from services
provided by these facilities. This has been an issue of concern for many years and resulted in
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the passage of a series of laws beginning in 1989 with the Stark Law, to regulate selfreferral.
More recently, passage of the Patient Protection and Affordable Care Act in March 2010
curtailed growth in physician ownership by effectively prohibiting both the creation of new and
the expansion of existing physician-owned hospitals and outpatient facilities after March,
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2010. Not surprisingly, this new limiting provision in the law is being challenged by advocates
of physician ownership, and the American Medical Association, among other groups, supports
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efforts to repeal the new ban. The American Hospital Association and other hospital groups
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oppose the repeal efforts.
The purpose of this paper is to review trends in physician ownership, the regulatory history
related to physician ownership, and the evidence concerning the impact of physician ownership
on costs, quality, and access to care.
2004
2007
2013
Total
46
89
109
235
Cardiac
12
25
20
NA
Orthopedic/Surgical
34
64
89
NA
SOURCE: 2002 and 2004 data from Medpac, and 2007 data from DHHS Office of Inspector
General, as published in Casalino 2008. 2013 data from Physician Hospitals of America.
Independent diagnostic testing facilities (IDTFs) are not affiliated with hospitals or physicians offices, and have technicians
administering imaging studies. In 2006, there were approximately 5,800 IDTFs owned by physicians and for-profit companies,
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nearly double the number ten years earlier. Although the total proportions of imaging services conducted in physicianowned facilities is not known, one study using data from a large private insurer found that 33 percent of providers billing for
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MRI, 22 percent billing for CT, and 17 percent billing for PET scans were categorized as self-referral.
Legislative History
Concerns that physician ownership drives inappropriate use of services has led to several legislative efforts to restrict or
regulate physician ownership, including: the Stark Law and subsequent amendments, which regulate physician self-referral;
certificate of need laws, which limit the supply of health care; certification and/or licensing requirements; and most recently,
the Patient Protection and Affordable Care Act (ACA), which further restricts new construction and expansion of physicianowned hospitals.
Federal Health Reform: The Patient Protection and Affordable Care Act (ACA)
The Stark Laws were intended to provide clear rules for limiting physician self-referral; however, the complexity of the laws,
which include major exceptions, has resulted in unclear boundaries and variable interpretations, making compliance and
enforcement difficult. Section 6001 of the ACA addressed some of these limitations by:
Immediately prohibiting future physician investment and capping existing physician investment in hospitals,
establishing an immediate (March 23, 2010) cap on physician ownership
Allowing existing physician-owned hospitals to continue if they had physician investment and a Medicare provider
agreement in place as of December 31, 2010
Restricting the Whole Hospital Exception by excluding from the exception hospitals that were converted from ASCs
after the ACA was passed
Expanding disclosure requirements by requiring that physicians inform patients that they can obtain services (such
as MRI, CT, and PET scans) from other providers and provide patients with a list of other providers in their area
The final rules for Section 6001 of the ACA were promulgated in November 2010.
Today, there are reports of physician-owned facilities finding other ways to increase their business without expanding beds,
including scheduling surgeries during later and week-end hours and replacing beds with procedure rooms for imaging. Some
facilities are seeking waivers from CMS to allow expansion, and some have stopped accepting Medicare payments to
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eliminate the restrictions on expansion.
In addition to studies that focused on changes in the volume of services related to physician ownership, Medpac reports in
2005 and 2006 also compared discharge costs for inpatient services delivered to Medicare beneficiaries in specialty hospitals
compared to those in community hospitals. While specialty cardiac hospitals had shorter lengths of stay, they did not typically
have lower discharge costs than community hospitals. Specialty orthopedic hospitals had higher costs per discharge than
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community hospitals.
Access
One of the main justifications for allowing physician self-referral in certain circumstances is the expectation that referrals for
services within a physicians practice or in another facility in which a physician has ownership may provide patients with
convenient, same-day, or one-stop access to services. However, studies found that same-day referral was quite low for
advanced imaging services. A 2010 study by Sunshine and Bhargavan found that Medicare beneficiaries received same-day
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service for 74 percent of x-rays but only 15 percent of CTs and MRIs. Similarly, a 2010 Medpac report found that less than
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half of advanced imaging services were performed on the same day as office visits for Medicare beneficiaries.
