As Congress considers legislation that would ease restrictions on physician-owned hospitals, a new report from Dobson | DaVanzo warns that new POHs could significantly erode the financial stability of rural community hospitals.
The Physician Led and Rural Access to Quality Care Act, introduced in April, would create exceptions to the nationwide ban on new POHs in rural areas and lift expansion limits on existing physician-owned hospitals.
The Dobson | DaVanzo report modeled what could happen to a typical sole community hospital if a new POH opens nearby under the proposed law. Sole community hospitals already operate on thin margins, averaging a 2.5% overall margin and a negative Medicare margin of -11.8% before any new competitor enters the market.
The report found that the impact varies by POH specialty.
Orthopedic POHs reduce margins but generally do not push facilities into the red. If 25% of key cases shift to the new orthopedic POH, margins fall from 2.5% to 2.1%. At a 50% shift, margins drop to 1.7%, and at 75% they fall to 1.2%.
Cardiac POHs pose a bigger risk. Margins fall to 1.4% with a 25% case loss, nearly break even at 0.2% with a 50% loss, and turn negative if 75% of core cases move to the POH.
The largest threat comes from an “other” POH, a facility with a broader, profitable service mix. In that scenario, margins fall to 0.1% with a 25% case loss, then drop to -3.0% at a 50% shift and to -7.3% at 75%.
Medicare losses deepen in parallel, according to the report. The steepest decline again occurs in the “other” POH scenario, where the sole community hospital’s Medicare margin worsens to -24.3% at the highest volume shift.
The study argues that new POHs in rural areas could siphon off healthier, better-paying patients from sole community hospitals. This concern is amplified by the fact that 152 rural hospitals have closed or been converted since 2010, according to data from the UNC Center for Health Services Research.
Supporters of POHs counter that the facilities lower costs for Medicare. One analysis found POHs saved Medicare about $1.1 billion in 2019 by lowering expenses tied to 20 of the program’s most costly conditions.
