Reconsidering the Ban on Physician-Owned Hospitals to Combat Consolidation

Ongoing consolidation by hospitals and providers threatens to further reduce competition in U.S. healthcare markets. Physician-owned hospitals (POHs) served as a rare countertrend for many years—a pathway for innovative and effcient alternatives to enter hospital markets and offer a bulwark against this consolidation. However, that countertrend came to an abrupt and enduring halt in 2010, when hospital incumbents leveraged passage of the Affordable Care Act to obtain an ill-conceived and unrelated ban on POHs. While health services researchers have scrutinized the POH ban, this Article analyzes it through a competition lens. It incorporates the growing attention in antitrust to labor markets and explores how physicians, through POHs, are particularly well-positioned to identify market opportunities. In doing so, physicians can defeat the market power possessed by hospital incumbents, upstream against physicians and downstream against payors and patients. This Article first provides an overview of the seemingly inexorable trends towards further consolidation among healthcare providers and the related competition concerns this consolidation raises. Next, the paper discusses the factors that positioned POHs to counterbalance these consolidation trends as market entrants and innovators, and how, after lobbying by incumbent hospitals and health systems, POHs faced regulatory pushback culminating in a federal ban on further POH growth and expansion. The Article then describes how market power by hospital incumbents in both upstream and downstream markets accentuates the incentives and importance of physicians in identifying opportunities for market entry and innovation. It further discusses how the POH ban affects healthcare competition, identifies the potential benefits of relaxing the ban, and suggests more narrowly tailored policy options that could mitigate policymakers’ concerns about POHs—concerns that may not be unique to physician ownership and do not justify depriving the market of POH competition. The Article concludes with our recommendation that Congress remove the ban on POHs and apply more appropriately tailored policies. Read More.