Chefs can own restaurants. Lawyers can own law firms. Yet for sixteen years, federal law has stood in the way of doctors owning hospitals.
Physician-owned hospitals (POHs) were once a promising source of competition in rapidly consolidating hospital markets. However, the Affordable Care Act (ACA) effectively barred new POHs from opening and existing ones from expanding.
In the years since, hospital consolidation has accelerated, an increasing share of physicians has been absorbed into large hospital systems, and hospital prices have skyrocketed, far outpacing inflation. The competition that POHs were providing was effectively shut down. Policymakers should lift the ACA restrictions on POHs to increase competition and lower hospital prices.
What Are POHs?
POHs are hospitals in which a physician or immediate family member has an ownership or investment interest. The core difference between POHs and traditional hospital systems is ownership and governance: in POHs, physicians often play a direct role in administrative and operational decisions, rather than serving primarily as employees or contractors within a system run by non-physician administrators.
POHs are generally organized into two structures: general acute care hospitals, which provide a broad range of services, and specialty hospitals, which focus on one type of service—with a roughly even split between the two as of 2015.
The Case Against POHs Has Not Held Up
Early Concerns
POHs flourished prior to the ACA’s passage, growing from fewer than 70 in the early 2000s to roughly 250 by 2010. They were permitted to operate under the “whole hospital exception” to the Stark Law, which allows physicians to refer patients to hospitals in which they have an ownership interest, provided the interest is in the entire facility rather than a single department.
In the early 2000s, critics began raising concerns that physician-owned specialty hospitals would siphon off healthier and potentially more profitable patients while leaving expensive patients to be treated by community hospitals. Some worried that physicians would refer patients to their own facilities for financial gain rather than clinical need. This led Congress to implement a temporary moratorium on new specialty POHs from 2003 to 2005, during which federal agencies studied their effects.
A 2005 MedPAC report found inconclusive evidence on the impacts of specialty POHs and said that “removing the exception that allows physician ownership of whole hospitals would be too severe a remedy at this time.” It called for extending the moratorium for further study until payment changes could address concerns—changes that CMS later implemented before the ACA restrictions. A subsequent CMS study recommended disclosure requirements and payment reforms, not broad restrictions on physician ownership.
The ACA Restrictions
The ACA went far beyond imposing restrictions on specialty hospitals, preventing all new POHs from billing Medicare and freezing the capacity of existing “grandfathered” facilities (those with a Medicare provider agreement by December 31, 2010).
The law did not technically prohibit the construction of POHs, but a facility that cannot bill Medicare would face significant barriers. Medicare patients account for almost half of inpatient days nationally, and the way that Medicare pays has outsized influence on the entire health care market.
Grandfathered POHs can request an exception to expand, but the eligibility criteria are so narrow that only eight POHs have submitted formal expansion exception requests in the sixteen years since the restrictions took effect. The CEO of Texas Spine and Joint Hospital, whose $37 million expansion was blocked, said the requirements were so onerous that the current exception process amounts to “a sham.”
Following the ACA, POH growth was severely stunted, amounting to an effective stop-work order. According to the Physician Hospitals of America, 37 planned hospitals were never built, 40 construction projects were halted, and 20 major expansions were blocked.
The policy’s origins were likely less about evidence than about political pressure from the hospital lobby, which had a clear interest in suppressing a new source of competition. In 2005, the American Hospital Association (AHA) called for making the temporary moratorium on specialty POHs permanent. In 2009, the AHA and its affiliates spent more than $18 million on lobbying, and the AHA has since listed POH restrictions among its accomplishments from the law’s passage.
Reexamining the Concerns
The main concerns about POHs—self-referral, cherry-picking, and specialization harming community hospitals—were worth examining. However, evidence suggests these concerns either have not materialized or are not unique to POHs.
According to CMS, there is no clear evidence that self-referrals at POHs are driven by financial incentives. Concerns about self-referral apply to the hospital industry more broadly and not just to POHs. Physicians employed by hospitals are not restricted from making referrals to their employing hospital system—and traditional hospital systems routinely steer patients to their own facilities and use all-or-nothing contracting to force insurers to include all of their facilities in-network.