Specialty hospitals often do not have access to emergency services, a requirement in some states for all hospitals. A 2008
report by the Office of Inspector General of the U.S. Department of Health and Human Services found that just over half of
physician-owned specialty hospitals had an emergency department, and more than half of those that did had only one
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emergency bed. Similarly, a 2003 GAO report showed that specialty hospitals were much less likely to have emergency
departments than community hospitals; only 45 percent of specialty hospitals had emergency departments compared to 92
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percent of general community hospitals.
hospitals. They found that patients in the specialty hospital had fewer comorbidities (such as diabetes, congestive heart
failure, and renal failure) and lived in wealthier areas than those in general hospitals. After adjusting for patient
characteristics and hospital volume, the study found that specialty orthopedic hospitals had better patient outcomes, as
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determined by claims data, than did the general hospitals. Another study comparing death rates in patients receiving
percutaneous coronary intervention (PCI) or coronary artery bypass grafting (CABG) had more complex findings. The study
showed that patients in the specialty cardiac hospitals had lower unadjusted mortality rates, but when analyses adjusted for
patient characteristics, the odds of death after PCI were similar but the odds of death after CABG were significantly lower in
specialty hospitals. When analyses adjusted for volume of procedures, differences in mortality were not statistically
significant. More research is needed to understand the contribution of comorbidities and procedure volumes to patient
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outcomes vis--vis claims of higher quality in specialty facilities.
Beginning in January 2013, CMS began adjusting payments to approximately 3,000 hospitals based on quality scores through
a new Hospital Value-Based Purchasing Program. Approximately 52 percent of hospitals received a payment increase in the
first year. A recent Wall Street Journal article noted that approximately half of the top 100 facilities receiving bonuses were
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physician-owned facilities.
Conclusions
For decades physician ownership has caused many to worry that profit incentives could negatively affect the care patients
receive. Today, a substantial body of research shows that ownership and self-referral are associated with increased utilization
and higher system costs, low same-day referral, and diversion of complex patients and Medicaid beneficiaries away from
physician-owned facilities. More research is needed to support the claim that specialization of hospitals and outpatient
services improves quality or patient outcomes. Important provisions in the ACA substantially strengthen existing laws against
physician self-referral by both deterring future growth in ownership and by providing patients with more information about
options for services.
Author: Nancy Baum, PhD, MHS, with special thanks to Emily Ehrlich, MPH
Physician Hospitals of America. May 17, 2013. Press Release: Physician Hospitals of America Visits Capitol Hill to Share Government Study
supporting Physician-Owned Hospitals. Media contact: Leslie Folley.
2
Medicare Payment Advisory Commission (MEDPAC). August 2006. Report to the Congress: Physician-Owned Specialty Hospitals Revisited.
(Washington, D.C.: MEDPAC). http://www.medpac.gov/documents/Aug06_specialtyhospital_mandated_report.pdf (accessed 5/23/13).
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J. Reschovsky, A. Cassil, and H. Pham. December 2010. Physician Ownership of Medical Equipment. Data Bulletin No. 36. (Washington,
D.C.: Center for Studying Health System Change). http://www.hschange.com/CONTENT/1172/ (accessed 5/23/13).
4
The first Stark Law, 42 U.S.C. 1395nn, was introduced by former U.S. Representative Pete Stark, D-California.
Patient Protection and Affordable Care Act. H.R. 3590, Section 6001, Pub. Law No. 111-148, 111 Congress, 2010.
th
D. Glendinning. March 31, 2011. House Bills would lift ban on physician-owned hospitals. American Medical Association, American
Medical News (amednews.com). http://www.ama-assn.org/amednews/2011/03/28/gvsd0331.htm (accessed 5/23/13).
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Federation of American Hospitals, American Hospital Association, and Coalition of Full Service Community Hospitals. April 6, 2011. Letter
to House Members in opposition to H.R. 1159 and H.R. 1186. http://www.aha.org (accessed 5/23/13).
