Lower Service Costs Found at Physician-Owned Hospitals Versus Competitors

June 28, 2023
New research shows negotiated prices for services often lower at physician-owned facilities

A recent study published in JAMA Open Network compared the commercial negotiated prices and cash prices of eight medical services at physician-owned hospitals (POHs) and non-POHs. The study results showed the costs at POHs were often over 30 percent lower than at competitor facilities.

For the study, researchers examined 156 POHs and 1,116 non-POHs located in 78 hospital referral regions to better understand pricing differentials for common procedures. The analysis focused on eight “CMS-designated shoppable services” including: spinal injection, physical therapy–therapeutic exercise, MRI scan of lower spinal canal, CT scan of abdomen and pelvis, comprehensive metabolic panel, blood test-clotting time, and emergency department visit levels 3 and 4. 

Prior to beginning their analysis, researchers expected to find higher prices at POHs; however, their findings indicated otherwise. The study uncovered that “for the same procedure in the same region, median commercial negotiated prices and cash prices among POHs were 33.7 percent and 32.7 percent lower than those of non-POHs, respectively. Additionally, POH status was associated with 17.5 percent and 46.7 percent lower negotiated prices and cash prices, respectively.” 

Among the biggest differences in pricing between facilities, “MRI and physical therapy services had the biggest differences in commercial negotiated prices between facilities, costing 33 percent and 30 percent less at POHs, while CT and MRI services had the widest gap in cash prices at 36 percent and 35 percent lower at POHs.” 

Study researchers noted that POHs might be able to accept lower commercial prices because they serve fewer Medicaid patients and provide less charity care. According to the study, POHs served fewer Medicaid patients than non-PHOs at 3 percent versus 7.1 percent, respectively, and provided less charity care at 1.3 percent versus 3.2 percent, respectively. 

Under the Affordable Care Act, POHs are prohibited from expanding or establishing new facilities, but there have been efforts to reverse the ban. The American Hospital Association (AHA) recently released a study showing POHs treat less medically complex patients and have margins over 15 times higher than other facilities. 

According to Rick Pollack, AHA president and CEO, "The growth of physician-owned hospitals was restricted by Congress for good reasons and those remain valid today as this analysis shows. Physician-owned hospitals undermine our nation’s healthcare safety net and jeopardize access to care by cherry-picking the most profitable cases and avoiding patients with complex conditions and lower-reimbursing coverage."        

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