Physician ownership an option for Bon Secours hospitals

For much of the past century, this is the way health care worked: A doctor holds admitting privileges to local hospitals, which in turn are owned by another organization.

Increasingly, doctors are deciding it's not enough to work in a hospital - they want an ownership stake, too.

That's an option Bon Secours Hampton Roads Health System is floating for new hospitals it wants to build in Virginia Beach and Suffolk, as well as a replacement hospital for its DePaul Medical Center in Norfolk.

"It allows them to be more efficient in providing the best clinical outcomes," said Lynne Zultanky, a Bon Secours spokeswoman.

Physician-owned hospitals have generated debate. Critics charge that when physicians have an ownership stake in a hospital, they have a monetary incentive to refer patients - particularly those who are less sick and have insurance - to their own facilities, leaving community hospitals to shoulder an unfair share of patient costs and raising concerns that some patients would undergo unnecessary procedures.

The shared ownership with physicians also was one of the reasons the state health commissioner's office rejected the Bon Secours reorganization plan earlier this year.

"The prospect of significant physician ownership raises several concerns, as yet unexplored adequately," said a Virginia Health Department staff report.

Bon Secours is trying again. A public hearing on the health system's proposals is scheduled for Aug. 18, with a decision from the state expected in the fall or winter. Zultanky said Bon Secours is still evaluating the shared-ownership structure and in its application to the state is just seeking the flexibility to use it.

"We may or may not elect to go with physician ownership," Zultanky said.

The debate over physician ownership of hospitals has aroused strong feelings on both sides.

In 2004, owing to concerns that physician-owned specialty hospitals were damaging to general community hospitals, the federal government imposed a two-year moratorium on the building of new ones.

However, their numbers have continued to increase. There are 196 in the United States, with 40 more in development, said Molly Sandvig, executive director of Physician Hospitals of America, a national trade group. That's up from about 120 in 2002.

"I find it unfortunate that it wouldn't be viewed as a positive thing to have a joint venture between a community hospital and physicians," Sandvig said.

Bon Secours' proposal is for physicians to share ownership of general acute-care hospitals, which Sandvig said is the "largest growing segment in the industry" - but most physician-owned hospitals are limited in scope, specializing in cardiac or orthopedic surgeries, for example.

The distinction is important, said Laurens Sartoris, president of the Virginia Hospital & Healthcare Association. "For us, it's not the ownership - it's supporting the full array of services the community needs."

Sartoris said limited-service specialty hospitals, regardless of the ownership structure, can pose a threat to general community hospitals that take all comers and need profitable service lines - such as orthopedics - to balance out the unprofitable, such as the emergency department. So an orthopedic specialty hospital would siphon off an important source of revenue from the community hospital, he said.

Because much of the research has been done on physician-owned speciality hospitals - most of which have a token emergency department consisting of one bed - it is difficult to compare to what Bon Secours is proposing locally.

A 2005 study by the Centers for Medicare & Medicaid Services - which said that cardiac specialty hospitals operate most like community hospitals, with substantial emergency departments - found that physician-owners of such facilities were more likely to refer to their own hospital, between 60 and 80 percent of the time. But the study also found that, contrary to what critics have predicted, the specialty cardiac hospitals did not appear to be cherry-picking only the healthiest patients.

According to the American Hospital Association, physician-owned specialty hospitals drive up the number of procedures done. Critics say that makes it more likely that some patients are undergoing unnecessary treatments because of the financial incentives involved.

Sandvig said that physician-owners of hospitals find the implication that their motives are less pure than other doctors insulting. She said the overwhelming financial incentive for doing a procedure is something all doctors have: the fee they receive, usually thousands of dollars per procedure. The return on an ownership investment per procedure can usually be measured in the tens of dollars, she said.

The main reason doctors want an ownership stake in a hospital, Sandvig said, is to have more of a say in how it is run. She said she often hears doctors say "I couldn't get anything done with this health system" as their motivation for investing in a facility.

"It's a fabulous recruiting tool," Sandvig said. "I think it's a fair way of competing."

Zultanky said Bon Secours wants to give local physicians another option along "the continuum of relationships" between doctors and health systems. She said there are doctors in the area interested in buying ownership stakes in the facilities, but she declined to name who they are, citing proprietary reasons.

If Bon Secours does decide to pursue sharing ownership with physicians, Zultanky said, it would retain majority interest and any single physician would "likely own no more than 2 percent."

With Bon Secours having the controlling interest, the hospitals would be nonprofit and tax exempt. However, the physicians would pay taxes on their share of any profits the facilities generate.

Nancy Young, (757) 446-2947, nancy.young@pilotonline.com