Friday, May 17, 2013

Doctor-owned hospitals

In writing about the ACA and our health-care problems, I started to think more and more about supply restrictions. In every other industry, costs come down when new suppliers come in and compete. Yet our health-care system is full of restrictions and protections to keep new suppliers out, and competition down. Then we wonder why hospitals won't tell you how much care will cost, and send you bills with $100 band aids on them.

In that context, I was interested to learn this week about the ACA's limits on expansion of doctor-owned hospitals. The Wall Street Journal article is here, and I found interesting coverage in American Medical News. The text and analysis of the amazing section 6001 of the ACA is here

In astouding (to me) news, the ACA prohibits doctor-owned hospitals from expanding, and prevents new doctor-owned hospitals at all, if they are going to serve Medicare or Medicaid patients. From WSJ
The Affordable Care Act aimed to end a boom in doctor-owned hospitals, a highly profitable niche known for its luxury facilities. Instead, many of the hospitals are wiggling around the federal health-care law's growth caps and even thriving. 
Only in medicine is "highly profitable niche known for its luxury facilities" a bad thing. Didn't the left like employee-owned companies, worker cooperatives and all that? And when is getting around silly restrictions "wiggling?" Et tu, WSJ?
The law,  passed in 2010, blocked building any new physician-owned hospitals and prevented existing ones from adding beds or operating rooms in order to qualify for Medicare payments
Now, let's see if it takes you more than 10 seconds to figure out the unintended consequences of this brilliant idea. Don't peek... grow without running afoul of the rules, some of the country's roughly 275 doctor-owned hospitals are expanding their operating hours, increasing procedures in ways not restricted by the law and rejecting patients on Medicare...

"they are scheduling operations later and on weekends, instead of 7 a.m. to 5 p.m." North Cypress Medical Center outside Houston is building up practice areas, such as same-day surgeries, that don't require admitting patients overnight...  Forest Park Medical Center in Dallas has stopped accepting Medicare patients, allowing it to escape the law's restrictions entirely.
Then, some try to give up and do what the government wants....
The Surgical Institute of Reading in Pennsylvania tried to sell itself to a local community hospital. "We couldn't expand, but we thought a partnership would allow us to continue our practice," said its board chairman, Charles Lutz.

But the Federal Trade Commission blocked the merger, saying the sale would decrease competition and could lead to higher costs for patients and the government.
Let's see, reorganizing so you are allowed to expand decreases competition? You just can't make this stuff up.

As a reader of this blog might expect, for-profit institutions, run by crucial employees, are run efficiently, make money and serve their customers
...many physician-owned hospitals have enjoyed 20% to 35% profit margins in recent years. U.S. community hospitals' profits hovered around 7% in 2010... new Medicare measurements showing that doctor-owned hospitals represent about half of the top 100 facilities whose performance will merit bonus Medicare reimbursements because of their cost efficiency and patient satisfaction.
They even provide a
"5-star atmosphere" and a gourmet restaurant with a wine list and cigars
From American Medical news,
When the federal government sorted through the first round of clinical information it was using to reward hospitals for providing higher-quality care in December 2012, the No. 1 hospital on the list was physician-owned Treasure Valley Hospital in Boise, Idaho. Nine of the top 10 performing hospitals were physician-owned, as were 48 of the top 100.
So why in the world does the government want to restrict them? WSJ:
But any effort to undo the expansion limits faces an uphill battle with Democrats, because the restrictions were a deal-breaker for hospitals when the White House sought their support for the law in 2009, industry lobbyists say.
and AMN:
The American Hospital Assn. and the Federation of American Hospitals continue to back that section of the ACA. Several key lawmakers, including Senate Finance Committee Chair Max Baucus (D, Mont.) and panel member Chuck Grassley (R, Iowa), are in strong support of community hospitals in the debate.
Aha. In return for political support for the ACA the major hospitals put in this blatant supply restriction against efficient competitors. And we wonder why health care is so expensive.

In related news, what's with the crazy hospital bills which nobody pays? A New York Times article has two tidbits.
Until a recent ruling by the Internal Revenue Service, ... a hospital could use the higher prices when calculating the amount of charity care it was providing, said Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins. “There is a method to the madness, though it is still madness,” Mr. Anderson said.
Aha. Quote $100 for a band-aid, and when the patient doesn't pay it, write it off as a tax loss. The next one is really clever.
To make money from Bayonne Medical, the new buyers made some big changes in the hospital’s business strategy. 

First, they converted Bayonne Medical from a nonprofit to a for-profit hospital...Next, they moved to sever existing contracts with large private insurers, essentially making Bayonne Medical an out-of-network hospital for most insurance plans.

Under New Jersey law, patients treated in a hospital emergency room outside their provider’s network have to pay out of pocket only what they would have paid if the hospital was in the network. But an out-of-network hospital can bill the patient’s insurer at essentially whatever rate it cares to set....

In recent years, Bayonne Medical put up digital billboards highlighting the short waits in its emergency rooms in an effort to attract more patients....

