Physician-Owned Specialty Hospitals and the Patient Protection and Affordable Care Act: Health Care Reform at the Intersection of Law and Ethics

American Business Law Journal

Volumn 49, Issue 2, 2012, Pages 369-417

  Perry, Joshua E ^a  

^a INDIANA UNIVERSITY   (United States)

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EID: 84861420928     PISSN: 00027766     EISSN: 17441714     Source Type: Journal    
DOI: 10.1111/j.1744-1714.2012.01135.x     Document Type: Article

References (144)

1. The substantive basis of the first American Medical Association code of medical ethics was Thomas Percival, Medical Ethics; or, a Code of Institutes and Precepts, Adapted to the Professional Conduct of Physicians and Surgeons (1803). See generally Donald E. Konold, A History of American Medical Ethics 1847-1912 (1962) (describing the mid- and late-nineteenth-century developments of medical practice in the United States).
2. See, e.g., Carl Elliott, White Coat Black Hat: Adventures on the Dark Side of Medicine xi (2010) ("A series of social and legislative changes have transformed medicine into a business, yet because of medicine's history as a self-regulating profession, no one is really policing it."); Joseph J. Fins, Commercialism in the Clinic: Finding Balance in Medical Professionalism, 16 Cambridge Q. Healthcare Ethics 425, 425 (2007) ("There is a palpable malaise in American medicine as clinical practice veers off its moorings, swept along by a new commercialism that is displacing medical professionalism and its attendant moral obligations."); John H. McArthur & Francis D. Moore, The Two Cultures and the Health Care Revolution, 277 JAMA 985, 985 (1997) (arguing that, while traditions of commercialism and professionalism both share a central role in the evolution of social institutions in the United States, "threats" exist to the "quality and scope of medical care" when "the tradition of medical professionalism is overtaken by the commercial ethic and by corporations seeking profit for investors from clinical care of the sick"); Jacob Needleman, A Philosopher's Reflection on Commercialism in Medicine, 16 Cambridge Q. Healthcare Ethics 433, 437 (2007) (advocating for reflection among physicians as to "[h]ow ... the money factor ... impact[s] the human values often assumed to define the art of medicine, understood as the work of always and in everything giving first priority to the health and well-being of the individual patient"); Arnold S. Relman, The Problem of Commercialism in Medicine, 16 Cambridge Q. Healthcare Ethics 375, 376 (2007) [hereinafter Relman, Commercialism] ("We have a dysfunctional healthcare system, dominated by investor-owned businesses and by market competition that has created a new commercialized environment. It is a system incompatible with the needs of community and personal medical care and with the values of medical professionalism that have traditionally shaped the behavior of our physicians. But we also have a new generation of physicians too ready to accept the replacement of professional values by market dogma-too willing to believe that medical care is just another economic commodity, of which they are simply 'providers.' All in all, this bodes ill for the future of U.S. healthcare, which is becoming intolerably expensive, inequitable, and insensitive to the needs of our society."); Bernard Lown, The Commodification of Health Care, PNHP Newsl. (Physicians for a Nat'l Health Program, Chi., Ill.), 2007, at 40, available at ("Health care in America ... has been transformed into a for-profit enterprise in which physicians are 'health care providers, ' patients are consumers, and both subserve corporate interests. The effect has been to convert medicine into a business, deprofessionalize doctors and far worse, depersonalize patients."). See generally, Jerome P. Kassirer, On the Take: How Medicine's Complicity with Big Business Can Endanger Your Health (2005) (describing the widespread and pernicious impact of money on the practice of medicine); Maggie Mahar, Money-Driven Medicine: The Real Reason Health Care Costs So Much (2006) (noting that medicine involves a transaction based on trust and documenting the tensions between free markets and the delivery of health care services); William S. Andereck, Commodified Care, 16 Cambridge Q. Healthcare Ethics 398 (2007) (examining the characteristics of health care commodification in the context of medical care and exploring its effects on the doctor-patient relationship); Larry R. Churchill, The Hegemony of Money: Commercialism and Professionalism in American Medicine, 16 Cambridge Q. Healthcare Ethics 407 (2007) (exploring the cultural meaning attached to money and its pervasive force throughout medical research, education, and the delivery of health services); Arnold S. Relman, Medical Professionalism in a Commercialized Health Care Market, 298 JAMA 2668 (2007) (arguing that commercialization, led by many physicians who see themselves as primarily businesspeople, has endangered the ethical foundations of medicine); Marc A. Rodwin, Medical Commerce, Physician Entrepreneurialism, and Conflicts of Interest, 16 Cambridge Q. Healthcare Ethics 387 (2007) (tracing the historical development of medical commerce in the United States from the late eighteenth century through the early twenty-first century and arguing that the primary problem of commercialism in medicine today is the conflict of interest that arises when loyalty to patients and the exercise of independent professional judgment is compromised by physician entrepreneurship).
3. With federal and state government spending included, total health-related expenditures are currently in the neighborhood of $2.5 trillion per year, accounting for greater than one-sixth of the U.S. economy. Timothy Stoltzfus Jost, Global Health Care Financing Law: A Useful Concept?, 96 Geo. L.J. 413, 414 (2008) ("The United States spent almost one sixth of its Gross Domestic Product (GDP) on health care in 2003; this was more than it spent on food, transportation, housing, or any other expenditure." (citing Gerard F. Anderson etal., Health Care Spending and Use of Information Technology in OECD Countries, 25 Health Aff. 819, 819, 820 exhibit 1 (2006); U.S. Census Bureau, Statistical Abstract of the United States, 2007, at 435 tbl.656 (126th ed. 2006))).
4. The diminished influence of professional societies and the decline in their systematic self-regulation can be traced to the U.S. Supreme Court's decision in Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975), and the ensuing series of antitrust lawsuits and Federal Trade Commission decisions. See Rodwin, supra note 2, at 393 (citing Wilk v. Am. Med. Ass'n, 895 F.2d 352 (7th Cir. 1990); In re Am. Acad. of Ophthalmologists, 108 F.T.C. 25 (1986); In re Mich. Optometric Ass'n, 94 F.T.C. 342 (1985); In re Am. Med. Ass'n, 94 F.T.C. 701, 801 (1979)).
