Latest / Off the Chart: A Business of Medicine Podcast / S1 Ep180: Why private equity can own a hospital and a physician can't, with Gary Price, M.D., of The Physicians Foundation
Transcript
- Speaker 1 0:00 You know, under current law, the Mayo brothers couldn't have started the Mayo Clinic. Austin Littrell 0:16 Welcome to Off the Chart, a business and medicine podcast featuring lively and informative conversations with healthcare experts, opinion leaders, and practicing physicians about the challenges facing doctors and medical practices. My name is Austin Latrell. I'm the associate editor of Medical Economics, and I'd like to thank you for joining us today. In today's episode, Medical Economics senior editor Richard Payerton sat down with Dr. Gary Price, president of the Physicians Foundation, and a surgeon who spent decades in independent practice in Connecticut. To set the stage for today's conversation, a private equity firm can buy a hospital, but a physician, for the most part, cannot. Federal law has effectively barred new physician-owned hospitals since 2010 and frozen the ones already operating in place. Dr. Price argues that was a mistake from the get-go, built on a misreading of data that has since been corrected and left standing anyway. So, in today's conversation, he and Richard get into what the research actually shows about cost and quality of physician-owned hospitals, why the markets that have them consolidated less than the rest of the country, and how much of the burnout physicians describe comes down to being held responsible for care they no longer control. They also talk about the opening CMS left this spring when the agency asked whether physician-owned hospitals should be allowed into a new Medicare payment model. With all that said, Dr. Price, thank you for joining us. Let's get into the episode. Richard Payerchin 1:35 I'm Richard Payerchin, reporting for Medical Economics. With me today is Dr. Gary Price, president of the Physicians Foundation, Dr. Price, it's good to see you again. Thank you for joining me today. Speaker 1 1:47 Great to be with you, Richard. Thank you. One Richard Payerchin 1:49 of the things that we're going to talk about, and we've the reason part of the reason I greet you back is that we we've spoken several times over the years about different elements and aspects of healthcare. The Physicians Foundation has always been a advocate for doctors, and we're going to get into that a little bit more today with a new element coming up. The Affordable Care Act had rules regarding physician ownership of hospitals. One of the things we had talked about just a few moments ago, really, it's been in place long enough now that some younger physicians may not remember practicing in the time before that law. Can we start with maybe an overview and talk a little bit about the Affordable Care Act and what that did for regulation of physician-owned hospitals? Speaker 1 2:34 Sure. Specific to physician ownership of hospitals, the there was a provision in the Affordable Care Act that essentially eliminated an exception where physicians could own hospitals in rural areas. This was a previously enacted law called the Stark Law that severely restricted physicians' ability to own healthcare facilities, and in particular hospitals, for the younger physician who didn't practice prior to that, you have to go back even further because states and the federal government, to some extent, and then to a great extent, when the Stark law came along, and then the ACA were limiting physicians' ability to have ownership of healthcare facilities even before that. So I was in practice from 1985 on, and during my career, there was there were always some sort of limits on physician ownerships of facilities in my state. There were state regulations that many states had called certificate of need laws that also limited it. However, having said that, the Stark law followed by the ACA provisions set in stone that physicians could not own hospitals, even in rural areas where they needed them, but also it did grandfather in physician-owned hospitals that already existed, but prohibited them from expanding their services, adding beds, etc. From that point on, of course, that was 2010. Richard Payerchin 4:24 You know what? And I want to make sure we touch on some historical elements, but just to continue with what's happening now, there is a development about physician-owned hospitals happening within the rules of Medicare's team payment model. Speaker 1 4:38 Yes. Richard Payerchin 4:39 Have you had a chance to look over that and explain what that Speaker 1 4:43 is? Yeah, I looked over it with great interest because it overlaps with some other issues that the foundation has studied and research we've done. But basically, CMS, who manages Medicare, has put out a public request for information about the possibility. Of allowing physician-owned hospitals that currently exist to persist to participate in the team model of care, which is a value-based payment system that's based on episodes of care. In the original announcement of the program, which actually started this past January, physician-owned hospitals that already existed were allowed to participate, but like everyone else, only if they were mandated to by CMS. And it's been so far; it's really been impossible to figure out how many physician-owned hospitals that might involve CMS has not released that data, but considering their penetration in the U.S. market, at best it would be about five to 6% of the hospitals. The significant thing about this RFI, though, it acknowledges that since the ACA was passed that we just talked about. There have been data which support the idea that physician-owned hospitals actually are cheaper for patients. They're cheaper for Medicare. They provide