While the law was aimed at giving patients more hospitals to choose from, it “has had the unintended consequence of rewarding folks for these inflated charges,” said Wardell Sanders, president of the New Jersey Association of Health Plans...

Community leaders in Bayonne...said the buyers were always candid about the methods they intended to use to make the hospital a profitable enterprise.
Really, does nobody every think for a minute, "Hmm, if we pass this law, what awful unintended consequences will it have?"


  1. You have been busy:

    "Harvard law student hopes to buy a Segway after his $1M ‘Survivor’ win" Posted May 16, 2013, By Debra Cassens Weiss

    A Harvard law student who wrote a prizewinning class paper about the show Survivor became a contestant and won $1 million in the Sunday finale of Survivor: Caramoan.

    CBS Miami describes winner John Cochran as “skinny, pale, non-threatening,” but says he managed to win physical challenges and mental tests. “On the one hand, you could I'm say not a threat; nobody bothered voting for me because I'm such a loser,” Cochran told the Hollywood Reporter. “But I'm kind of a winner now, so maybe they should have voted against me.”

    1. Unintended consequences. Hmm let's see, what could possibly go wrong with a doctor having ownershiop in a hospital ? Let's see : National Registry of Hospital Outcomes have 20-30% of procedures are unnecessary. Now, how can a doctor benefit from that ? Doctors have prescribed medical devices that were not the best choice , and it was ascertained that they had investments in the devices . Doctor-owned hospitals ; what could possibly go wrong? Our system is the most competitive in the world; yet we pay more for medicine and medical assistance than any other . Capitalism requires the medical profession to ignore the Hippocratic Oath and go for the money.

    2. Hmm, what could possibly go right with a doctor owning a hospital? Go look at the Aravind Eye Hospitals in India to see exactly how well this works when doctors own everything and government does NOT interfere. Doctors owning a hospital is no different from a chef owning a restaurant or a beautician owning a salon - they are going to take pride in it and make sure things are set up exactly the way they want it. If doctors aren't owning hospitals, have you asked yourself who is? You mention the Hippocratic Oath - people currently owning hospitals haven't taken any oath as they are not doctors. Have you wondered why doctors order tons of unnecessary tests even when they do not benefit at all from it? It is something called "defensive medicine" - doctors are doing it because of fear of lawsuit if they did not do something. You have been brainwashed to think the doctors caring for you are the enemy so that the real enemy remains hidden - wake up!

  2. The ACA (Adverse Consequences Act): the ultimate guardian drone of the no-competition-zone.

  3. It is long since time for people to call a moratorium on the phrase "unintended consequences" when describing policy -- it's really much to charitable. Easily three quarters were intended by at least _somebody_, and most of the rest could be foreseen by an even moderately bright seven-year-old.

    1. "We wouldn't have anticipated that there'd be demand for these types of band-aid plans in 2014," said Robert Kocher, a former White House health adviser who helped shepherd the law. "Our expectation was that employers would offer high quality insurance."

  4. re: "Yet our health-care system is full of restrictions and protections to keep new suppliers out, and competition down. "

    Yup, they have persuaded people to adopt the Soviet style notion that "competition is wasteful". The US is 53rd in the number of doctors per capita, and 43rd in the number of hospital beds per capita. The insurance and hospital industries tend to be oligopolies, etc. Your essay caught many examples, though you may find some even you miseds in this detailed page on regulatory capture, aka "crony capitalism" limiting competition and getting other special favors as being the main cause of the healthcare mess:

    For instance Medical Loss Ratios were a scam by big insurers to limit competition (since it cuts down on the potential for increased marketing expenses that might need to be incurred by a company trying to gain market share), and by healthcare providers to keep healthcare prices rising (see the page for details).

    Liberals tend to fear corporate influence over government, yet don't seem to grasp that it created the healthcare mess and Obamacare is full of it. I'd suggest that free market advocates have the right message but when it is presented it is often done in a way that appeals to other free market advocates rather than focusing on a message that may catch the attention of liberals. i.e. it is "preaching to the choir". We need to get their attention with talk of corporate influence, then explain that we have nothing remotely close to a free market in healthcare, and therefore the answer is to use one. Polls from the Pew center show consistently like 70-75% of the public has a favorable impression of tech companies and small businesses, so they can grasp the benefits of competition. The polls also show that more than that have an *unfavorable* impression of big businesses (which is likely in part due to the crony capitalist ones) and the federal government, so we need to explain that the federal government and crony capitalism isn't the answer.

    If we don't, I suspect that at most what will happen is a partial or full repeal for Obamacare.. leaving in place the myriad interventions that drive up healthcare prices to begin with. Liberals will then say "see, deregulation failed, we need more laws" and we'll have trouble explaining it wasn't real deregulation (since people have been decrying Obamacare as the major evil, as if repealing that by itself would be enough).

