Physician-Hospital Involvement: Why It's Not Too Late: Q&A with Mike Lipomi of Surgical Management Professionals

Mike Lipomi is president and CEO of Surgical Management Professionals.


Q: What are the current regulations on physician ownership in hospitals and what is the outlook on those regulations?


Mike Lipomi: We know that physician ownership in hospitals has been prohibited by current healthcare legislation [the Patient Protection and Affordable Care Act]. As of the date of passage of the bill, March 23, 2010, existing hospitals were not allowed to expand operating rooms, procedure rooms and beds; were not allowed to increase the total percentage of physician ownership, and investing physicians were required to disclose their ownership to patients. Physician-owned hospitals under development had until Dec. 31, 2010, to complete their projects.


The first thing to address is whether there is a chance for repeal or revision of that section [of PPACA] that addresses physician ownership or of the entire healthcare bill. There are a lot of challenges to the legislation from a lot of states' attorney generals and the topic has been accepted by the Supreme Court.


So the question then becomes, "Will the legislation be repealed in its entirety or will certain sections of the bill — specifically the mandate for everyone to have health insurance — be removed from the bill and leave the balance of the bill intact?" That's the question that will be debated by Supreme Court supposedly in March, with a ruling in April.


Q: What can be done to help encourage the repeal of the section on physician ownership in hospitals?

ML: I don't think, from a political or lobbying standpoint, that there's a lot we can do to sway the Supreme Court. Certainly pressures on our elected officials may have some impact, and there may be some changes to the legislation prior to the ruling, whether that's complete repeal of the bill or partial segments.


While I wouldn't give it a strong likelihood of happening, there still is a chance that the section that specifically applies to physician prohibition on investment of hospitals, or even the entire bill, may be repealed or replaced.


Q: If physician ownership in hospitals remains prohibited, are there alternatives that allow for physician involvement?


ML: There are three legal alternatives to physicians being involved in hospitals.


1. The first is to create a facility that does not deal with government payors, specifically Medicare and Medicaid. In my talking with a lot of physicians, they understand that if they do not involve government programs in their hospitals, then they are not under the same restrictions, and they can own and can operate legally.


What does that mean? For most [hospitals], that means they won't ever get to be a viable facility because such a large portion of their patients are Medicare and Medicaid and you would need that volume in order to be viable. But there are certain markets or groups large enough that they could peel off the Medicare and Medicaid patients and just perform private insurance procedures in the facility.


2. A second alternative, and something to my knowledge that has not been done yet, would be to build two hospitals back to back, located very close to each other. One hospital would be private, owned by the physicians; the other hospital would serve Medicare and Medicaid patients and be owned by a corporate partner.


The benefit of this is the doctor would not have to completely split up his or her practice and not be completely inconvenienced by going from one facility across town to the other. They could merely walk across a parking lot or a breezeway, separating their cases [by payor], and have the corporate partner own and operate the facility that treats government payors and the doctors own and operate the adjoining facility.


That's another concept that nobody has tried at this point, but if proper accommodations are made for profitability, sharing of services, etc., that's viable.


3. The third alternative, and probably the most practical alternative, is to have the doctors involved from the onset and through the entire development and operation phases, but keep in strict compliance with fair market value. Have the physicians own the real estate, lease the equipment to the hospital and remain involved in management of the hospital at some level. All of this can be accomplished legally as long as you're in strict compliance with the regulations regarding fair market value.


In other words, if the market rate for leasing a facility was X, you have to charge essentially that market rate. There are real estate companies that do quite well, leasing companies that do quite well and management companies that do quite well doing this. So while the doctors may not be able to achieve the same financial returns that they would if they own the hospital outright, they would still get a significant rate of return by owning these other aspects, like real estate and equipment.


The other thing is keeping to the integrity of the model, and I believe very strongly in this. The reason hospitals have physician involvement is not necessarily for the financial rewards but more for the fact that the physicians are the best suited to determined what happens in the hospital, what resources you have, what equipment you have, what procedures you do, what staffing you need, etc. If you get the physicians involved in the operations and management, from that kind of involvement standpoint, then I think you retain the integrity of the model.


The only thing left then is who is the actual owner of the operation? That would have to be a corporate partner who owns and manages the hospital. But as long as [for the physicians] there's a fixed rate for well-defined services, there are well-maintained hours and there are well-maintained requirements for providing services on the management side, that all becomes legal as well.


Q: Do you believe physician involvement in hospitals is still viable?

ML: I don't think the horse is completely out of the barn yet or at least the barn door is not closed. We are working on a facility that was caught by the [Dec. 21, 2010] deadline, and we find it quite rewarding. I know there are a lot of other facilities that were in some stage of development and I know there are many doctors saying they wished they had done that [third alternative model].


I don't think they should be discouraged and turn around and say "we can't" because you can. It's just a little more work than it was and a little less financially rewarding. From a lifestyle and practice pattern, I think it's going to be exactly as rewarding as it used to be and I think the financial rewards are going to be very similar.


Q: What other advice would you give to physicians considering such involvement in hospitals?


ML: If you're asking yourself, "Should we wait and see" [what happens with PPACA] — nothing ever benefits from waiting unless you have not done your research. If you've done your research and you're ready to go but you're waiting because you want to see if maybe in April you can do it a different way and can own it the old way, my answer to that is [the following]: contractually agree that should legislation change, that the doctors will have the option to purchase and take over the operation [from the corporate partner]. Any corporate partner would do that. That way you're not waiting another 6-8 months and if it [isn't repealed or revised], then you have to go back to the drawing board.


If you want to wait and make sure every T is crossed and every I is dotted, you'll wait the rest of your life because you're dealing with very confusing legislation and constantly changing regulations. If you wait six months and then they [repeal or revise the legislation], then the next step they'll do is come out with other regulations. It is the people who took the risk, stepped forward and did it that are now benefitting from the grandfather clause and continue to operate profitable hospitals.


Learn more about Surgical Management Professionals.

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