higher quality care, and they don't actually do some of the things that policymakers were worried about way back in 2010. Back then, there was a lot of talk about potential cherry picking by physician-owned hospitals, implying that they would somehow only take patients who were less sick, who would cost less to care for, and somehow displace patients who had a higher acuity of care, sicker, and send them somewhere else. There was also fear that really, really healthy patients who would be cheaper to take care of also would be selectively brought into the hospitals, a study that the Physicians Foundation actually co-founded in that was published in 2023, and we co-funded that with the Physician Advocacy Institute. Looked at that exact issue with Medicare data, and what they found was that when you looked at the demographic, social status, and how sick Medicare patients were, there was really almost no difference between physician-owned and hospital or hospital otherwise owned facilities. There have been a couple other studies that have confirmed that, and that study I just mentioned also showed that on average, physician-owned hospitals charged anywhere from seven to 15% less. They cost Medicare that much less for the same kinds of patients compared to non-physician-owned hospitals. That translated out to over a billion dollars savings per year for Medicare if all their patients had been treated in physician-owned hospitals. So there's been a lot of data out there that sort of refutes that notion. And I should point out that concern. There was a major concern in the healthcare policy world. I'll not. It was more than a concern. The policy world just accepted the fact that, as one author put it, the most expensive piece of equipment in the hospital was the physician's pen, and what they were implying there was that physicians were the whole problem with the differences in costs between different hospitals, and if you could just stop those physicians from ordering more than they really should, that you would eliminate the problems with costs being so different from one place in the country to another. There was a fundamental problem with that, though. That idea was based on interpretation of data that came out of something called the Dartmouth Atlas, very close to the year 2000. And by looking at costs between different hospitals in different areas, they came to the conclusion that it must be the physicians that were causing the difference. They looked at their data and the populations that are being treated by what are called hospital catchment areas, and that's not a very rigorous way to compare the populations at different hospitals. The foundation was involved in some research and the publishing publishing of a book that looked at that by an economist named Buzz Cooper, and what he found is if you look took that same data and analyzed the patients by their zip code, there was one glaring difference that court that. Went along with expensive cost, and that was the patient's income. Speaker 1 10:06 The higher your income, ironically, the less your healthcare cost, and the more you went onto the poverty spectrum, the more expensive it was. And this really showed that the real problem was a correlation with a lot of different environmental factors that patients brought with them with them when they came into the hospital or to see their doctor, and unfortunately, it's taken now 25 years to begin to get an acknowledgement of that fact in our policy world. Richard Payerchin 10:45 You know, doctor, I'm going to ask you to clarify just for a moment because it's always. I think that most of our audience will be sort of familiar with the factors and effects. But when you talk about those findings about the cost of healthcare based on patient residency, their zip code, their income-it's not necessarily a discretionary or discriminatory thing where the doctor says, "Okay, this person only makes X number of dollars per year. I'm going to charge them more. It was other factors that were contributing to those increased costs, as I understand. Speaker 1 11:18 No, and actually, the costs I'm referring to were actually Medicare costs, so they weren't out-of-pocket costs. They were what healthcare for these people costs under the Medicare system, and of course, basically everyone 65 and older is on Medicare, regardless of income status. Richard Payerchin 11:38 You know what, Doctor? I and this is something again. I think a lot of our audience will be familiar with, and I don't necessarily want to belabor the point. But with these rules in place, in your own words, how would you describe the economic environment for medical practice and especially independent practice over the last 15 years? Speaker 1 11:57 Well, one of the things, interestingly, in the research that's gone on over the last 15 years is the fact that not only do physician-owned hospitals cut down costs by maintaining the same or better quality, but where there are physician-owned hospitals, there's clearly less consolidation of healthcare in a given area, and what I mean by that, where physician-owned hospitals exist, these huge conglomerates where one hospital system might control an entire state, or as in Connecticut, half of a state, that consolidation of healthcare has not occurred as to as to as great a degree, that has tremendous implications as far as the cost of healthcare, but that consolidation itself, of course, involves making the environment very, very difficult for physicians to even practice independently, let alone own hospitals, and we found that a huge problem. In addition to the sheer impossibility of being able to establish an independent practice where one hospital might control the entire market for healthcare services, where you're located from top to bottom, in in addition