5. Mattia Gilmartin and Edward Freeman acknowledge that many think "health care is not a business, never has been a business, and should not be operated as a business." Mattia J. Gilmartin & R. Edward Freeman, Business Ethics and Health Care: A Stakeholder Perspective, 27 Health Care Mgmt. Rev. 52, 53-54 (2002). Citing health care's significant percentage of gross domestic product and the "corporatization of the American health care sector" that dominated the latter half of the twentieth century, Gilmartin and Freeman dismiss the notion that health care is not a business and make the assertion that this article assumes: "health care is solidly a business endeavor." Id. (citing Rosemary Stevens, In Sickness and In Wealth: American Hospitals in the Twentieth Century (1989)); see also Leonard J. Weber, Business Ethics in Healthcare: Beyond Compliance 5 (2001) ("Healthcare is a business but it is not just like every other business."); Kenman L. Wong, Medicine and the Marketplace: The Moral Dimensions of Managed Care 66 (1998) ("Medicine has always been about someone's financial gain.... To some degree, medicine has always been a commodity." (footnote omitted)); Sara L. Beckman & Michael L. Katz, The Business of Health Care Concerns Us All: An Introduction, Cal. Mgmt. Rev., Fall 2000, at 9, 11 ("Whether there is a strong backlash or not against reliance on market forces in health care, the business of health care is going to remain a business, and a complicated one."); Mary Rorty etal., The Third Face of Medicine: Ethics, Business and Challenges to Professionalism, in Ethics and the Business of Biomedicine 198, 215 ( Denis G. Arnold ed., 2009) ("But the consensus at the beginning of this century is that indeed, if not merely a business, medicine is also a business."). Moreover, to paraphrase the U.S. Supreme Court's discussion of professionalism and the practice of law, it simply cannot be denied that in the modern world the activities of physicians play an important part in commercial intercourse, notwithstanding the profession's historic claim that profit is not the goal. See Goldfarb, 421 U.S. at 787.
6. For a brief history of how entrepreneurial, market influences have contributed to the evolution of health care delivery in the United States, see Joshua E. Perry, An Obituary for Physician-Owned Specialty Hospitals, Health Law., Dec. 2010, at 24, 24-25. As early as 1914, "the commercial character of the practice of medicine" was causing concern in the medical community. James P. Warbasse, The Socialization of Medicine, 63 JAMA 264, 264 (1914). An American Medical Association survey of 6000 physicians conducted in the early twentieth century revealed that entrepreneurial, market-oriented approaches to medical practice in the form of kickbacks and commissions were not uncommon. Marc A. Rodwin, Medicine, Money, and Morals: Physicians' Conflicts of Interests 24-26 (1993). At the outset of the twenty-first century, a motley mix of free market forces, government bureaucracies, and legal rules and regulations drive most policies and procedures in the broad and complex health care sector of the nation's economy. Of course, this triumvirate dominates most commercial sectors of U.S. business activity, from trading floors in New York to automobile production in Michigan to industrial agriculture in California. Yet health care's deep connection with ethical traditions and concern over the best interests of the patient set it apart from most other industries. See Kenneth J. Arrow, Uncertainty and the Welfare Economics of Medical Care, 53 Am. Econ. Rev. 941, 948-54 (1963) (discussing the unique challenges of applying normative economics to the practice of medicine).
7. For an additional example of entrepreneurial advances in health care delivery that raises similar concerns about misaligned interests between taking profits and treating patients in the specific context of end-of-life care, see Joshua E. Perry & Robert C. Stone, In the Business of Dying: Questioning the Commercialization of Hospice, 39 J. L. Med. & Ethics 224 (2011).
8. Pub. L. No. 111-148, 124 Stat. 119 (2010). The Affordable Care Act has also become a common, nonpartisan way to refer to "Obamacare, " the health reform legislation President Barack Obama signed into law in March 2010.
9. See Arrow, 946.
10. See Sandra H. Johnson, Test-Driving "Patient-Centered Health Law, " 45 Wake Forest L. Rev. 1475, 1487 (2010) ("A model of mutuality would see both patient and doctor as vulnerable and emotional, and as knowledgeable and skilled....[D]octors are quite vulnerable to emotions such as fear, anger, and sadness in working with patients and in confronting illness.... [P]atients may, in fact, have superior knowledge."); Lois Shepherd & Mark A. Hall, Patient-Centered Health Law and Ethics, 45 Wake Forest L. Rev. 1429, 1447 (2010) ("The high stakes involved in medical care cause a shared vulnerability.").
11. The attorney-client relationship offers a notable analogue. Arrow notes the existence of "strong institutional similarities between the legal and medical-care markets." Arrow, supra note 6, at 948-49. But beyond the particular relationship that might exist between certain types of attorneys and clients (e.g., criminal defendants, parties to divorce, and individuals involved in child custody proceedings), the health care transaction between doctor and patient is unique in terms of demand frequency, product uncertainty, supply conditions, and pricing. See Joshua E. Perry, The Ethical Costs of Commercializing the Professions: First-Person Narratives from the Legal and Medical Trenches, 13 U. Pa. J.L. & Soc. Change 169, 197-201 (2009-2010) (presenting empirical qualitative evidence arguing that attorneys and physicians-both of which have constitutive commitments to put the interests of others ahead of their own-share similar moral distress around issues related to commercialization of their professions).
12. The discussion in this article is limited to the "transaction" between a patient-consumer and the physician-provider. A comprehensive application of this article's thesis to the sweeping landscape that constitutes the broader, systematic business of health care is beyond this article's scope. However, the vast array of treatment facilities (inpatient and outpatient), clinicians, insurance companies, marketing and advertising firms, information technology consultants, billing and collection agencies, the global pharmaceutical industry, and other producers of life science products and devices constitute a complex "healthcare business" that offers a variety of future explorations of the framework this article suggests is critical. See generally E. Richard Brown, Rockefeller Medicine Men: Medicine and Capitalism in America 203 (1979) (noting it was the mid-1960s creation of Medicare and Medicaid that would feed "the market competition between hospitals and the avariciousness of hospital administrators, construction companies, banks, the medical supply industry, and others who could get their hands into the public till"). Dr. Arnold Relman, the Harvard Medical School professor and former editor of The New England Journal of Medicine, was among the earliest observers and critics of the health care business that mushroomed throughout the 1970s in the wake of the passage of Medicare and Medicaid in 1965. See Arnold S. Relman, The New Medical-Industrial Complex, 303 New Eng. J. Med. 963, 963-65 (1980). Dr. Relman distinguishes between the "old" medical-industrial complex, primarily pharmaceutical and medical device corporations, and the new emerging "network of private corporations engaged in the business of supplying health-care services to patients for a profit." Relman, supra, at 963. Writing in 1980, he was not concerned about the former. Id. Twenty-seven years later, he remains very concerned about "the future of U.S. healthcare, which [he argues] is becoming intolerably expensive, inequitable, and insensitive to the needs of our society." Relman, Commercialism, supra note 2, at 376.
13. See Larry R. Churchill, Self-Interest and Universal Health Care: Why Well-Insured Americans Should Support Coverage for Everyone 44-62 (1994) (arguing that a self-interested Humean approach to health care reform is the best way to achieve the twin goals of personal security and social solidarity).