8
U.S. General Accounting Office. April 7, 2006. General Hospitals: Operational & Clinical Charges Largely Unaffected by Presence of
Competing Specialty Hospitals, GAO-06-520 (Washington, D.C.: GAO). http://www.gao.gov/products/GAO-06-520 (accessed 5/23/13) and
April 18, 2003, Specialty Hospitals: Information on National Market Share, Physician Ownership, and Patients Served, GAO-03-683R
(Washington, D.C.: GAO). http://www.gao.gov/products/GAO-03-683R (accessed 5/23/13).
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U.S. General Accounting Office. April 18, 2003. Specialty Hospitals: Information on National Market Share, Physician Ownership and
Patients Served.
L. Casalino. June 2008. Physician Self-Referral and Physician-Owned Specialty Facilities, Research Synthesis Report No. 15 (Princeton, N.J.:
Robert Wood Johnson Foundation). http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2008/rwjf28861/subassets/rwjf28861_1
(accessed 5/23/13).
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Physician Hospitals of America. May 27, 2011. Press Release: Physician Hospitals of America and Texas Spine and Joint Hospital Appeal
Federal Court Judgment Decision. http://www.physicianhospitals.org/ (accessed 5/23/13).
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American Hospital Association. April 2008. Trendwatch: Physician Ownership and Self-Referral in Hospitals: Research on Negative Effects
Grows (Washington, D.C.: AHA). http://www.aha.org/research/reports/tw/twapr2008selfreferral.pdf (accessed 5/23/13).
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Medicare Payment Advisory Commission (MEDPAC). June 2011. A Data Book: Health Care Spending and the Medicare Program
(Washington, D.C.: MEDPAC). http://www.medpac.gov/documents/Jun11DataBookEntireReport.pdf (accessed 5/23/13); March 2013.
Report to the Congress: Medicare Payment Policy (Washington, D.C.: MEDPAC).
http://www.medpac.gov/documents/Mar13_entirereport.pdf (accessed 5/23/13).
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Medicare Payment Advisory Commission. March 2010. Report to the Congress: Medicare Payment Policy, Section 2C: Ambulatory
Surgical Centers (Washington, D.C.: MEDPAC). http://www.medpac.gov/chapters/Mar10_Ch02C.pdf (accessed 5/23/13).
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Medicare Payment Advisory Commission, March 2010; Medicare Payment Advisory Commission, March 2013.
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Medicare Payment Advisory Commission, June 2011; Medicare Payment Advisory Commission, March 2013.
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Casalino, 2008.
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J. Inglehart. March 5, 2009. Health Insurers and Medical-Imaging Policy A Work in Progress. New England Journal of Medicine 360(10):
1030-7.
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W. Hendee, G. Becker, J. Borgstede, et al. October 2010. Addressing Overutilization in Medical Imaging. Radiology 257(1): 240-5.
http://radiology.rsna.org/content/257/1/240.full.pdf (accessed 5/23/13).
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J. Iglehart. June 29, 2006. The New Era of Medical Imaging: Promises and Pitfalls. New England Journal of Medicine 354(26): 28228.
21
J. Mitchell. 2007. The Prevalence of Physician Self-Referral Arrangements after Stark II: Evidence from Advanced Diagnostic Imaging.
Health Affairs, web exclusive, DOI 10.1377/hlthaff .26.3w415.
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Casalino, 2008.
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C. Conway. N.d. Physician Ownership of Hospitals Significantly Impacted by Health Care Reform Legislation (Houston, Tex.: University of
Houston Law Center). http://www.law.uh.edu/healthlaw/perspectives/2010/(CC)%20Stark.pdf (accessed 5/23/13).
24
U.S. General Accounting Office. October 22, 2003. Specialty Hospitals: Geographic Location, Services Provided, and Financial
Performance, GAO-04-167 (Washington, D.C.: GAO). http://www.gao.gov/products/GAO-04-167 (accessed 5/23/13).
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Medicare Payment Advisory Commission (MEDPAC). August 2006. Report to the Congress: Physician-Owned Specialty Hospitals Revisited.
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A. Mundy. May 13, 2013. Doc-Owned Hospitals Prep to Fight. Wall Street Journal, Business section.
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J. Mitchell. August 2007. Utilization Changes Following Market Entry by Physician-Owned Specialty Hospitals. Medical Care Research and
Review 64(4): 395415.