to that, a lot of the problems that we're seeing with physician burnout and well-being relate to the fact that the physician's ability to feel like they're actually directing the care of their patients-that what they think should happen with their pen actually happens-that's really been it's been infringed upon a lot to the point where physicians are frustrated daily that they no longer feel like they're in control of what happens to their patients, but the system's holding them responsible nonetheless. So that's a very important part of the research and work we've been doing, trying to make the environment the physicians practice in healthier for them and their patients. Keith A. Reynolds 14:11 Hey there, Keith Reynolds here, and welcome to the P2 Management Minute. In just 60 seconds, we deliver proven real-world tactics you can plug into your practice today. Whether that means speeding up check-in, lifting staff morale, or nudging patient satisfaction north, no theory, no fluff, just the kind of guidance that fits between appointments and moves the needle before lunch. But the best ideas don't all come from our newsroom; they come from you. Got a clever workflow hack, an employee engagement win, or a lesson learned the hard way? I want to be true. Shoot me an email at kreynolds@mjhlifesciences.com with your topic, a quick outline, or even a smartphone clip. We'll handle the rest and get your insights in front of your peers nationwide. Let's make every minute count together. Thanks for watching, and I'll see you in the next P2 Management Minute. Richard Payerchin 15:02 You know what, doctor, and I-I don't want to put the cart before the horse on this one. With the Medicare request for information, and I'll take it back a step-not just-not just the current request for information. Since the passage of the Affordable Care Act, we know that there have been in Congress a lot of debate about about that law, and then court challenges the regulation around physician own ownership of hospitals. It maybe just didn't seem like it got that much attention. But do you think that the Medicare request for information right now signals a potential change at a bigger scale? Speaker 1 15:36 I think it's very significant in that it indicates upon the part of CMS at least a willingness to look objectively at some of these differences between physician-owned hospitals as far as economics, quality, cost versus the alternative model. I think that's very significant because it's the first time they've been willing to do that now in in over 15 years, I applaud that. I noticed in the request for information built into that are some of those same biases about what physician-owned hospitals will do. You know they specifically mentioned cherry picking and what's called lemon dropping with the sicker patients and how they could deal with that. There there are also some interesting conundrums within that RFI request for information. They have thoughtfully raised some questions about what some of the consequences would be. For instance, that that that law, part of the ACA, prohibited the existing grandfathered physician-owned hospitals from expanding in any way. Yet, if they were voluntarily or otherwise asked to participate in this program, they might need to add beds or other services to satisfy the requirements. So that would require additional waivers from actual law, and that raises some problems in getting them to do that. Let's say a hospital participates and adds beds. This program only lasted until 2030. Under the law, as soon as they were done, they would have to get rid of all those investments they had made. So, so there's some real practical problems in approaching it. The CMMI Center for Innovation does good work, but CMS itself is notoriously slow in adopting some of the findings that that are arrived there. And while I'm optimistic, I don't think we can look forward to major changes as on the basis of this, anytime soon, there are, however, several several bills on Capitol Hill, none of which have been acted upon, which would, through legislation, reverse some of those restrictions in the ACA that would make it easier now for physicians to own and lead hospitals, and I should mention there's a ton of data that not just physician ownership, but physician active involvement in management of hospitals clearly increases their quality and helps them deliver better, more efficient healthcare. Physician-owned hospitals themselves, as I mentioned, have a clear track record of providing care at lower cost and as good or higher quality. Another very interesting finding in some of those studies was that physician-owned hospitals actually, for cash-paying patients, not insurance, they actually charge 47% less for cash patients than regular hospitals do. So there's a lot of reason to look at that model and re-examine why it was thrown by the wayside, if you will. Richard Payerchin 19:23 You know, Doctor Price. This is something I don't mean to sound like a silly question, but it's it's it's been something that I've been turning over in my mind, and I I want to get your take on this because I don't mean to oversimplify the situation. There are states that have, you know, what people will call the CPOM, the Corporate Practice of Medicine laws, on the books that regulate physician, or I should say, regulate ownership of hospitals, and then we have the federal law that essentially prohibits physician ownership of hospitals. Who's supposed to own the hospitals? Speaker 1 19:58 Yeah, well, it's an interesting inter. I think to understand it clearly right now, the biggest barrier are the federal laws and regulations. That's the stop point right now. That's the most critical. Each state has its own regulations and rules about who can own healthcare facilities. Some states