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Sick of red tape, physicians are buying hospitals

Across the country, doctors are buying up failed hospitals from hospital operators like Tenet Healthcare and HCA and working to turn them around. But some say the trend presents risks for patient care.
/ Source: CNBC

After treating people with back trouble for 15 years, orthopedic surgeon Dr. John J. Regan is trying to cure a bigger problem within his own profession.

Tired of the hassle of dealing with hospital bureaucracies and insurance middlemen, Dr. Regan and a group of more than 100 other physicians in the Los Angeles area are banding together to purchase a hospital formerly owned by hospital operator Tenet Healthcare, which has struggled since 2002 when its billing practices became the target of a federal investigation.

They are giving the hospital a facelift too, completely refurbishing it to their own specifications: “The biggest frustration that physicians are feeling is that they’ve lost control, or they’re losing control over patient care,” Regan explained.

The example is part of a larger trend. Across the country, doctors are buying up failed hospitals from hospital operators like Tenet Healthcare and HCA and working to turn them around.

“Healthcare's a very inefficient industry and we think we can not only add some efficiency to it but also provide better care,” Jeremy Hogue of Spectrum Medical Center Partners, a group of doctors turned hospital investors.

Dr. Randy Rosen of Century City Doctors Hospital, a physician-owned hospital in Los Angeles, says physicians there took a dilapidated hospital in a community where beds space was declining and emergency rooms were closing and resurrected it. “They put their money where their mouth is,” he said.

Doctors have gone into business before, but with disastrous results.

In the late 1980s, Congress has to step in to stop widespread abuse and conflicts of interest among physician-owned laboratories and diagnostic centers. But lawmakers left a loophole in the law that allows doctors to own and operate whole hospitals.

Critics of doctors owning hospitals, like the American Hospital Association (AHA), say some doctor-owned facilities tend to cherry pick the least sick patients in the community with the most insurance, forcing local not-for-profit hospitals to handle the uninsured, while operating critical, yet money-losing areas of healthcare, like emergency rooms, trauma centers and burn units.

“That [legal] loophole has become a gaping hole, if you will,” said Rick Pollack, executive vice president at the AHA, adding that while doctor-owned hospitals cherry pick the well-insured cases from the local community, other hospitals are struggling to provide communities with essential public services.

But many physicians turned investors argue that putting doctors in charge of both the business and medical divisions at ailing hospitals may be the only way to keep them open at all.

“It’s hard to argue against better care at a lower cost,” said Jeremy Hogue at Spectrum Medical Center Partners. “And at the end of the day, that’s what we’re trying to do here.”