Physicians, hospitals, policymakers gear up for clash over hospital ownership rules

Hospital advocacy groups have been pushing Congress to maintain a ban on the creation of new physician-owned hospitals, and they say a new study reinforces their case.

The Federation of American Hospitals and American Hospital Association released a study Tuesday that argues that opening physician-owned hospitals in rural areas would be damaging to community hospitals. Dobson | DaVanzo, a consulting firm, performed the study.

Hospital trade groups have long argued that physician-owned hospitals don’t provide the breadth and scope of services of community hospitals, and they don’t serve as many patients with complex conditions.

Groups representing doctors — including the American Medical Association (AMA) — counter that patients should have the choice of physician-owned hospitals. They argue doctors as owners could be good for patient health and the financial health of the institutions themselves.

Federal law has prevented the opening or expansion of physician-owned hospitals since 2010. But some lawmakers in Congress are pushing to change the law and allow physicians to own hospitals in rural areas.

Here are key points on a long-running battle that seems to be gaining fresh attention in Washington.

Study: Damage to community hospitals

Community hospitals in rural areas would see more financial difficulties with the arrival of physician-owned hospitals, the new study suggests.

Rural hospitals don’t need more headwinds, as researchers say half of all rural hospitals nationwide are losing money. Since 2010, more than 150 rural hospitals have closed, and hundreds more are at risk of shutting their doors, analysts say.

Examining Medicare claims data, Dobson | DaVanzo estimated the impact of physician-owned hospitals on the nearest “sole community hospital.”

While a sole community hospital has an average margin of 2.5%, a new physician-owned hospital focused on orthopedics would reduce the community hospital’s margins from 2.1% to 1.2%. If a physician-owned cardiac hospital opens its doors, the community hospital’s margins could end up ranging from 1.4% to -1.2%, according to the study.

Calling 9-1-1

The Federation of American Hospitals and American Hospital Association also published a blog accompanying the study pointing out that physician-owned hospitals don’t always provide a full array of services. Often, they focus on a specialty, they say.

Some physician-owned hospitals don’t offer emergency departments.

“Unlike full-service community hospitals, POHs (physician-owned hospitals) are not required to provide emergency care, and they often do not. In fact, in many POHs when a patient needs emergency services, staff call 9-1-1 and send the patient to a full-service hospital for care,” they wrote.

Cherry-picking patients

Hospital trade groups say physician-owned hospitals tend to be more selective in their patient populations, often focusing on younger patients with commercial insurance.

Full-service community hospitals serve a broader variety of patients, including those on Medicare and Medicaid and those without any insurance, advocacy groups say.

Physician-owned hospitals “are generally focused on providing specific services, such as cardiac and orthopedic surgery, and tend to serve a patient population that is healthier and more likely to have commercial insurance compared to patients at other acute care hospitals,” the study says.

By contrast, community hospitals in rural areas serve an older patient population, with more patients on government health plans, hospital advocates say.

In response to legislation that would open more doctor-owned hospitals, the AHA wrote in March, “Physician self-referral — whether in rural, suburban or urban communities — is the antithesis of fair competition. The problematic practice allows physicians to steer their most profitable cases to facilities they own.”

Doctors seek revival

The American Medical Association and state medical societies have been pushing Congress to lift the moratorium on the creation of new physician-owned hospitals.

More than 80 medical societies sent a September 2024 letter imploring doctors to allow physicians to open new hospitals and expand facilities.

Lawmakers in the House and Senate have introduced legislation allowing physician-owned hospitals in rural communities. Republicans and Democrats are backing the legislation, along with several physicians serving in Congress.

The Physician-Led and Rural Access to Quality Care Act (H.R. 2191) would allow doctors to own hospitals in rural areas under certain conditions. Under the legislation, they would have to be more than a 35-mile drive from a community hospital or critical-access hospital.

In April this year, AMA reaffirmed its support, agreeing that rural hospitals are in dire financial trouble and that physicians could save them while providing quality treatment for patients.

“Rural communities deserve every tool possible to save hospitals that are on the cusp of closure,” AMA Executive Vice President and CEO James L. Madara, MD, added, noting that more than 130 rural hospitals have closed since 2010.

“Unfortunately, current law prevents physicians from owning hospitals, which limits one of the most logical classes of potential owners from saving a rural hospital,” Madara said in the letter. “This targeted, partial removal of the physician ownership ban would give underserved rural areas a potential tool to provide hospital services.”

U.S. Rep. Morgan Griffith, a Virginia Republican, has sponsored the House bill, and the bill has 31 co-sponsors (25 Republicans and six Democrats).

Sen. James Lankford, an Oklahoma Republican, has introduced a similar bill (S. 1390) in the Senate, and it has nine co-sponsors, all Republicans.

In a statement supporting the legislation, Adam Bruggeman, MD, chair of the Advocacy Council at the American Association of Orthopedic Surgeons, said, “When physicians lead hospitals, patients win.”

In the early 2000s, there were less than 70 physician-owned hospitals nationwide, but that number jumped to about 250 by 2010, when a moratorium was put in place.

Changing landscape

While similar legislation has emerged in the past, given some bipartisan backing for the legislation supporting physician-owned hospitals, the debate will likely grow in the coming months.

First, there’s more attention on the plight of rural healthcare problems in Washington. Hospital and healthcare leaders said cuts in Medicaid programs in coming years could deliver a body blow to rural hospitals, forcing some to scale back services or close their doors.

Congress and the Trump administration created a new, $50 billion program to improve rural health, partly to assuage the concerns of Republican lawmakers worried about Medicaid cuts.

Much of the Trump administration’s approach to healthcare policy has engendered wide criticism, but the White House has shown its preference for moving away from the status quo.

So despite the staunch objections of hospital trade groups, it’s certainly possible that the latest push for more physician-owned hospitals could have receptive ears in the White House.

This article originally appeared on Chief Healthcare Executive, a publication of MJH Life Sciences.