14. See Arrow, supra note 6, at 948-58; Marc J. Roberts & Michael R. Reich, Ethical Analysis in Public Health, 359 Lancet 1055, 1057 (2002) ("[H]ealth is generally viewed as special or different from most other things produced by the economy."). Building upon Rawls's theory of justice as fair equality of opportunity, Norman Daniels states that, "by keeping people close to normal functioning, health care preserves for people the ability to participate in the political, social, and economic life of their society. It sustains them as fully participating citizens-normal collaborators and competitors-in all spheres of social life." Norman Daniels, Justice, Health, and Healthcare, Am. J. Bioethics, Spring 2001, at 2, 3. See generally Norman Daniels, Just Health Care (1985) (arguing that health care is special because of its impact on individual access to opportunity in a free society).
15. See Troyen A. Brennan, An Ethical Perspective on Health Care Insurance Reform, 19 Am. J.L. & Med. 37, 48 (1993) ("Indeed, traditional medical ethics insisted that physicians do everything possible for the individual patient, independent of political or economic constraints."); Perry, supra note 11, at 172-76 (discussing the service component and relational aspects at the heart of historic notions of medical professionalism).
16. See Johnson, supra note 10, at 1475 ("The health-law reform movement of the 1970s asserted the primacy of the individual patient's moral agency, autonomy, and choice.... This reform movement was patient centered in that it elevated the power and status of the individual patient in the physician-patient relationship and revealed that the relevant norms in decision making about medical treatment were not owned by medicine alone, but rather were social and individual moral questions.").
17. See Arrow, supra note 6, at 949 ("[M]edical care belongs to the category of commodities for which the product and the activity of production are identical...[and therefore] the customer cannot test the product before consuming it, ... [creating] an element of trust in the relation.").
18. See Heather Elms etal., Ethics and Incentives: An Evaluation and Development of Stakeholder Theory in the Health Care Industry, 12 Bus. Ethics Q. 413, 425 (2002) (concluding that economic incentives can encourage physicians to behave in ways inconsistent with the ethical norms of the profession).
19. See infra note 40 and accompanying text. This notion that being a patient is a unique ontological position is a key component to this article's claim that ethical considerations driven by concerns over the patient's best interest should inform health care law and policy reforms in the absence of industry self-regulation and overt exploitation of statutory loopholes.
20. Kenneth Arrow, Reflections on the Reflections, in Uncertain Times: Kenneth Arrow and the Changing Economics of Health Care ( Peter J. Hammer etal. eds., 2003) ("I am not denying that moral authority may be based on illusions, and that those illusions will be carefully fostered. But I want to emphasize that social norms [for example, expectations that a physician does not make treatment decisions premised on pecuniary self-interest] are based on ... perceived mutual gains, and that one must be wary of assuming that these perceptions are not based as much on reality as on other perceptions.").
21. Brennan, supra note 15, at 38; see also Wendy K. Mariner, Business vs. Medical Ethics: Conflicting Standards for Managed Care, 23 J.L. Med. & Ethics 236, 238 (1995) (discussing the ethical tensions inherent in the health care industry).
22. Brennan, supra note 15, at 48 (arguing that "an ethics of health policy should share some common themes with traditional medical ethics"). Brennan, aiming his argument more specifically at the problems associated with access to health care by the uninsured, notes the difficulty of merging a traditional medical ethics that requires physicians to "do everything possible for the individual patient" with an ethics of health care policy that has as "its central paradigm the limits on medical care resources." Id. at 48-49; see also Larry R. Churchill, What Ethics Can Contribute to Health Policy, in Ethical Dimensions of Health Policy 51, 61 ( Marion Danis etal. eds., 2002). However, Professor Churchill notes that in the current U.S. context of market-driven medicine, "health policy has no purpose beyond the separate purposes of the individual actors, and the only appropriate role of specific health policies, rules, and regulations is to make the bargaining process among providers and consumers at all levels devoid of fraud and abuse." Id. Churchill's broader normative view is that health policy should be driven by the dual ends of two ethical concerns, security and solidarity. See generally Churchill, supra note 13.
23. Brennan, supra note 15, at 50. As articulated in the seminal work on biomedical ethics, "[T]he principle of nonmaleficence asserts an obligation not to inflict harm on others." Tom L. Beauchamp & James F. Childress, Principles of Biomedical Ethics 113 (5th ed. 2001). Beneficence refers to those actions of kindness, mercy, and charity that are performed for the benefit of others. Id. at 166.
24. Brennan, 50.
25. Id. (citing John Rawls, A Theory of Justice 118-150 (1971)). Another formulation of Rawls in this context is offered by Kenman L. Wong, who appropriates Rawls via Edward Freeman to suggest that a fairness-oriented stakeholder approach would guide physicians to make decisions for patients irrespective of the financial consequences at stake. See Wong, supra note 5, at 131 (citing R. Edward Freeman, A Stakeholder Theory of the Modern Corporation, in Ethical Theory and Business 66, 72 ( Tom L. Beauchamp & Norman E. Bowie eds., 5th ed. 1997)).
26. See Brennan, 50.
27. See infra Part III.C (applying and further developing these principles in the form of concerns over nonmaleficence, conflicts of interest, and bona fide, transparent ownership).
28. Brennan, supra note 15, at 51. Brennan highlights the hallmarks of trust, selflessness, and virtue that distinguish the physician-patient relationship from most other marketplace encounters. Moreover, he argues that ethical health policy must consider "the good" of this isolated relationship "in light of the good of all patients." Id. This move from the individual physician-patient relationship to a concern for the broader good of all potential patients is controversial to the extent it threatens to dilute the physician's duty of loyalty to her patient. Id.
29. Id. Again, Brennan writes with a particular focus on the systematic inequities of access that result in either inadequate care or no care at all for significant numbers of Americans. A "sphere of medical care" that fails to reflect the "commitment, altruism, and selflessness of medical ethics, " he writes, is "highly offensive to the altruism of healing." Id. at 51-52.
30. Id. at 51-53. Here, Brennan challenges mere "non-interference" among physician practice groups and suggests that physicians will have to coordinate cooperative efforts to provide patient care in a system that will face economic constraints that will only increase over time. Id. at 52. Perhaps it is naïve to suggest, as Brennan does, that members of healing communities must be aware of the interconnectedness of their actions and that our health policy should reflect such a community orientation. Yet, such a view is constitutive of the approach to ethical health care policy that takes seriously the constellation of ethical and economic issues relating to the individual physician-patient relationship, as well as the broader concerns of access to all citizens and long-term systematic sustainability. Naïve or not, this notion of solidarity is an increasingly important value toward which policy makers must continue to strive, despite whatever difficulties might challenge its attainment. See, e.g., Atul Gawande, The Cost Conundrum, New Yorker, June 1, 2009, at 36 (describing how the health care community of Grand Junction, Colorado, for example, has operationalized ethical health policy premised upon a recognition that good public health and its financing are deeply interconnected and noting also that Grand Junction's healing community has been successfully adopted by communities of health care providers in Pennsylvania, Wisconsin, Utah, California, and within the Mayo Clinic system in both Minnesota and Florida).
