Sioux Falls Specialty Hospital in South Dakota is regularly full. Its doctors and nurses often have to work longer hours or perform elective surgeries such as hip or knee replacements on weekends.
"In many cases, patients have to wait forever," said Dr. R. Blake Curd, an orthopedic surgeon and the hospital's CEO. "We don't have the physical capacity to take care of them."
He would like to expand the hospital by adding beds or rooms, but he isn't allowed to do so because of the Affordable Care Act, or Obamacare. The law largely bans the expansion of hospitals such as Curd's, which are partly owned by doctors. New physician-owned hospitals also cannot be set up unless they forego government reimbursement from Medicare or Medicaid.
For many other types of hospitals, such as community and for-profit hospitals, the passage of Obamacare injected more money into the healthcare system by expanding health insurance to more than 20 million people. This meant hospitals did not have to provide as much uncompensated care as they used to, and many of them flourished.
But physician-owned hospitals, 250 facilities across 33 states, are dwarfed by the 5,000 public or for-profit hospitals. And Obamacare is crushing them.
Federal regulations can damage the healthcare industry's bottom line in many ways. They limit the use and nature of telemedicine. Small, rural hospitals have struggled to achieve the efficiencies Obamacare demanded from them. Because they must stick to specific federal guidelines for electronic health records, individual practices have been overwhelmed and bought up by larger healthcare systems. As with many regulations, compliance costs are too much for the smaller businesses. One of the most stark examples of how these regulations have affected a business's bottom line comes from Obamacare's effect on doctor-owned hopsitals.
In California, Fresno Surgical Hospital's second-story wing, once intended for new inpatient beds and an intensive care unit, has been left empty for three years because construction wasn't completed in time for Obamacare's deadline, which began Jan. 1, 2011. In Murrieta, plans to start a doctor-owned hospital were scuttled after it became clear that construction wouldn't finish in time. The facility and its doctors instead were bought out by Loma Linda University Medical Center, which turned the hospital into a non-profit. Construction workers in York, Pa., toiled 21 hours a day to finish the building for Orthopedic and Spine Specialists before the ban started. Forest Park Medical Center, which included several hospitals in Texas, filed for bankruptcy in part because of the ban.
Because of Obamacare, 37 physician-owned hospitals were not built, 40 nearly finished construction projects were prevented and 20 major expansion projects have been halted, according to their trade group Physician Hospitals of America. It estimates the ban resulted in a loss of $200 million in tax revenue and 30,000 jobs that went uncreated.
Supporters of the ban, among them nonprofit community and for-profit hospitals, argued for years that doctors at these hospitals are improperly referring patients to facilities in which they have a financial interest. These doctors, they say, have cherry-picked healthier patients and those who need specialized, profitable medical treatment, and have ordered unnecessary medical procedures that result in higher costs to the government.
This leaves nonprofit community and for-profit hospitals with patients whose care is less profitable, such as those who need emergency care or burn treatment. As they saw physician-owned hospitals expand, lobbyists from the American Hospital Association and the Federation of American Hospitals successfully pushed for the ban in Obamacare.
The evidence is mixed about whether doctor-owned hospitals were engaged in troubling practices. But experts say there must have been a better way to curb abuse, if it existed, than by imposing an outright ban on new ones. The ban came as people gained more health insurance, opening the door to care for people who weren't previously able to afford it. Obamacare encouraged medical providers to improve healthcare outcomes, a goal that many doctor-owned hospitals, whose leaders understand how things work in a real, clinical setting, are able to meet.
"Are doctors really that innovative? I personally believe that the people most likely to make healthcare delivery both cheaper and better are clinicians," said Regina Herzlinger, a professor of business administration at Harvard Business School.
"There have to be other remedies for dealing with the overuse problem," she added.
Doctor-owned hospitals: A history of tension
The physician-owned hospital movement grew, particularly in the early 2000s, out of frustration that some doctors were being left out of administrative decisions in large facilities.
"A bunch of us, decades ago, became frustrated with how the people that had masters in business or public health were the administrators in the hospital setting, making decisions that we didn't always believe were in the best interest of patient care," said Curd, who is also president of the Physician Hospitals of America.
The doctor-owned model, Curd says, allowed him and others to have more control in the operation of a hospital, whether determining how it should be laid out, or what equipment would provide the best results or how long patients should stay in the hospital after surgery. This means doctors take some of the rewards and risks involved in the healthcare business. Proponents say these hospitals can reach the "triple aim" of improving care, improving population health and reducing costs.But these hospitals posed a challenge to non-profit and for-profit hospitals. Congress had previously imposed a temporary ban on the construction of doctor-owned hospitals that specialized in cardiology, orthopedics and other areas, after the Hospital Corporation of America, the for-profit hospital group, accused them of dipping into for-profit hospitals' lucrative outpatient surgery business.
Obamacare took the restrictions further. The little-known ban, part of Section 6001, gives physician-owned hospitals the option to expand if they stop using Medicare, the federal program for people 65 and older. Cutting a hospital off from Medicare can kill it. For many hospitals, Medicare is half their revenue.
"It's hard to do that," David Hyman, law professor at Georgetown University Law School, said about the possibility of operating only on cash or private health insurance payments. "Medicare is such an important piece of a hospital's bottom line."
A study published in the journal Health Affairs, left little doubt about the effect of Obamacare on hospitals owned by doctors. The ban was effective at curbing growth from doctor-owned hospitals that existed before the ban, the authors concluded after examining 106 physician-owned hospitals in Texas, home to 40 percent of the country's facilities.
