Physician-Owned Hospitals Continue Spread Across North Texas, But Not Without Growing Pains

Forest Park Medical Center’s tony ambience fits its newest home in upscale Southlake.

The entrance features high ceilings, flowing water, and concierge-style service. The hospital, which opened in June, features 54 private patient rooms, 10 family suites, and 12 gleaming operating rooms. The physicians’ lounge features a buffet prepared by executive chefs.

In its infomercials, Forest Park patients rhapsodize about their Forest Park experiences using words such as “spa” and “five-star hotel.” Hospital chief executive officer Charles Nasem proudly declares, “We are the Disney of healthcare.”

In August, Victory Healthcare opened a smaller—but equally inviting—facility called Victory Medical Center Craig Ranch in McKinney.

The company declares, “We create a first-class experience for our patients in our state-of-the-art facilities that include concierge services, a one-to-one nurse-to-patient ratio, and personalized service in an environment designed to promote comfort and healing.”

Forest Park and Victory Healthcare are physician-owned hospitals. Neither accepts Medicare and Medicaid patients. Both focus on high-margin surgeries. Both are criticized by full-service hospitals, which believe they siphon away commercially insured patients. The American Hospital Association and Federation of American Hospitals campaign against what they say is physician self-referral at physician-owned hospitals that concentrate on attracting healthier and more profitable patients, and encouraging overtreatment.

“These hospitals are on balance not seeing the same population,” said Daniel Podolsky, MD, president of UT Southwestern Medical Center in Dallas. “A lot of that is the demographics and the geography.”

Doug Hawthorne, chief executive officer of Texas Health Resources, said the fact that some hospitals will not take Medicare and Medicaid patients creates an uneven playing field for community hospitals.

“[This] really leaves some of us caring for those who can’t care for themselves because others won’t take those patients and we have that discrimination in North Texas,” he said.

Proponents of physician-owned facilities say they perform high volumes of the same procedures as a “focused factory,” allowing them to improve quality and reduce costs. They also say greater physician control encourages greater productivity and quality. Opponents say their existence threatens the ability of community hospitals to cross-subsidize less profitable services and uncompensated care.

Physician-owned hospitals typically have higher quality scores. Of the 161 physician-owned hospitals eligible for the Centers for Medicare and Medicaid Services quality programs, 122 earned quality bonuses, according to a Kaiser Health News analysis.

According to a recent story in The Wall Street Journal, nearly half of the procedures at Forest Park’s Dallas hospital are bariatric and general surgeries. Spine and orthopedic surgeries comprise 50 to 75 percent of the procedures performed at Victory Healthcare’s facilities.

Of the top 10 U.S. hospitals earning Medicare quality bonuses based on 12 measures of clinical care, nine are physician-owned. Of those, three are Baylor Health Care System joint-venture facilities: Baylor Medical Center at Trophy Club; Baylor Medical Center at Uptown in Dallas; and Baylor Heart and Vascular Hospital in Dallas. Irving Coppell Surgical Hospital also is in the top 10.

Physician-owned hospitals receive high scores on patient satisfaction surveys, which account for 30 percent of the value-based purchasing program. Patients react positively to amenities and facilities that do not have the familiar sights and smells of a traditional hospital.

However, those hospitals have stepped up their game. Recently, the New York Times published 10 photos and asked readers whether they were hotels or hospitals—underscoring the fact that they increasingly are becoming indistinguishable. And patients rank hospital amenities and hospitality higher than clinical quality, research shows.

Texas: A Market Ripe for Physician-Owned Hospitals

The lack of a certificate-of-need law in Texas encourages the creation and expansion of physician-owned facilities. CON laws in other states require companies to seek state permission to build such facilities.

Forest Park has hospitals in Dallas and Frisco, and is building facilities in Fort Worth, San Antonio, and Austin. The hospitals have about 70 percent physician ownership, with Forest Park owning the balance.

Forest Park founder and managing director Dr. Robert Wyatt said Forest Park would accept Medicare and Medicaid patients if not for federal prohibitions.

The Stark law prohibits doctors from referring Medicare patients to hospitals, labs and other physicians for healthcare services if the referring doctor has any financial relationship with that entity. The purpose of the law, which was passed in 1989, was to protect federal health insurance programs from overuse of healthcare services.

Until the Affordable Care Act passed, the Stark law had an exception known as the “Whole Hospital Exception,” meaning physicians were free to own hospitals if ownership interest was in the whole hospital rather than just a specific service line. The ACA abolished that exception for new hospitals and limited the expansion of existing hospitals. The American Medical Association has published a 79-page “overview” detailing the law’s intricacies.