31. Brennan, supra note 15, at 53-54. Brennan also addresses the objections of those concerned that "the morality of the clinical relationship cannot be exported to the institutional level." Id. at 53. He responds by asserting that his integration of medical ethics with liberal notions of justice is necessary for preservation of the physician-patient relationship and the unique identity of health care institutions. Id.
32. See, e.g., Lawrence P. Casalino etal., Focused Factories? Physician-Owned Specialty Facilities, Health Aff., Nov./Dec. 2003, at 56; Clark C. Havighurst, The Changing Locus of Decision Making in the Health Care Sector, 11 J. Health Pol., Pol'y & L. 697 (1986) (advocating market-based approaches to health care reform); Clark C. Havighurst, The Professional Paradigm of Medical Care: Obstacle to Decentralization, 30 Jurimetrics 415 (1990) (advocating same).
33. See, e.g., Regina E. Herzlinger, Market-Driven Health Care: Who Wins, Who Loses in the Transformation of America's Largest Service Industry 157-199 (1997) [hereinafter Herzlinger, Market-Driven Health Care]; Regina Herzlinger, Who Killed Health Care?: America's $2 Trillion Medical Problem-and the Consumer-Driven Cure 59-90 (2007).
34. Amy Feldman, Are You Ready to Own Your Own Health Care? Money Mag., Nov. 2004, at 135.
35. Regina E. Herzlinger, Specialization and Its Discontents: The Pernicious Impact of Regulations Against Specialization and Physician Ownership on the US Healthcare System, 109 Circulation 2376, 2376-78 (2004) (arguing also that these physician-owned specialty hospitals are exemplary models of efficiency and specialization that, if left unregulated, might serve as models for more widespread, market-based health care system reforms).
36. Id. at 2377. Even Maggie Mahar, a critic of Herzlinger and so-called "market-driven healthcare, " notes that it is "indisputable" that the reimbursement system is flawed. Mahar, supra note 2, at 40. Indeed, the Medicare Payment Advisory Commission (MedPAC), an independent congressional agency, issued a report to Congress in March 2005 recommending that diagnosis-related groups payment and reimbursement codes be adjusted for heart and orthopedic procedures. Medicare Payment Advisory Comm'n, Report to the Congress, Physician-Owned Specialty Hospitals 40 (2005) [hereinafter Physician-Owned Specialty Hospitals].
37. See Herzlinger, Market-Driven Health Care, supra note 33, at 167; Herzlinger, supra note 35, at 2378.
38. Gilmartin and Freeman, who are otherwise quite persuasive in their defense of the potential value of entrepreneurial influences in health care delivery, endorse Herzlinger's "focused factory" argument without recognizing the tension created for adherence with their first principle: stakeholder cooperation. They state, and I agree, that "[c]apitalism works because entrepreneurs and managers put together and sustain relationships among customers, suppliers, employers, financiers, and communities." Gilmartin & Freeman, supra note 5, at 59-61. Yet, the stakeholder cooperation exemplified by their discussion of public health initiatives in Ann Arbor, Michigan, does not hold together in the case of physician-owned specialty hospitals, which have proliferated in the last decade with seemingly little concern for the best interests of the community or cooperation with their fellow health care providers. See infra Part II.
39. Mark A. Hall & Carl E. Schneider, Patients as Consumers: Courts, Contracts, and the New Medical Marketplace, 106 Mich. L. Rev. 643, 650-51 (2008). Hall and Schneider explain: Someone who is ill and seeking help-unlike someone who is purchasing a pair of socks or a pound of sausages-is often vulnerable, certainly worried, sometimes uncomfortable, and frequently frightened. [The term c]ustomer, like the other obvious choices-clients, consumers, and users-erases something that lies at the heart of medicine: compassion and a relationship of trust. Id. at 651 (quoting Raymond Tillis, Commentary: Leave Well Alone, 318 Brit. Med. J. 1756, 1757 (1999)). But see Marshall B. Kapp, The Ethical Foundations of Consumer-Driven Health Care, 12 J. Health Care L. & Pol'y 1, 6 (2009) (questioning whether health care is "so much more inherently and irreducibly complex and confusing" than other sorts of consumer goods and cautioning against the infantilization of patients).
40. These scenarios are extrapolations from my professional experiences in the health care field.
41. See generally Madison Powers & Ruth Faden, Social Justice: The Moral Foundations of Public Health and Health Policy (2006) (exploring the extent to which a decent society can tolerate extreme inequities in health throughout society).
42. Susanne Klaric, Note, The "Conrad State 30" Improvement Act: Remedying the Physician Shortage, 18 S. Cal. Rev. L. & Soc. Just. 611, 636 (2009) (noting that the federal government heavily subsidizes medical training and residency programs).
43. See infra notes 48-50 and accompanying text.
44. Brennan, 54.
45. See Carl E. Schneider, The Practice of Autonomy: Patients, Doctors, and Medical Decisions 3, 6 (1998). Schneider elaborates: "The law and ethics of medicine are today dominated by one paradigm-the autonomy of the patient." Id. at 3.
46. The ethical approach to health care regulation endorsed in this article favors health care policies that either increase access or guard against erosions in access to providers.
47. Herzlinger, 2376.
48. Office of Inspector Gen., U.S. Dep't of Health & Human Servs., Pub. No. OEI-02-06-00310, Physician-Owned Specialty Hospitals' Ability to Manage Medical Emergencies i (2008) [hereinafter Physician-Owned Specialty Hospitals' Ability to Manage Medical Emergencies]. According to the U.S. Government Accounting Office's (GAO) 2003 report, seventy percent of specialty hospitals are owned to some degree by physicians, with an average total physician-ownership interest in excess of fifty percent. However, on average, individual physicians own less than two percent of the business. U.S. Gen. Accounting Office, GAO-03-683R, Specialty Hospitals: Information on National Market Share, Physician Ownership, and Patients Served 4 (2003) [hereinafter Specialty Hospitals: Patients Served]. The vast majority of physician-owned specialty hospitals share similar characteristics. Nationwide, eighty-three percent of these facilities can be found in states without "certificate of need" regulations, with the greatest concentration in seven states: Arizona, California, Kansas, Louisiana, Oklahoma, South Dakota, and Texas. See Fed. Trade Comm'n & U.S. Dep't of Justice, Improving Health Care: A Dose of Competition 18 n.82 (2004) [hereinafter A Dose of Competition]. Certificate of need (CON) laws arose in the 1960s in response to concerns regarding oversupply of medical services. The state-based laws basically require those entities wishing to build new medical facilities, or existing hospitals wishing to increase their number of beds, to demonstrate there is an unmet medical need within the geographic region to be served. Although Ronald Reagan's election in 1980 "ushered in a decade of emphasis on market solutions to health care, " which resulted in the repeal of many CON statutes, thirty-eight states still retain some measure of CON oversight. Sujit Choudhry etal., Specialty Versus Community Hospitals: What Role for the Law? Health Aff. (Web Exclusive), July-Dec. 2005, at W5-361, W5-366; see also Casalino etal., supra note 32, at 57; David N. Heard, Jr., The Specialty Hospital Debate: The Difficulty of Promoting Fair Competition Without Stifling Efficiency, 6 Hous. J. Health L. & Pol'y 215, 234-39 (2005); Lauretta Higgins Wolfson, State Regulation of Health Facility Planning: The Economic Theory and Political Realities of Certificates of Need, 4 DePaul J. Health Care L. 261, 262 (2001). According to the GAO, greater than ninety percent of the specialty hospitals that have opened in the United States since 1990 are for-profit operations. U.S. Gen. Accounting Office, GAO-04-167, Specialty Hospitals: Geographic Location, Services Provided, and Financial Performance 8 (2003). By comparison, twenty percent of general hospitals are for-profit. Id.; see also John K. Iglehart, The Emergence of Physician-Owned Specialty Hospitals, 352 New Eng. J. Med. 78, 79 (2005). The specialty hospital genre with which this article is particularly concerned is marked by a focus on short-term, acute infirmities and a for-profit status, characterized by joint ownership among the physicians who practice in the facility. But see Louis Shapiro, The Specialty Myth: A Venerable Niche Hospital Is Model of Quality Care, Mod. Healthcare, Aug. 25, 2008, at 54 (discussing New York's Hospital for Specialty Surgery, a nonprofit, academic musculoskeletal hospital founded in 1863 that provides orthopedic and rheumatologic services, research, and charity care, proving the point that "there really is no specialty hospital 'industry' and that among the models of niche facilities are many that contribute greatly to innovation in healthcare delivery and ensure the highest levels of quality and outcomes").