Researchers also examined 92 physician-owned hospitals built between 2004 and 2013. They noted that as the deadline approached, plans to build hospitals came together quickly, as did expansions. In 2010, 83.3 percent of newly formed for-profit hospitals in the study were physician-owned. In total, 20 physician-owned hospitals were formed in 2010, right before the construction ban took effect.
"Those who would have filed six or nine months later rushed to get in under the deadline," said Hyman, who was not involved in the study.
Physician-owned hospitals that formed after the ban were unviable enterprises, authors concluded, noting that those hospitals either went bankrupt or were sold because they didn't have help from Medicare or Medicaid, and therefore private insurers wouldn't include them in their networks.
One of the study's researchers, William Wempe, an accounting professor at Texas Christian University, also found no evidence that existing physician-owned hospitals stopped accepting Medicare beneficiaries as a way to expand their facilities.
Instead, they appeared to do more with less, Wempe says. The study revealed that staffed beds increased by 15.1 percent, revenue per square foot increased 21 percent and revenue per full-time employee increased 20.1 percent. This means doctors may have worked longer, conducted more procedures in less time, or ordered more tests to boost revenues.
Wempe says this could raise safety concerns. "They may try to get people to do more, but at some point they are working beyond their optimal pace," he said. "We can then begin to ask how healthcare is affected, quality and cost-wise."
It's possible that the ban is stimulating the exact behavior that opponents of physician-owned hospitals say they were trying to curb.
Curd acknowledges that facilities owned by doctors may have to prioritize more profitable patients in order to keep their business afloat.
"They are going to turn us into what they said we were because of pushing for this legislation," Curd said. "Be careful what you ask for. There is no data showing that we were doing that."
A 2015 study in the British Medical Journal raised significant doubt about accusations critics have made about physician-owned hospitals, particularly when they provide general, rather than specialty, care. Researchers concluded that although physician-owned hospitals may treat slightly healthier patients, they do not systematically avoid Medicaid patients or those from ethnic and racial minority groups. The study separated doctor-owned hospitals that provide specialty care, such as orthopedic procedures, from 120 doctor-owned hospitals that provide more general care.
Dr. Ashish Jha, director of Harvard's Global Health Institute and co-author of the BMJ study, says supporters of Obamacare's ban likened the subset of doctor-owned hospitals that focus on a particular procedure or medical area, such as orthopedics, with all doctor-owned hospitals that have broader medical portfolios.
"I just think Congress got this one wrong," Jha said of the ban. "There is some evidence that speciality hospitals, which can be doctor-owned or not, do some amount of cherry picking, and they've used that evidence to make a much broader ban on physician-owned hospitals that seem to be providing good care. I think this ban is pretty unjustified."
There isn't much momentum to change the ban, though the Centers for Medicare and Medicaid Services requested public feedback in April about whether certain regulations should be rescinded.
Republican senators are working to repeal and replace portions of Obamacare, but have focused on changes to Medicaid, which covers low-income people, and on requirements the law set on individual citizens and on insurance companies. Sen. James Lankford, R-Okla., has introduced a bill that would repeal the ban, but it's not included in the GOP healthcare bill due to questions over whether it meets Senate rules for the type of legislation being considered. In February, Rep. Sam Johnson, R-Texas, introduced a version in the House.
The American Hospital Association and the American Federation of Hospitals have come out strongly against any proposal, including those in the House and Senate, that would lift the ban on physician-owned hospitals, saying that doing so would harm patients, who would face unnecessary medical procedures, and would also harm nonprofit hospitals. They pointed to an analysis by a consulting firm that reinforced previous accusations about treating patients that are less medically complicated and providing fewer emergency services. The U.S. Chamber of Commerce, which represents different businesses, agrees with the ban, saying it prevents costs from increasing.
But the Centers for Medicare and Medicaid Services gives high-quality ratings to physician-owned hospitals, and has given top awards to them for delivering value to Medicare.
"It's hard for me to understand today, based on the evidence we have, what justifies banning this entire group of hospitals," Jha said.
To Hyman, the reasoning of for-profit and non-profit hospitals is clearly that they wanted to stymie competition.
"Incumbent providers don't like new entrants," he said. "People use government regulations to try to keep their competitors out. … They are offering a portfolio of services, and a new entrant offers a different portfolio. It's up to people to decide who they want to do business with."
Herzlinger, who has written extensively about the business side of healthcare, says this point of view is common in other industries, too."In any industry, the status-quo providers will do whatever they can to eliminate innovation," she said. "They don't like anything that threatens to diminish their market power."
Curd and Physician Hospitals of America see the ban as a move to regulate them out of business.
"On everything the government has said healthcare reform is supposed to be about, we are leading the pack," Curd said. "I think they are mad we're better at it ... They should partner with us and learn from us about how good healthcare can be delivered."
Herzlinger says she suspects some physician-owned hospitals were overusing imaging and lab sites, but says Obamacare took an incorrect approach.
"I don't think the cure is to eliminate these tremendously important entrepreneurial innovators in which the doctors are key," she said. "Instead, change the market so that consumers have more ability to be alert and vigilant about what they buy."Other outside health experts opposed to the ban say it could hike prices, and argue that more competition should be viewed as a welcome development.
"We know that when there is more competition among hospitals, the quality of care seems to get better and prices come down," Jha said. "As long as everyone is playing by the rules, that's generally a good thing for people in that community.
"The idea that we would regulate a whole group of competitors out of the market is really harmful for patients. Hospitals could be much better. Overall, it's an industry where organizations could stand to improve."