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Home / News & IndustryManaged Care Insight and Analysis
Updated: Sept. 23, 2008
Physician-Owned Hospitals Linked To Shifts In Care

After physicians become part-owners of specialty hospitals, referrals for surgery and other hospital testsand treatments increase significantly, according to a study by a researcher at Georgetown University.

"Given the growth in physician-owned hospitals, these findings suggest that healthcare expenditures will be substantially greater for patients treated at these institutions relative to persons who obtain care from non self-referral hospitals," said Jean M. Mitchell of Georgetown University in Washington, D.C.

Mitchell analyzed patterns in the care of Oklahoma workers-compensation patients treated for back and spine problems from 2001 to 2004. Her focus was on how physicians’ practice patterns changed after they became part-owners of specialty hospitals.

During the period studied, two new physician-owned specialty hospitals — an orthopedic hospital and a spine hospital — opened in the Tulsa area. Mitchell compared changes in practice patterns for doctors who did and did not become part-owners of one of these two hospitals.

The results showed a significant increase in referrals for certain treatments and tests after physicians gained ownership interest. The most dramatic change was a 650 percent increase in patients referred for "complex" spinal fusion surgery: from 0.1 percent before ownership to 6.51 percent after ownership, according to their study.

In contrast, for non-owner physicians, referrals for complex spinal fusion surgery remained stable at less than 1 percent, according to the study

At the same time, physician-owners became less likely to refer patients for less-costly "simple" spinal fusion surgery, compared to an increase in such referrals for non-owners. Physicians who became owners also became more likely to refer patients for ancillary services performed at specialty hospitals, including physical therapy and diagnostic tests such as MRI scans, according to the study.

Specialty hospitals are generally exempted from federal and state laws banning physicians from referring patients to facilities where they have an investment interest, according to the study.

Proponents of specialty hospitals contend that, by concentrating on a single area, these facilities can lower costs while potentially enhancing quality. However, critics suggest that financial incentives create an inherent conflict of interest for physician owners.

According to the study, the results suggest that physicians’ behavior changes after they become owners of specialty hospitals, including a dramatic increase in referrals for complex and costly spinal operations.

As the market share of physician-owned specialty hospitals continues to rise, healthcare costs may be higher for patients treated at these centers than for patients treated by physicians who do not profit from self-referrals, Mitchell said.

She said, "These findings should be of interest to policymakers and third party insurers who are concerned about increased utilization associated with physician self-referral arrangements and its subsequent contribution to escalating healthcare expenditures for individuals with good insurance coverage."

The study was published in the journal Medical Care.

Address: Georgetown University, 37th and O Streets NW, Washington DC 20532; (202) 687-0100,

  This article was taken from:
The Executive Report on Physician Organizations

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