49. See Chris Silva, Physician-Owned Hospitals: Endangered Species? Amednews.com (June 28, 2010), .
50. Out of the twenty-five specialty hospitals surveyed by the GAO, twenty-one were found to have a less acute mix of patients than full-service hospitals. See Specialty Hospitals: Patients Served, supra note 48, at 4. For example, 3 percent of the patients in the 10 most common diagnosis categories at one Texas orthopedic hospital were classified as severely ill. A higher proportion-8 percent-of the patients in the same diagnosis categories were classified as severely ill at the 51 general hospitals in the same urban area. A cardiac hospital in Arizona provides a similar example. About 17 percent of the patients in that hospital's most common diagnosis categories were classified as severely ill. In contrast, 22 percent of the patients in the same diagnosis categories who were treated at the 26 general hospitals in the same urban area were classified as severely ill. Id. at 12; see also Allen Dobson & Randall Haught, The Rise of the Entrepreneurial Physican [sic], Health Aff. (Web Exclusive), July-Dec. 2005, at W5-494, W5-495 (acknowledging that it is well documented that "patients at specialty hospitals are less severely ill than patients at comparable nonspecialty community hospitals, " but suggesting that "[p]hysician referral patterns are complex, and plausible market reasons exist as to why specialty hospitals do not treat the sickest patients").
51. Medicare Payment Advisory Comm'n, Report to the Congress, Physician-Owned Specialty Hospitals Revisited 8-10 (2006) [hereinafter Physician-Owned Specialty Hospitals Revisited]. The MedPAC study found that at orthopedic/surgical specialty hospitals, "adjusted inpatient costs per discharge were 117% of the national average." Id. at 9. Furthermore, the report found that, when a physician-owned specialty hospital enters a market, the utilization rates and requests for Medicare reimbursements increase. Id. at 20. "Whether the increase in surgeries stems from increased capacity, from the financial incentives for physicians to self-refer patients to facilities they own, or a combination of these factors, increased surgeries can lead to increased Medicare spending." Id. at 21. These findings of greater costs to the Medicare system were bolstered by a follow-up academic study that compared the practice patterns of physician-owners of specialty hospitals in Oklahoma, both before and after they acquired their ownership interest, to the practice patterns of physician-nonowners treating similar cases during the same time frame. See Jean M. Mitchell, Do Financial Incentives Linked to Ownership of Specialty Hospitals Affect Physicians' Practice Patterns?, 46 Med. Care 732, 736 (2008). Mitchell's research confirms that, after physicians became owners in their specialty orthopedic hospital, the utilization rates for surgical, diagnostic, and ancillary services used to treat back and spine ailments increased significantly. Id. at 736. During the same time period in the same market, dramatic increases in utilization were not seen in the practices of nonowner physicians. While recognizing the possible limitations of her study, given the fact that it relied only on data from one area of the country, Mitchell concluded that substantial increases in utilization rates can be linked to physician ownership and that treatment costs are likely to be "significantly higher in comparison to those who obtain care from non-self-referral providers." Id. at 737; accord John M. Hollingsworth etal., Physician-Ownership of Ambulatory Surgery Centers Linked to Higher Volume of Surgeries, 29 Health Aff. 683, 683 (2010) (analyzing five common surgical and diagnostic procedures and finding a significant association between physician ownership and higher surgical volume); Bruce Siegel etal., Private Gain and Public Pain: Financing American Health Care, 36 J.L. Med. & Ethics 644, 649 (2008) ("Not surprisingly, the approximately 130 physician-owned specialty hospitals have been associated with much higher rates of costly elective surgery, such as spinal fusion, and with performing surgeries on relatively healthier patients." (footnote omitted)); see also Brahmajee K. Nallamothu etal., Opening of Specialty Cardiac Hospitals and Use of Coronary Revascularization in Medicare Beneficiaries, 297 JAMA 962 (2007) (providing data showing a correlation between the opening of a specialty cardiac facility and significant increases in the market utilization rates of coronary revascularization services); Gawande, supra note 30 (investigating the extreme differences between Medicare reimbursement rates in two Texas markets-in one of which Medicare spent twice the national average per enrollee in 2006-and concluding the higher rates were directly attributable to patterns of overutilization driven by a "culture of money" where over time the "medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers").
52. Ron Winslow, Coronary Bypass: Fed-Up Cardiologists Invest in Own Hospital Just for Heart Disease-They'll Regain Autonomy, but Critics See a Grab for Most-Profitable Care-A Showdown in Albuquerque, Wall St. J., June 22, 1999, at A1. Clearly, physician-owned specialty hospitals reflect rational and opportunistic business savvy on the part of those cardiac and orthopedic surgeons who have led the charge in their proliferation. These medical centers represent an entrepreneurial, market-based innovation in the delivery of specialized health care that offers a number of benefits to providers and individual patients. Yet, the services that physicians perform in relationship with potentially vulnerable individual patients, as well as the broader potential patient population, create unique variables in the marketplace that require ethical considerations. In the domain of health care delivery, public policies must look beyond customer satisfaction surveys and economic self-interests.
53. Id. In May 2011, MedCath Inc., citing financial losses dating back to 2009, announced a plan to dissolve and distribute all remaining assets to shareholders. Ely Portillo, Charlotte-Based Hospital Chain Plans to Dissolve, Charlotte Observer (May 12, 2011), .
