Why can’t doctors open hospitals?

We’ve spent the better part of 2020 and 2021 thanking physicians for caring for the millions of Americans who caught COVID-19. Yet there is one thing we won’t get to thank them for: opening hospitals. 

As states suffer through cycles of repeated hospital bed shortages, we could really use more input from our doctors about how to safely meet medical needs in areas facing COVID-19 surges. But instead of empowering doctors, regulators continue to restrict their ability to innovate.

Doctors are among the best educated and most trusted professionals in society. Until as recently as 2010, they were able to put their skills and knowledge to good use by becoming entrepreneurs and opening their own hospitals, to great acclaim in patient quality rankings. 

Yet, 20 years ago, Congress began implementing restrictions on physician-owned hospitals (POHs). This is most evidently seen in the 2010 Affordable Care Act (ACA), which (with the support of the American Hospital Association) prevented existing POHs from expanding and new POHs from participating in Medicare, with few exceptions. 

This was instituted under the guise of protecting patients from physicians who would refer them to facilities and services in which the physician has a financial interest. Lawmakers feared that POHs were threatening patient safety and driving up health care costs. Reports focusing solely on specialty hospitals warned that POHs had an incentive to admit and treat the most profitable patients and overutilize services through self-referrals. The more than 61 million elderly Americans enrolled in Medicare account for over one-fifth of hospital revenue, making the ban on Medicare reimbursement essentially a death sentence for new POHs.

So, while a baker can open a bread factory and a lawyer can found a legal firm, a physician can’t open a hospital.

Quickly forgotten in the debate was the idea that existing, traditionally owned hospitals can charge higher prices when they face less competition from doctors or anyone else. Nonprofit and for-profit hospitals alike have been consolidating rapidly in recent decades, with more than 1,412 hospital mergers since 1998 and 561 since 2010. No amount of antitrust enforcement can compensate for policies where the government tips the scale in favor of one type of hospital over another.

Also forgotten was the overall community benefit from POHs due to taxes paid and charity care offered. After the ban, subsequent reports turned out mixed reviews of the quality and affordability offered by POHs, with some recommending a repeal of the restrictions.

A new study from the Mercatus Center reviewing three decades of research on the topic sets the record straight: POHs are in every way equivalent to non-POHs, and superior to them in several instances. In light of the conclusions of his research, Dr. Brian Miller – an assistant professor of medicine at the Johns Hopkins University School of Medicine and one of the authors of the study – said, “This ban is an example of Washington at its worst: special interests banning a business competitor and advocating for themselves at the expense of patients.”

The ACA expanded access to health insurance, but having an insurance card doesn’t guarantee timely access to high-quality health care, especially when the number of hospitals is constrained by law. The pandemic accelerated the health care worker shortage, with three in 10 considering leaving the profession. As a result, the health care delivery landscape may undergo dramatic changes in the next few years. Denying physicians the opportunity to shape it is counterproductive. 

Patients arriving in distress don’t care who owns a hospital, but Miller and his coauthors find that general surgery hospitals owned by physicians offer higher-quality care than non-POHs, as do physician-owned orthopedic and cardiac specialty hospitals. Patients with a wide range of serious conditions experienced lower mortality rates in POHs. 

Those superior results make a big difference. Orthopedic patients attempted a greater number of non-invasive therapies before undergoing invasive procedures. They also experienced shorter stays and lower complication rates. Patients got back to their daily lives, families and jobs more quickly and with fewer problems.

When 31 cents out of every dollar spent on health care goes to a hospital, and hospital prices are going up faster than inflation, it’s important that we don’t artificially reduce the number of hospitals. Lawmakers on both sides of the aisle, including President Biden, want to increase competition in the hospital sector, and this should be an easy decision for them to make. Congress’s restrictions on POHs weren’t justified then, and they aren’t justified now. 

Kofi Ampaabeng is a senior research fellow and data scientist and Elise Amez-Droz is a program manager for the Open Health program at the Mercatus Center at George Mason University.