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New Study Shows 'No Medicare Savings' if Congress Moves Against Physician Owned Hospitals.
Date:12/17/2009

care expenditures do not vary according to whether a community has a POH.(2) The study examined the effect of POHs on Medicare per enrollee expenditures at the metropolitan area (MSA) level nationwide, spanning the eight-year time period from 1998 to 2005. The study used fixed-effects panel data estimation with instrumental variables to account for the bias introduced by endogenous POH market entry (i.e., POHs may be more likely to open in high-growth / high-demand markets with high levels of Medicare per enrollee expenditures).

After controlling for other variables that are likely to affect expenditures (especially the age and sex distribution of the MSA), we find no association between POH presence and Medicare expenditures per enrollee at the MSA level. The results are robust to changes in model specification, estimation technique and definition of geographic market. These findings suggest that the "demand inducement" aspects of physician ownership of acute care hospitals (if any) has no meaningful impact on market-level Medicare expenditures per enrollee. We argued based on these findings that current policies based on an assumption that POHs are associated with significant increases in total expenditures may need to be reassessed.

Based on these statistical findings, it seems unlikely that restrictions on POHs have the ability to generate Medicare savings. Underlying these findings, an important question is whether adjusted DRG payment rates are higher or lower for POHs relative to their non-POH counterparts. Given the structure of the current Medicare inpatient prospective payment system, the main ways in which DRG per-case net payments vary are by the relative magnitude of the adjustments.(3)

For example, the typical urban teaching hospital receives upward price adjustments for indirect medical education (IME), Medicaid disproportionate share status (DSH), and "outlier" cases (i.e., cases that are exceptionally complex
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SOURCE Physician Hospitals of America
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