54. Winslow, 52.
55. Id. "'The money in medicine is in cardiac surgery....Cardiology is unquestionably profitable. That's what they're going after.'" Id. (quoting James Hinton, chief executive of Presbyterian Health Services, the hospital's parent). In fact, not only are cardiac surgeries and treatments individually lucrative for physicians but they are also the life blood of many full-service hospitals. They "account for more than 20% of a hospital's revenue and sometimes 50% of profits, supporting hospitals' less-lucrative endeavors." Id.
56. Id. Additionally, physicians lamented a lack of nursing support and other staffing issues over which they felt powerless, especially in the context of increasingly "sprawling health 'systems.'" Id.
57. Brennan, supra note 15, at 52. Although a complete discussion is beyond this article's scope, the practice of "economic credentialing, " which was the retaliatory move made by some community hospitals to revoke admitting privileges in response to those entrepreneurial physicians who started competing hospitals, would certainly be an additional detour on the path toward the type of community orientation being described. See Robert Steinbuch, Placing Profits Above Hippocrates: The Hypocrisy of General Service Hospitals, 31 U. Ark. Little Rock L. Rev. 505, 506-07 (2009).
58. Kelly J. Devers etal., Specialty Hospitals: Focused Factories or Cream Skimmers? Issue Brief (Ctr. for Studying Health Sys. Change, Washington, D.C.), Apr. 2003, at 2 ("The spate of specialty hospital construction is unnerving general hospitals, which worry that the new facilities will draw away profitable patients and undermine their ability to achieve the volume needed to provide high-quality, low-cost specialty services and to cross-subsidize other basic services.... [C]ardiology services ... can account for 25 percent of all hospital stays and 35 percent or more of community hospitals' revenue.").
59. See A Dose of Competition, supra note 48, at 15 (citing several testifying experts articulating concerns that specialty hospitals would "siphon off the most profitable procedures and patients, leaving general hospitals with less money to cross subsidize other socially valuable, but less profitable, care"). As one expert noted, "it is the profitable services they are taking away that jeopardizes a hospital's capability of providing unprofitable services." Id. at 21.
60. Unmesh Kher etal., The Hospital Wars, Time, Dec. 11, 2006, at 64.
61. Iglehart, at 81.
62. Kher etal., 63.
63. Physician-Owned Specialty Hospitals, supra note 36, at 23.
64. Id. at 23. Despite the loss of profitable Medicare patients, community hospitals surveyed by the MedPAC investigators managed to avoid large declines in total profit margins through a variety of efforts, including cutting staff and expansion into other profitable areas, such as imaging, rehabilitation, pain management, and neurosurgery. Id.
65. Michael O. Leavitt, Study of Physician-owned Specialty Hospitals Required in Section 507(c)(2) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 61 (2005) (rejecting, however, a conclusion that specialty hospitals were necessarily guilty of unfairly "cherry-picking" their patients).
66. Jean M. Mitchell, Effects of Physician-Owned Limited Service Hospitals: Evidence from Arizona, Health Aff. (Web Exclusive), July-Dec. 2005, at W5-481.
67. Physician-Owned Specialty Hospitals Revisited, supra note 51. MedPAC was following up on its 2005 report, which had been mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Id. at 3. While the 2005 report had analyzed data from 2002, the follow-up report examined an expanded set of physician-owned specialty hospitals from 2003 and 2004. Id. During that time period, the number of physician-owned specialty hospitals had almost doubled. Id. The 2006 report focused on twenty-five cardiac and sixteen orthopedic/surgical hospitals. Id. at 4.
68. Id. at 9-10 (finding that stays in physician-owned hospitals were over twenty percent shorter than stays in community hospitals). The MedPAC study found that at orthopedic/surgical specialty hospitals "adjusted inpatient costs per discharge were 117% of the national average." Id. at 9. As noted supra note 51 and accompanying text, the 2006 report speculated that these increased costs at physician-owned specialty hospitals were a result of different staffing levels, employee compensation, and the use of single-occupancy rooms equipped for intensive care. Physician-Owned Specialty Hospitals Revisited, supra note 51, at 11.
69. Physician-Owned Specialty Hospitals Revisited, supra note 51, at 20. "Whether the increase in surgeries stems from increased capacity, from the financial incentives for physicians to self-refer patients to facilities they own, or a combination of these factors, increased surgeries can lead to increased Medicare spending." Id. at 21.
70. Mitchell, W5-487.
71. Mitchell, supra note 51; see also Hollingsworth etal., supra note 51, at 683 (analyzing five common surgical and diagnostic procedures and finding "a significant association between physician-ownership and higher surgical volume"); Bruce Siegel etal., supra note 51, at 649 ("Not surprisingly, the approximately 130 physician-owned specialty hospitals have been associated with much higher rates of costly elective surgery, such as spinal fusion, and with performing surgeries on relatively healthier patients.").
72. Mitchell, at 736; accord Nallamothu etal., Gawande
73. Mitchell, 736.
74. Physician-Owned Specialty Hospitals: Profits Before Patients?: Hearing Before the S. Comm. on Fin., 109th Cong. 6 (2006) [hereinafter Wilson Testimony] (testimony of Michael W. Wilson, son of Helen Wilson).
75. Nigel Jaquiss, Doctors, Inc.: The Challenges Facing Oregon's Only Doctor-Owned Hospital, Willamette Wk., Oct. 19, 2005, at 12.
76. Id. Out of the $15, 000 Medicare pays for a typical lumbar laminectomy, $10, 000 goes directly to the hospital and $1800 is typically paid to the surgeon. The remainder is paid to the anesthesiologist and others assisting in the operation. Id.
77. See Wilson Testimony, supra note 86.
78. Jaquiss, supra note 87. Wilson's son, during his congressional testimony, described the scene as "the most egregious examples of negligence and incompetence" that he had ever witnessed or heard of. Wilson Testimony, supra note 86, at 4.
79. Jaquiss, supra note 87. Neither federal law nor Oregon statutes require a physician to be on the premises of a hospital at all times. Jessica Zigmond, CMS Probe Sought; Death Sparks Specialty Hospital Queries, Mod. Healthcare, Feb. 20, 2006, at 7.