More broadly, the ACA prohibits the construction or expansion of new physician owned-hospitals within the Medicare program. The Physician Hospitals of America, the trade group representing physician-owned facilities, is fighting hard to have this portion of the ACA overturned. A lawsuit challenging that ACA provision was dismissed, citing a lack of jurisdiction.

Wyatt said Forest Park hires hospital CEOs with a bent toward customer service. However, he said catering to the needs of physicians is as important as the patient experience.

“Happy patients make happy doctors. A critical aspect of getting the best patient experience is making sure you involve doctors in designing the patient experience. That includes efficient scheduling and efficient room turnover. We also pay attention to physician experience.”

In addition to McKinney, Victory Healthcare has hospitals in Plano and Hurst, and plans to open one in Fort Worth’s Medical District next year. He anticipates nearly doubling the company to 15 hospitals—including a total of six in DFW—by 2015.

Unlike Forest Park, Victory’s strategy is to remain out-of-network and cannot foresee a day when it would take Medicare and Medicaid patients.

“It’s a matter of choice,” said Victory Healthcare chief executive officer Robert Helms. “The [government] programs have been stripped and doctors are running away from them at a high rate of speed. We pay real estate taxes. We pay [corporate] income taxes. The non-profits need to be handling these cases.”

Of its out-of-network status, Helms said private-insurance policyholders pay higher premiums for the right to pay out-of-network rates.

With Growth Comes Controversy

Forest Park recently paid more than $260,000 and accepted federal monitoring for up to two years stemming from charges that it paid physicians cash and gift cards for referring military families to its facilities.

In a statement, chief operating officer Archie Drake said, “Forest Park Medical Center Dallas fully cooperated with the United States Attorney’s Office throughout this process and began an open dialogue with them.  We are pleased that we have reached a non-prosecution and civil settlement agreement with the United States Attorney’s Office.  This decision follows our full cooperation during the investigation.  Prior to and during this process, we took the opportunity to perform an in-depth review of our practices and made appropriate changes. We have agreed to a modest monetary civil settlement, and we will continue to enhance our corporate compliance.  We are pleased that this issue is now behind us. Our focus at this time is on moving forward and continuing to provide extraordinary care to our patients.”

And Victory filed suit against Cigna in June, saying it reneged on $22.3 million in payment claims. Victory claimed that Cigna violated the Texas Insurance Code and the federal Employee Retirement Income Security Act by failing to pay in a timely manner and unilaterally reducing reimbursement.

Helms said Cigna was lumping Victory with other out-of-network providers that waive patient deductibles and coinsurance, which Victory does not do.

Victory’s hospitals in San Antonio and The Woodlands sued Blue Cross and Blue Shield of Texas in 2012 for $55 million on similar grounds.

“[Insurers] have no right to sell a policy and fail to honor it,” Helms said. “There is no need to be bashful about being paid for what we do. We hold our hospital up to a higher standard. Our operating rooms are larger and newer. Our technology is totally up to date. We handpick our staff and pay premium wages. We have a 1:1 nurse-patient ratio. If patients are going to pay for a higher quality product, we have the responsibility to have a higher-quality product.”

BCBSTX and Cigna declined to comment on the lawsuits, but Cigna spokesman Mark Slitt said, “Certain out-of-network health care providers charge insurers and employer groups, and through them, local consumers, grossly excessive fees for their medical services – sometimes at rates 1,000 percent higher than the rest of the market. Most out-of-network health care providers do not engage in such conduct, but those that do raise costs for employers and consumers.”

Steve Jacob is founding editor of D Healthcare Daily and author of the book Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us. He can be reached at steve.jacob@dmagazine.com.

5 comments on “Physician-Owned Hospitals Continue Spread Across North Texas, But Not Without Growing Pains

  1. Dr Hawthorne should be the last to critize private Hospitals with his outrageous salary of 5 million dol per year and zero contribution to patients care

    Reply
  2. Interesting article. Has Texas ever required a certificate of need for health facilities? Guess there’s good and bad in requiring them.

    Reply
  3. Yes, many years ago Texas hospitals labored under Certificate of Need laws.
    The article fails to point out that most physician-owned hospitals and surgical facilities charge less, often considerably less, for procedures than do the “traditional” hospitals. A major reason is the absence of need to ‘cost-shift’, which causes insured or financially responsible patients to help pay for the care of uninsured or financially irresponsible patients…a form of income redistribution, if you will, under a different guise.

    Reply

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