  5. ACA doesn't prohibit concierge medical facilities from expanding, it just won't allow Medicare to reimburse facilities that are investing in non-medical amenities. Hospitals can make whatever investment decisions they choose and target whatever payers they prefer, but it seems reasonable that Medicare (i.e. taxpayers) not be asked to subsidize luxury services that do not directly improve patient outcomes. I don't see a problem here. Medicare reimbursement rates incorporate facility costs; why allow "doctor owned" (bit of a red herring, that) hospitals to increase the average for the entire system?

    1. Medicare pays a fixed rate. How does allowing physician-owned hospitals raise the average?

      When did more patient rooms become a "non-medical amenity"?

      Why is "doctor-owned" a red herring?

  6. Ok, Prof, I do agree with what you say about the ACA. It is baffling enough.
    What baffles me even more is that there are honorable members of the Economics profession, in the highest places of academia, like MIT and Harvard, who support this stuff. Jonathan Gruber (MIT prof) and David Cutler (Harvard prof) come to mind. They fully, enthusiastically, joyfully, happily, unequivocally support the ACA.
    Is it that in such venerable places like the MIT Economics Department or the Harvard Economics Department, they did not hear of the phrase "unintended consequences"? If not, what exactly do they teach their students?

    1. Ha ha ha ha, I love how you mention "honorable" Gruber, the man calling us all stupid for passing the ACA. I hope you reread this comment and now knowing what you know, you face palm yourself as hard as you can.

  7. I started to think more and more about supply restrictions. In every other industry, costs come down when new suppliers come in and compete. Yet our health-care system is full of restrictions and protections to keep new suppliers out, and competition down. Then we wonder why hospitals won't tell you how much care will cost, and send you bills with $100 band aids on them.

    one reason that prices don't come down, is how the salaries are structured in such places. for the most part, only management gets raises
    so most of the money is going to management not workers

    prices cant come down as workers cant be paid less and management feels entitled to what it gets and bloats work rolls as a way to get raises.

    [ya don't want to know what the prospects for a disabled person is compared to others. oh, they may have a better place or even a place to work, but they certainly do not get equal considerations and ability to achieve (and nothing one can do about that). there are tax benefits that come with such and for the company]

    oy the things i could point out...

  8. Really, does nobody every think for a minute, "Hmm, if we pass this law, what awful unintended consequences will it have?"

    no.. the kind of people that make managerial positions, i have personally found, tend to have convergent minds. so they converge on the parts and outcomes that they like and are quite incapable of accepting that other things have possibility. the other things comment also is dependent on such peoples skills, and they are not selected by merit, nor are many of the people in the chain given PC games.

    usually the unintended consequences require harder extrapolation, but also an ability to assess to reach a thinking belief, and these guys start with the belief, its a shortcut.

    i have FOREVER been watching them not only understand what the actual consequences of the idea they put in, but they are very hostile to someone who points it out (as this is a direct threat to a decision maker).

    on the flip side, there are the complimentary people to this, who look at rules, and figure out what they allow outside the obvious. (when the person that does this with rules, is also a financial adviser of the rule maker, watch out).

    we also have to throw in that often, the ill of the consequence was the whole point of it all. the selling point of abortion is the rah rah messages and reasons you hear, but if you combine it with wealth redistribution, you cant avoid having a eugenics system. [recent report testing response times as a proxy reported average IQ is actually going down, due to such take from X and give to Y policies... ]

    one often forgets that the chaos of such a consequence is also an opportunity to those with resources to act upon it. so you can be sure that the people who do this, also do this with an eye to that consequence and an eye to being ready to mine it (and to heck with everyone else).

    one only has to look at their investments or friends investments or who benefits a few years later by being welcomed into some partnership, or being a silent partner... heck, making a person a silent partner is a VERY common way that politicos get to be paid off without issue.

  9. Once you introduce govt paid Medicare / Medicaid, you have to have some restrictions - otherwise doctor owned hospitals can build their business model around milking medicare / medicaid. There are no restrictions on hospitals that do not take govt money, are there ?

  10. What no one seems to address about the cost of healthcare is actually quite simple. The hospitals are abused like no other facility, especially the ER.

    I have worked in ERs that take medicare and medicaid. You have people come in for runny noses, cough, and other simple things frequently. Often if one child has a symptom they will check their other 2-3 kids in and themselves in as well. These same people don't give their kids over the counter meds because they didn't get a prescription for them. Yes, they want a prescription for ibuprofen or Tylenol so that medicare/ medicaid picks up the tab. I have seen people come in 2-3 times in a single day (every time by ambulance) to be seen by different doctors because they know the doctor's schedules and are looking for narcotics.

    I've also seen the same from people who don't pay at all. If you want to know why health care is so expensive, or why a box of bandaids costs $100 it is because those that can pay are already paying for those that refuse to pay or are mooching off the government teat. But those member of society are often promised more government intervention for their vote. Figure it out why it will only get worse.

  11. It looks like Obamacare also restricts competition among medical cost sharing cooperatives. Only cooperatives in existence as of 1999 are allowed waivers under Obamacare.

  12. The politics surrounding this are ridiculous. Hopefully the affordable health care act gets its act together and lets physician owned hospitals expand. My friend goes to a physician owned hospital and loves it.


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