The future of physician-owned or joint-ventured heart hospitals would seem to be dead. What officially killed it is H.R. 3950, the Patient Protection & Affordable Care Act, which declares that, unless they have a provider agreement in place prior to December 31, 2010, physician-owned hospitals (of any type) are excluded from Medicare participation. These controversial entities have suffered as of late from a confluence of market forces that did not bode well for the long-term health of the heart hospital. In particular, two major factors worked against them:
- the continuing trend towards physician/hospital alignment, particularly specialty physician employment by hospitals; and,
- the continuing trend towards the development of outpatient services at the expense of inpatient hospital services.
Thus, freestanding, for-profit heart hospitals began to lose their novelty and market luster. Even MedCath, the proprietary developer of heart hospitals, is divesting some properties and looking to sell itself or more of its hospitals. It recently sold its ownership stake in the Heart Hospital of Austin (Texas) to St. David's Medical Center of Austin.
On June 3, Physician Hospitals of America, representing 260 physician-owned hospitals, along with the Texas Spine & Joint Hospital filed suit in U.S. Federal Court challenging the constitutionality of Section 6001 of the new law. They denounce the passage of healthcare reform, saying it will destroy the 60 hospitals currently under development, cost 25,000 jobs in 38 states, and cost billions of dollars in invested costs. This time, politics, and of course, supporting market trends, seem to have won out over entrepreneurship and the free market. Unless, that is, that section of the law is overturned in court!
The overall strategic, competitive and financial value of the freestanding heart hospital concept has been debated time and again over the past several years, with full-service hospitals out to kill it, and our purpose is not to rehash this debate here. It would seem then, that the following conclusions can be drawn from a distillation of current trends and recent legislation:
- There will be no new physician-owned heart hospitals developed in the U.S. if H.R. 3950 stands and/or the specific prohibition on physician ownership is not repealed or overturned in court.
- Existing physician-owned or joint-ventured heart hospitals, while under increasing economic pressure, are still viable competitors to hospital cardiovascular programs in specific markets and under specific market circumstances.
- Physician/hospital alignment strategies up to and including employment models can be viewed as a successful alternative against physicians considering options such as heart hospital support, ownership or participation.
- Hospitals and health systems will continue to develop their cardiovascular programs by incorporating heart hospital concepts into their strategies, including developing new hospital-owned heart hospitals and/or purchasing existing/competing heart hospital ventures to expand their capabilities, market reach and market share.
- Physicians can no longer view freestanding heart hospitals as viable investment opportunities. Existing development will be halted and no new development will be allowed.
If there is a lesson here, it is that even in a market-driven economy such as healthcare, politics cannot be divorced from economics and market trends must be continuously and critically evaluated by all providers if they are to succeed and prosper.
What do you think? As always, CFA values your thoughts and comments.