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July 5, 2023
David Burda
Economics Outcomes Policy

The Real Reason Hospitals Hate Physician-Owned Hospitals

The answer is, they’re cheaper.

You can stop reading now if you want. But if you don’t and have time, here’s more food for thought.

Businesses in healthcare run like businesses in any other industry. It’s all about market leverage and who has the upper hand. When you have market leverage and the upper hand, you can charge more for your goods and services without feeling the competitive pressure to improve your goods and services. When revenue goes up faster than expenses, you’re more profitable.

In that basic economic formula, competition is your enemy. Healthcare businesses like hospitals, health systems, physician practices and health insurers detest competition. That’s why they all pursue market leverage and the upper hand through seemingly constant horizontal and vertical integration — mergers and acquisitions in their own industry sector and across into other industry sectors.

It’s why hospitals that aren’t owned by doctors don’t like hospitals that are owned by doctors. Physician-owned hospitals, or POHs, compete with non-POHs. That’s why the national hospital lobby pushed hard for Congress and CMS to effectively ban POHs by barring Medicare and Medicaid reimbursement to any new POH or expanded POH. Without Medicare and Medicaid patients, it’s tough for any hospital to stay in business.

The reason non-POHs don’t want POHs around is because they’re tough competitors. POHs can charge less for care because they don’t carry the overhead non-POHs do. A recent study in JAMA Network Open bore that out.

Five researchers from Johns Hopkins University, Texas Christian University, the University of Texas and the University of Toronto compared prices that POHs and non-POHs charge for eight common hospital treatments, diagnostic tests and visits. The study pool was 156 POHs and 1,116 non-POHs in 78 hospital referral regions. They looked at nationwide median prices negotiated with commercial insurers and cash prices for the eight services as of January of this year.

Here’s what the researchers found: POHs charged less for seven of eight services in each price category. For instance, POHs charged commercial insurers $989 for an MRI of your lower spinal canal, or 33% less than non-POHs. Paying cash for a blood test? POHs charged you $88 for a comprehensive metabolic panel, or 31% less than non-POHs.

POHs charge less because they can. According to the study, POHs had fewer beds, were more likely to be for-profit, treated fewer Medicaid patients and provided less charity care than non-POHs.

Non-POHs say that’s an unfair advantage, and that’s why the government should ban them. I say, so what?

It’s like two gas stations at the same intersection. One has a full grocery store, 16 pumps, a car wash and showers for truck drivers. The other has four pumps and lottery tickets. The former charges more for gas than the latter. So what? If I just want gas, I’ll go to the cheaper gas station.

Here’s the other thing. Hospitals and health systems have been gobbling up physician practices like free popcorn at a dive bar. They don’t seem to mind the unfair market advantage practice acquisitions give them over independent physician practices.

If hospitals can own physicians, physicians should be able to own hospitals. Right?

Thanks for reading.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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