Three Legislative Reforms So Physicians Can Open Hospitals


It is rare to find an issue that unites both political parties. Finding such an issue within healthcare policy is even rarer. However, the worrisome trend of medical care provider consolidation – both individual practitioners and hospitals – concerns everyone.

A well-researched fact, consolidation in medical care can dramatically drive up the price of private insurance. One study showed that in geographic areas with the highest rates of hospital consolidation saw anywhere from an 11% to 54% increase in price for hospital stays.

Historically, the left challenges monopolistic trends and the right advocates for the creation of small businesses. By tackling the issue of hospital consolidation, more physician-owned practices can arise, satisfying both political parties. Ultimately, patients will win.

On July 9th, 2021, President Joe Biden issued an executive order that encouraged the Federal Trade Commission and Department of Justice to revise merger guidelines. However, that tactic may not be the best means to reach the desired ends.

Despite an executive order, if agencies decide a recommendation goes against their policy preferences, they can disregard the order. Federal agencies can choose to avoid enforcing the rules, create new rules that complicate old rules, or even intentionally neglect to give sufficient funding to new projects – such as the project President Biden suggested in his executive order. In short, depending on agencies to make change often gambles on the ideology of the unelected federal government bureaucrats.

Instead of battling with agencies on antitrust regulations, a better approach would be to focus on incentivizing physicians to own their own practices.

Below are a few ideas for policy reforms to incentivize doctor-owned practices:

  1. Repeal Affordable Care Act (ACA) moratorium on physician owned hospital (POH) expansion and the ACA era CMS rule that bans new POHs from receiving Medicare funds

When the Obama Administration sought to pass the Affordable Care Act in 2010, the executive branch needed the support from the hospital industry to strengthen their case for the controversial bill. Powerful hospital industry lobbyists eventually gave their support – in exchange for the moratorium and a ban.

The rule prevents existing POHs from expanding capacity. New POHs cannot receive Medicare funds. Medicare accounts from anywhere between one-fifth to one-half of the revenue at hospitals.

As a result of the foolhardy legislation—and to the delight of hospital conglomerates—many POHs have been forced to close or merge with large hospital systems.

By lifting the moratorium and the ban, not only would healthcare costs decrease but innovation and efficiency would increase, as healthy competition between POHs and large hospital systems would prosper.

  1.  Revise the Stark Law

In the late 1980s, then-U.S. Congressman Pete Stark from California introduced a physician ethics bill that prohibited healthcare physicians from referring Medicare patients to other entities where the physician owned a financial interest. The idea was to drive down the cost of medical services by preventing physicians from potentially referring patients to unnecessary services to increase revenue.

However, that same rule does not apply to hospital systems. Hospital physicians can still refer a patient to any service that resides within their system’s orbit – such as radiology services, therapy services, or prescription drugs.

The rule gives an unfair advantage to POHs’ competitors and should be revised accordingly.

  1. Reform Certificate-of-Need (CON) Laws

In most states, to start a new healthcare practice or expand existing practices, providers must file a “certificate-of-need” with state-based government agencies. Getting new services approved is a lengthy and convoluted process. Existing competitors can even dispute new certificate requests which naturally leads to monopolistic trends.

The original intent of CON laws was to control health care quality. In practice, the laws restrict both POH and hospital system supply and discourage medical innovation.

By encouraging true competition to flourish between physician owned hospitals and large hospital systems, American patients will benefit from lower healthcare costs.

McKenzie Richards is a Policy Research Associate at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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