still have something called a certificate of need law, that even to acquire a piece of radiology equipment above a certain cost requires to go before a state commission, and often appear at hearings where you're opposed by the hospital association in that quest, that's not true all over the country. It's different everywhere to some degree, based on some of the same reasoning. I think that we brought with us out of the last century. So you're right; it has to be addressed differently at each state level. Interestingly, now some states have started to look really critically at private equity ownership of hospitals and what that does to costs in patients' care. Interesting to me that a group of private equity investors can own a hospital, but a physician can't. Richard Payerchin 21:22 You know, Doctor? Wanted to ask about obviously medical economics. We deal more with policy. We're not a clinical publication necessarily, but you had touched on you know some of those quality measures that take place at the actual bedside in regular hospitals or physician-owned hospitals. Given that we're in a healthcare shortage right now of both physicians and other clinicians, can you talk a little bit about what it looks like in a clinical sense? You know, at the actual hospital, the floor, the bedside level of what staffing would look like, or does look like in a physician-owned hospital? Speaker 1 22:01 Well, I think the key thing to physician ownership and management is the best possible ground level appreciation of what's happening and what's wasteful, what's not. It's a little bit different if a physician can look at a test and say, you know, this patient doesn't need this test because it won't change what we're going to do. The flip side of that is a physician seeing a patient who's a little different than the other 10 that come in that day, and saying I'm concerned about this, and we do need this test for this patient. Then being told by an administrator that that's not on the list of approved tests for this condition, and you can't order it. That's a very simple example of where that breaks down, and I, I can't imagine. You know, we talked about the physician's pen being the most expensive tool, but it's also the most knowledgeable tool in the chain of events. And would you rather have your physician decide which test you were supposed to get or needed in the course of evaluating or treating your disease, or would you want that decided by a bureaucrat somewhere hundreds of miles away in an insurance agency, a federal office, or in a remote administration building of your hospital? That gets to the core frustration that that is a big part of burnout. Richard Payerchin 23:46 No, and I think from a patient's perspective, you know, the person who's there treating you and has knowledge of your condition, it feels like that would be a logical person to direct care. I, you know, Speaker 1 24:02 I vividly remember back in the '70s when I was a senior resident. We would have these discussions on rounds. You know, there were routine panels of tests that people just ordered for any situation because it covered most of the things that you might miss. But with a given patient, when a younger resident would tell me they were ordering a test, I would ask them why. Well, as part of the panel, and I said, regardless of the answer you get on this test, what's going to change about the care you give? And if they couldn't come up with a reason, then we didn't order the test. That's not a new notion to doctors. Richard Payerchin 24:41 I feel like there's another follow-up question I want to ask about overutilization, and I guess what are what are your thoughts on does that happen now still without physician control of hospitals? Speaker 1 24:54 Oh, absolutely, it happens on the basis of financial incentives, and you know that's you know under. Understandable, I think that's one of the beauties of physician ownership. The incentives for everyone in that model are aligned. The physicians have a stake in the hospital doing well financially, but also they have a direct stake in making sure that the care they deliver to their individual patients is high quality, I, and I think the notion that over ordering of tests is actually one of the big drivers of the waste in our system. I think that's open to serious question. There is fraud, but that's often on very large scale by you know actual criminal perpetrators, it's not the bedside physicians, and I think physicians want their patients to get the best care. They also know that the funding for our healthcare system isn't unlimited. We're we're in this together, but what they desperately want is to know that their knowledge and skill and their interaction with their individual patient is the main thing that's driving how their patients are treated. Richard Payerchin 26:14 Doctor, one of the things that you mentioned earlier caught my ear, and and that was I'll be perfectly candid. I'm not at all familiar with the situation on the ground in Connecticut. Obviously, it's a state that is not huge in land mass, but is densely populated. And is the situation? You can name names if you want to, but is the situation really that one health system controls essentially half a state? Speaker 1 26:38 Yes, that's absolutely true. We're a model for how a state's healthcare can be completely consolidated, and economists have actually studied what the effect of that was on the prices to our patients and the healthcare system, including insurance companies and the federal government. And there's no question that that consolidation all by itself drove costs up significantly here in Connecticut. We're a relatively small state, and we're partitioned into two hospitals controlling in a vertical way most of the healthcare that's provided