80. Jaquiss, supra note 87. Investigations by the Oregon Department of Human Services and its Health Care Licensure and Certification Program concluded that the governing body of Physicians' Hospital "failed to ensure that the medical staff was accountable for the quality of care provided to patients." Id.; see also Joe Rojas-Burke, Potential Buyer Looks at Physician Hospital, Oregonian, Mar. 31, 2006, at B1. Less than a year after Wilson's death, government regulators stripped the hospital of its certification to receive Medicare payments, and the building was purchased by a private, out-of-state health care company that converted the hospital to a long-term acute-care facility. See Joe Rojas-Burke, Physicians' Hospital Suspends Procedures After Failed Inspection, Oregonian, May 13, 2006, at E1; Joe Rojas-Burke, Troubled Physicians' Hospital May Have Buyer, Oregonian, May 17, 2006, at E1. When Wilson's plight came to light in 2006, Senators Chuck Grassley, a Republican, and Max Baucus, a Democrat, immediately called for a federal investigation by HHS into whether the Centers for Medicare and Medicaid Services (CMS) was properly overseeing physician-owned specialty hospitals. See Laura B. Benko, Troubled Hospital on Notice; Oregon Facility Could Lose Certification from CMS, Mod. Healthcare, May 22, 2006, at 8; Zigmond, supra note 93. At least two additional tragic stories in Colorado and Texas, similar to Wilson's, played out in the ensuing four years. See Karen Auge, Death Adds to Debate on Doc-Owned Hospitals, Denver Post, Aug. 9, 2009, at A-01, available at (reporting on the death of a patient at a physician-owned specialty hospital after a medication error that required the hospital to call 9-1-1); Karen Auge, Review Follows Patient Death, Denver Post, July 17, 2009, at B-01, available at ; Daniel Dale, Physician-Owned Hospital Under Fire Is to Be Shuttered, Houston Chronicle, Mar. 22, 2007, at B2; No Shortcuts on Care, St. Petersburg (Florida) Times, Feb. 25, 2008, at 12A; Bennett Roth, Texas Case Raises Alarm on Specialty Hospitals, Houston Chronicle, Feb. 10, 2007, at A1; Jessica Zigmond, Doc Ownership Battle Looms, Mod. Healthcare, Mar. 26, 2007, at 14; Daralyn Schoenewald, Shuttered West Texas Hospital Sued in Man's Death, Abilene Rep. News (Jan. 14, 2009), (reporting on the death of a patient in a physician-majority-owned hospital with no emergency facilities or trained emergency personnel on site and no physicians on the premises when the patient's postsurgery emergent condition developed, requiring the hospital to call 9-1-1).
81. Tragic and unavoidable deaths arising from physician error or hospital accidents are not limited to the environment of the physician-owned specialty facility. Indeed, since the Institute of Medicine published its report on medical errors over a decade ago, copious evidence has demonstrated that preventable deaths are not exceptional events in medical facilities, including full-service hospitals with emergency departments on site and trained emergency physicians on the premises around the clock. See, e.g., Linda T. Kohn etal., To Err is Human: Building a Safer Health System 26 (2000) (arguing that preventable adverse events in medical facilities are a leading cause of death in the United States); Lucian L. Leape & Donald M. Berwick, Five Years After To Err is Human: What Have We Learned? 293 JAMA 2384, 2385 (2005) (noting a proliferation of subsequent studies exploring widespread preventable medical injuries and hospital-acquired infections and suggesting that the report may have "substantially underestimated the magnitude of the problem"). Importantly, however, the three preventable deaths described above did not occur in traditional, full-service hospitals. These deaths took place in settings where the physicians and surgeons-entrusted with the ethical duty and professional mandate to put the patient's best interest in front of investor-provider profit margins-had a simultaneous economic self-interest in the profits generated by the facility in which they chose to operate on their patients.
82. Press Release, Physician Hosps. of Am. (PHA), Physician Owned and Operated Hospitals Get Top Rankings From Consumer Reports, but They Remain on the Healthcare Reform Chopping Block (Aug. 11, 2009), available at Such a response from patient satisfaction surveys is not surprising when these facilities are heralded for their upscale food, private rooms, and pleasant waiting areas with "muted colors, comfortable seating, soft lighting, and quality artwork." Jessica Zigmond, Betting Big on Doc Ownership, Mod. Healthcare, Dec. 11, 2006, at 6 (quoting Kamran Nezami, a founder of University Hospital Systems, a private, for-profit company that specializes in the recruitment of physician-investors and the development of physician-owned hospitals, describing his flagship facility, University General Hospital in Houston, Texas); see also Leavitt, supra note 73, at 51 (reporting that patients in focus groups commented very positively on all the "extras" that they encountered in the physician-owned specialty hospital environment, such as the food, rooms, waiting areas, lower noise level, and treatment of family members). Thus, any critique of these facilities must inevitably confront what for some is the final arbiter of the debate, that is the patient survey data showing high levels of satisfied "customers." For proponents of a competitive medical marketplace, the customer is always right, and the satisfaction and positive experiences reported by a majority of patients at these physician-owned specialty hospitals is a significant justification for their continued existence.
83. Physician-Owned Specialty Hospitals' Ability to Manage Medical Emergencies, supra note 48.
84. Id. at i ("All hospitals that participate in the Medicare program must demonstrate to the [CMS] their initial and ongoing ability to meet a set of health and safety standards, referred to as the [CoP]."). Medicare's CoP do not require that hospitals have emergency departments, although many states do mandate "emergency treatment rooms." See, e.g., Tex. Health & Safety Code Ann. § 241.026 (West 2010).
85. Physician-Owned Specialty Hospitals' Ability to Manage Medical Emergencies, supra note 48, at 10. Additionally, interviews with administrators of the physician-owned specialty hospitals that were investigated by the OIG revealed that only twenty-eight percent of these facilities have physicians onsite twenty-four hours a day, seven days a week. Id. at ii. Notably, the CoP do not require hospitals to have physicians physically on the premises at all times. Id. at i.
86. Id. at 12. Examples of emergency policies at some physician-owned specialty hospitals include: "9-1-1 will be called to the scene to attempt resuscitation"; "[a]fter hours, call 9-1-1 for a Code Blue. Upon arrival, [county] EMS will assume responsibility for the patient"; and "[i]f conditions are such that staff should require additional assistance, 9-1-1 will be contacted." Id.
87. Id. at 4 ("A hospital is not in compliance with the Medicare CoPs if it relies on 9-1-1 services as a substitute for the hospital's own ability to provide services otherwise required in the CoPs. This means, among other things, that a hospital may not rely on 9-1-1 services to provide appraisal or initial treatment of individuals in lieu of its own capability to do so." (quoting Memorandum from CMS to State Survey Agency Directors, "Provision of Emergency Services-Important Requirements for Hospitals, " S&C-07-19 (Apr. 26, 2007))). However, Medicare permits reliance upon 9-1-1 to transfer patients. Id.
88. Id. at 3; see also 42 C.F.R. § 482.55(b)(2) (2011) ("There must be adequate medical and nursing personnel qualified in emergency care to meet the written emergency procedures and needs anticipated by the facility."); id. § 482.12(f)(2) ("If emergency services are not provided at the hospital, the governing body must assure that the medical staff has written policies and procedures for appraisal of emergencies, initial treatment, and referral when appropriate.").