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Medicare Payment Advisory Commission (MEDPAC). August 2006. Report to Congress: Physician-Owned Specialty Hospitals Revisited.
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B. Nallamothus, M. Rogers, M. Chernew, et al. March 7, 2007. Opening of Specialty Cardiac Hospitals and Use of Coronary
Revascularization in Medicare Beneficiaries. Journal of the American Medical Association 297(9): 962-8.
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J. Stensland and A. Winter. Jan-Feb 2006. Do Physician-Owned Cardiac Hospitals Increase Utilization? Health Affairs 25(1): 119-29.
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J. Hollingsworth, Z. Ye, S. Strope, et al. April 2010. Physician-Ownership of Ambulatory Surgery Centers Linked to Higher Volume of
Surgeries. Health Affairs 29(4): 683-9.
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L. Baker. December 2010. Acquisition of MRI Equipment by Doctors Drives Up Imaging Use and Spending. Health Affairs 29(12): 2252-9.
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S. Radecki and J. Steele. February 1990. Effect of on-site facilities on use of diagnostic radiology by non-radiologists. Investigative
Radiology 25(2): 190193
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B. Hillman, G. Olson, P. Griffith, et al. October 21, 1992. Physicians Utilization and Charges for Outpatient Diagnostic Imaging in a
Medicare Population. Journal of the American Medical Association 268(15): 20504.
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Medicare Payment Advisory Commission (MEDPAC). August 2006. Report to Congress: Physician-Owned Specialty Hospitals Revisited
36
Medicare Payment Advisory Commission (MEDPAC). March 2005. Report to Congress: Physician-Owned Specialty Hospitals (Washington,
D.C.: MEDPAC). http://www.medpac.gov/documents/Mar05_SpecHospitals.pdf (accessed 5/23/13).
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J. Sunshine and M. Bhargavan. December 2010. The Practice of Imaging Self-Referral Doesnt Produce Much One-Stop Service. Health
Affairs 29(12): 2237-43.
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Medicare Payment Advisory Commission (MEDPAC). June 2010. Report to Congress: Aligning Incentives in Medicare (Washington, D.C.:
MEDPAC). http://www.medpac.gov/documents/jun10_entirereport.pdf(accessed 5/23/13).
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U.S. Department of Health and Human Services, Office of the Inspector General. January 2008. Physician-Owned Specialty Hospitals
Ability to Manage Medicare Emergencies, OEI-02-06-00310 (Washington, D.C.: HHS). http://oig.hhs.gov/oei/reports/oei-02-06-00310.pdf
(accessed 5/23/13).
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U.S. General Accounting Office. October 22, 2003. Specialty Hospitals: Geographic Location, Services Provided, and Financial
Performance.
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In 1983, CMS put a prospective payment system in place for inpatient hospitalizations in which all cases were categorized into diagnosisrelated groups, each with an associated payment weight based on average resources used for such cases. Most insurers today have also
adopted prospective payment methods. Hospitals are generally paid a predetermined amount per case, regardless of length of stay
(except for particularly expensive outlier cases).
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J. Mitchell. October 25, 2005. Effects of Physician-Owned Limited-Service Hospitals: Evidence from Arizona. Health Affairs,
doi:10.1377/hlthaff.w5.481
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A. Winter. November-December 2003. Comparing the Mix of Patients in Various Outpatient Surgery Settings. Health Affairs 22(6): 68-75
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J. Gabel, C. Fahlman, R. Kang, et al. May-June 2008. Where Do I Send Thee? Does Physician-Ownership Affect Referral Patterns to
Ambulatory Surgery Centers? Health Affairs 27(3): w165-74
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Medicare Payment Advisory Commission. March 2005. Report to the Congress: Physician-Owned Specialty Hospitals.
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P. Cram, M. Vaughan-Sarrazin, B. Wolf, J. Katz, and G. Rosenthal. August 2007. Comparison of Total Hip and Knee Replacement in
Specialty and General Hospitals. The Journal of Bone and Joint Surgery, American volume 89(8): 1675-1684
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P. Cram, G. Rosenthal, and M. Vaughan-Sarrazin. April 7, 2005. Cardiac Revascularization in Specialty and General Hospitals. New England
Journal of Medicine 352: 1454-1462.
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