here. Everything from where your blood's drawn to where your neurosurgery is done, Richard Payerchin 27:24 it just again seems like you know fewer and fewer players means you know fewer players have more control, I guess, and that that that's not to say that there aren't people getting good hospital care, good medical care from those facilities and those doctors. I don't want to take anything away from that, but again, the economy, the economic situation, it looks like it's skewed. Speaker 1 27:54 Well, fewer players mean also fewer people dealing with insurance companies about what things will cost. It means a really uneven playing field for independent physicians who are trying to compete with that system. For instance, as recently or as long ago as 26 years ago, I was in independent practice, and reimbursement for some of the surgical procedures I did, which my patients really needed, was getting below what my actual costs were. So I called the insurance company and asked about negotiating on this, and I was told that the insurance company only negotiated with the hospitals, so their their ability to negotiate with them for now the biggest chunk of patients, which of course they wanted to be able to cover, they were reimbursing at that time the hospital's reimbursement on that procedure I was concerned about was actually five times more than what I was getting paid. Richard Payerchin 29:07 Again, Doctor, you've got me thinking here because I I I want to ask a question about the flip side of consolidation. One of the arguments in favor of physicians and hospitals joining forces may be that we're going to gain economies of scale that, in fact, drive costs down. And I'm sure that there are instances where that happens, but it sounds like not in every instance. Instance when the hospital is getting, you know, reimbursed five times what a physician would be getting. Speaker 1 29:41 Every economist that I've talked to about this, and my own experience, tells me that in healthcare there are no economies of scale. As the systems grow bigger, the need for more and more administration and more and more costs. Aren't directly involved in care. All of those things become more complex and more expensive. The growth in just the number of administrators in hospital systems over the last 20 years has been astronomical. Far outpaced the growth in clinicians at any level, and I think that's where the problem lies. And let's face it, there's a little bit of a disconnect in incentives in a corporate model. The administrators in the corporate model have a huge concern about the bottom line. Sometimes they're talking about profit margins. Sometimes they're just talking about extra cash at the end of the year, which they then reinvest into the system or bigger buildings. But any physician will tell you they've seen instances working in the trenches where they were often questioning whether the primary concern was that cost of what they were doing, or was it how well the patient was treated, or how how good their outcomes were. Richard Payerchin 31:14 Regarding physician ownership of hospitals, what did I not ask about that you would like our audience to know or consider? Speaker 1 31:21 Well, we talked about a wide-ranging number of things. I think one question that I've asked myself is why is it that healthcare policymakers regard participation of the physicians the the key delivers of care, key employees of one sort of another. Why is that intrinsically a bad idea in healthcare? I can think of no other segment of our economy where that's regarded as something bad. I think it's universally regarded as a good way to align incentives of everyone, and so it mystifies me why this has persisted. But certainly, if you ask me, how can we make this better? An acknowledgement on the federal government's part that maybe this was a little wrong-headed to start with, and they need to investigate how's it really work in practice. I, as I said, I applaud that, and I think that's a great way to look at it and question it. You know, I think the critical thing to recognize about this it isn't just an issue of how people get paid, but the notion of a physician's ability to actually be directing their patient's care comes to the root of this. And you know, under current law, the Mayo brothers couldn't have started the Mayo Clinic. Richard Payerchin 32:57 I'm Richard Payerchin, reporting for Medical Economics. My guest today has been Dr. Gary Price, president of the Physicians Foundation. Doctor, I hope in the near future we're going to have more to talk about with physician-owned hospitals and plenty of other topics. Thank you so much for your time. Speaker 1 33:12 Thank you, Richard. It was a pleasure. Austin Littrell 33:38 Once again, that was a conversation between medical economics senior editor Richard Payerton and Dr. Gary Price, president of the Physicians Foundation. My name is Austin Latrell, and on behalf of the whole medical economics and physicians practice teams, I'd like to thank you for listening to the show and ask you to subscribe so you don't miss the next episode. As always, be sure to check back on Monday and Thursday mornings for the latest conversations with experts sharing strategies, stories, and solutions for your practice. You can find us by searching "off the chart" wherever you get your podcasts. Also, if you like the best stories that Medical Economics and Physicians Practice publish, delivered straight to your email six days of the week, subscribe to our newsletters at medicaleconomics.com and physicianspractice.com. Off the chart, a business of medicine podcast, is executive produced by Chris Masolini and Keith Reynolds, and produced by Austin Latrell. Medical Economics and Physicians Practice are both members of the MJH Life Sciences family. Thank you.