Multiple studies have found no evidence that POHs are systematically cherry-picking more profitable patients and leaving less profitable patients to community hospitals, despite this accusation remaining a persistent talking point for traditional hospital lobbyists.
Concerns about specialization in profitable services that may compete with community hospitals are unrelated to the ownership structure—not all specialty hospitals are physician-owned. Further, MedPAC reported that community hospitals maintained stable profit margins even as specialty POHs grew their admission share, and some community hospitals have acknowledged that competition from specialty hospitals had positive effects on their operations. Overall, community hospitals are not a fragile sector. Tax-exempt community hospitals already receive substantial subsidies, and the majority are profitable on their own. Concerns about community hospital viability, even where they exist in smaller or rural markets, do not justify blanket restrictions on physician ownership.
Allowing More POHs Could Improve Health Care Affordability and Patient Choice
Allowing POHs to expand and enter the market could help counter the hospital consolidation driving the health care affordability crisis. Research suggests that POHs can provide higher-quality care at lower cost than traditional hospitals, and increasing competition could put downward pressure on prices system-wide and increase patient choice.
Combating Hospital Consolidation
It is widely documented that hospital consolidation is leading to higher health care prices. In 2024, one or two hospital systems controlled the entire market in half of metropolitan areas and more than three-quarters of the market in over 80 percent of metropolitan areas. Prices are about 12 percent higher at hospitals with monopoly power than at hospitals with multiple competitors.
Hospitals are also increasingly buying up physician practices—from 2012 to 2024, the share of physicians either employed by or affiliated with hospital systems grew from 29 percent to 47 percent. After hospitals acquired physician practices, prices for those services rose by an average of 14.1 percent, with larger increases when the acquiring hospital had a larger market share.
Allowing POHs to form and expand could help counter this trend. Giving physicians another structure in which to organize and practice—one in which they maintain ownership and governance—could help them remain outside of large hospital systems and reduce the frequency of hospital acquisitions of independent practices. This could be particularly significant for inpatient services, where independent physicians currently have few options to practice outside of hospital systems.
Lower Costs, Higher Quality
Research suggests that POHs can deliver care at lower cost and equal or higher quality compared to traditional hospitals. One study comparing median negotiated commercial and cash prices at general acute care POHs and traditional hospitals found that commercial prices were 4 to 33 percent lower and cash prices were 5 to 36 percent lower at POHs. A study by the Physicians Advocacy Institute found that Medicare fee-for-service payments were 8 to 15 percent lower at POHs than at traditional hospitals for the 20 most costly diagnosis-related groups, even after adjusting for differences in patient demographics.
A systematic review of POH research found no evidence that quality outcomes are worse at POHs than at traditional hospitals. Specialty POHs providing cardiac or orthopedic care delivered higher-quality care at lower or comparable cost—including lower mortality rates and fewer complications—while general acute care POHs performed no worse on cost or quality than competitors. A study published in the BMJ found that POHs and non-POHs had similar patient experience scores, risk-adjusted 30-day mortality, readmission rates, and costs for major conditions including heart attack, heart failure, and pneumonia.
If more POHs entered the market, competition could put downward pressure on prices at traditional hospitals. And beyond cost savings, additional facilities would expand patient options for high-quality care.
Recommendations
The ACA’s restrictions on POHs went further than what agencies recommended and were shaped by the lobbying of incumbent hospital systems seeking to limit competition. Sixteen years later, the industry narrative has not held up, and POHs have demonstrated that they can deliver higher-quality care at comparable or lower prices. Meanwhile, hospital consolidation has accelerated, driving up costs for patients and taxpayers and potentially reducing quality of care.
Congress should repeal the ACA-imposed restrictions on POHs, allowing new and existing POHs to compete on the same footing as traditional hospitals. Removing these restrictions would restore a pathway for choice and competition to improve care quality and affordability. Any lingering concerns do not justify maintaining a blanket prohibition on physician ownership.
Absent repeal, CMS should reimplement its 2021 rule to ease expansion exceptions. This rule would have made it easier for existing POHs to expand, but the Biden administration moved to reverse these changes and ultimately tightened restrictions. CMS should also allow any POH, regardless of grandfather status, to participate in the Transforming Episode Accountability Model (TEAM) through its 2027 rule, opening a narrow pathway for POH growth.
