POHs Role Unclear As Physician Hospitals of America Seeks Legal Remedies

President Obama’s signing of the health reform bill last spring quashed most long-term strategies for physician-owned hospitals (POHs) in Arkansas, including new construction, renovation and expansion projects on the drawing board, mirroring the national trend as POH advocates scurry for legal remedies.

On March 2, Physician Hospitals of America (PHA) leaders, along with physician owners, nurses, and patients, converged on Capitol Hill to ask federal lawmakers to reverse Section 6001 of the Patient Protection and Affordable Care Act (PPACA) and to correct the negative impacts of its passage. Nationwide, Section 6001, which bans further expansion or construction of POHs, has stymied the progress of more than 100 projects, including some 40 hospitals near completion. In the United States, 285 POHs serve patients in 34 states for general and long-term acute care, emergency medicine, women’s, children’s, rehabilitation and psychiatric services.

“It’s a shame that every person in the United States has a right to own part of a business, but a physician cannot own a hospital,” said PHA President Michael Russell, MD.

Proponents of POHs were elated when federal Judge Roger Vinson of Florida declared the Patient Protection and Affordable Care Act (PPACA) unconstitutional in its entirety. Texas Spine and Joint Hospital, a POH in Tyler, Texas, and PHA are challenging the constitutionality of Section 6001 in Texas Federal Court, presided by federal Judge Michael H. Schneider.

“We’re hopeful that the Florida decision will stop the enforcement by the federal government of all unconstitutional limitations on hospital expansion, and PHA will seek that relief in the courts,” said Scott Oostdyk of McGuireWoods, the lead plaintiff attorney in the case. “Courts work in tandem to insure law is even-handed, so (we’re asking) the Texas court to adopt (the) Florida decision holding that PPACA 6001 is unconstitutional. Therefore, the left and right hands should hold the same law.”

Russell said the moment shift “gives us reason to believe patients will soon regain their ability to choose the highest quality, most efficient care offered at physician hospitals across the country.”

The Arkansas medical community is closely monitoring the status of POHs. A recent Consumer Reports survey revealed the top two hospitals in Arkansas are physician owned, as are four of the top seven hospitals in the state.

In the Little Rock 2011 Market Overview, analyst Lyda Phillips said the presence of both nonprofit and for-profit health systems, with a majority of the latter physician-owned, “creates a tense and often litigious atmosphere in this market. Low occupancy rates have doctors and hospitals scrapping over patients, especially those with insurance.”

The anti-trust case filed by Little Rock Cardiology Clinic was thrust into the national limelight several years ago when cardiologists who were involved with the Arkansas Heart Hospital alleged that Baptist Health took anti-competitive actions to force the POH out of business. The physicians participated in the Arkansas FirstSource Network of providers accessed by all Blue Cross and affiliate health plans. After the Heart Hospital opened, the cardiologists claimed they were excluded from the network because of their involvement with the POH, arguing that their reason for exclusion from the network was to shield Baptist Health from competition.

They also stated that Baptist Health began credentialing practices in early 2003 that excluded physicians with financial interests in competing facilities from being on staff. The physicians, who didn’t name Blue Cross as a defendant in the complaint, argued that Baptist took part in illegal contract combination and concerted action to restrain competition. The court dismissed plaintiff claims on the grounds that the cardiologists failed to prove the acute care hospital engaged in anti-competitive behavior. 

Despite the chain of events leading to this point, not all POH projects in Arkansas are kaput. Cirrus Health spokesperson Tracy Edwards said the Dallas, Texas-based developer and manager of physician-owned ambulatory surgery centers and short-stay hospitals nationwide, remains committed to the development of a POH in Conway.

“We’ve modified our business model so that physicians don’t have direct ownership in the operations of the hospital,” she said, “but are still highly involved in the clinical services of the hospital.”

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