89. See Perry, supra note 6, at 26-27 (detailing the legislative reforms that criminalized physician kickbacks for referring Medicare and Medicaid patients to diagnostic and medical testing facilities). For citations to research demonstrating the correlation between economic incentives and overutilization of medical services, see Rodwin, supra note 6, at 55-96; James F. Blumstein, The Fraud and Abuse Statute in an Evolving Health Care Marketplace: Life in the Health Care Speakeasy, 22 Am. J.L. & Med. 205, 209 (1996); Jean M. Mitchell, Physician Joint Ventures and Self-Referral: An Empirical Perspective, in Conflicts of Interest in Clinical Practice and Research 219-317 ( Roy G. Spece, Jr. etal. eds., 1996). Blumstein, Mitchell, and Rodwin cite numerous studies confirming the notion that economic incentives result in overutilization. The data are conclusive that financial interest influences medical decisions.
90. Dep't of Health & Human Servs., Office of Inspector Gen., OAI-12-88-01410, Financial Arrangements Between Physicians and Health Care Businesses ii (1989) [hereinafter Financial Arrangements Between Physicians and Health Care Businesses].
91. Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, § 6204(a), 103 Stat. 2236 (1989) (codified at 42 U.S.C. § 1395nn (2006)).
92. Omnibus Reconciliation Act of 1993, Pub. L. No. 103-66, § 13562(a), 107 Stat. 596 (1993) (codified at 42 U.S.C. § 1395nn).
93. For additional background on the particular evidence establishing the connections between physician investments in health care clinics and concomitant increases in utilization and service costs that fueled Stark's legislative efforts, see generally Financial Arrangements Between Physicians and Health Care Businesses, supra note 106, at 11; Jean M. Mitchell & Elton Scott, Evidence on Complex Structures of Physician Joint Ventures, 9 Yale J. on Reg. 489, 497 (1992).
94. 42 C.F.R. § 411.356(c)(3)(iii) (2011). The exception was intended to accommodate rural hospitals where such ownership arrangements were already in place. See H.R. Rep. No. 111-443, pt. 1, at 355 (2010).
95. Specialty Hospitals: Patients Served, supra note 48, at 2.
96. 42 U.S.C. § 1395nn(d)(3)(c) (2006).
97. See Iglehart, 78.
98. 151 Cong. Rec. S4946 (daily ed. May 11, 2005) (statement of Sen. Grassley). Senator Charles Grassley was speaking in support of "The Hospital Fair Competition Act, " which he and Senator Max Baucus were sponsoring. This proposed legislation would, among other things, "[c]lose the 'whole hospital' loophole by prohibiting new specialty hospitals from having ownership or investment interest from physicians who refer Medicare or Medicaid patients to the hospital, effective June 8, 2005." Id. at S4947. Effectively, this bill would have permanently extended the moratorium and ceased any growth in the industry, while allowing existing facilities to continue operating. Much of this bill's substance was ultimately incorporated into the PPACA.
99. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, § 507(a), 117 Stat. 2066 (2003). The law included an exemption for facilities either already in operation or under development-that is, with complete architectural plans, secure funding, and requisite state government approvals. Id. § 507(b).
100. Press Release, Centers for Medicare & Medicaid Servs., CMS Outlines Next Steps as Moratorium on New Specialty Hospitals Expires (June 9, 2005) (on file with author). Because of an additional extension pursuant to section 5006(c) of the Deficit Reduction Act of 2005, 109 Pub. L. No. 171, § 5006(c), 120 Stat. 4 (2005), the suspension of Medicare enrollment of new physician-owned specialty hospitals was not finally lifted until August 8, 2006.
101. H.R. 3162, 110th Cong. § 651 (2007).
102. H.R. 6912, 110th Cong. § 4 (2008).
103. S. Amend. 4803 to H.R. 2642, 110th Cong. § 6002 (2008).
104. H.R. Rep. No. 111-443, at 355-356 (2010).
105. Pub. L. No. 111-148, § 6001, 124 Stat. 684-89 (2010) (codified at 42 U.S.C.A. § 1395nn (West Supp. 2011)). The subsequent fixes bill, Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010), was passed seven days later on March 30, 2010. The most significant provision of the fixes bill relative to the physician-owned specialty hospital industry was the extension from August 1, 2010, until December 31, 2010, for facilities in development to secure Medicare certification. Id. § 1106, 124 Stat. 1049.
106. Early Diagnoses of the New Law, N.Y. Times, Mar. 30, 2010, at D2.
107. Press Release, Physician Hosps. of Am., Physician Owned Hospitals React to the Passage of Healthcare Reform (Mar. 24, 2010), available at ; see also Mike Sherry, Kansas City-Area Specialty Hospitals Say Health Reform Bill Will Stunt Their Growth, Kansas City Bus. J. (Mar. 28, 2010, 11:00 pm CDT), ("That is what they are trying to do-kill the industry." (quoting David Ayers, president of the surgical facilities division of a company that develops and manages surgical facilities nationwide and a member of the board of directors of the trade group Physician Hospitals of America)).
108. David Hogberg, ObamaCare Will Effectively Bar New Physician-Owned Hospitals, Investor's Bus. Daily (Mar. 24, 2010, 7:25PM), (quoting Ellen Pryga, director of policy at the American Hospital Association).
109. For the approximately sixty physician-owned facilities under construction or in some stage of development as of the PPACA's passage, the new law set a deadline of December 31, 2010, for these facilities to secure status as a Medicare-eligible provider. 42 U.S.C.A § 1395nn(i)(1)(A). See generally Hogberg, supra note 124 (reporting on the impact of the PPACA on new physician-owned hospitals). Of course, nothing in the PPACA would prevent these facilities from being completed and treating non-Medicare patients after December 31, 2010, but without Medicare-provider status, these facilities would be reliant upon self-paying and privately insured patients. Without the ability to bill Medicare for self-referrals, physician-owned specialty hospitals generally are not economically viable. See Physician Hosps. of Am. v. Sebelius, 781 F. Supp. 2d 431, 448 (E.D. Tex. 2011) (noting that the expansion projects at issue in the case were halted because they "were not economically viable without the ability to bill for Medicare self-referrals").
110. 42 U.S.C.A. § 1395nn(i)(1)(B). The exception clause sets a February 1, 2012, deadline for the Secretary of HHS to create a process by which either "applicable" or "high Medicaid" physician-owned specialty hospitals may apply, once every two years, for permission to expand their capacity by up to one hundred percent. Id. § 1395nn(i)(3).
111. Id. § 1395nn(i)(1)(E)(ii). These safety mandates were first required by CMS in 2007. See Medicare Program ; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed. Reg. 47, 130, 47, 413 (Aug. 22, 2007) (codified at 42 C.F.R. § 489.20(w)(1) (2011)).
112. Complaint for Declaratory and Injunctive Relief, Physician Hosps. of Am. v. Sebelius, No. 6:10-00277-MHS (E.D. Tex. June 3, 2010).
113. Id. at 3. Texas Hospital was rated number one in the state of Texas in 2009 for spine surgery by the Eleventh Annual HealthGrades Hospitals in America Study. Id.
114. Physician Hosps. of Am. v. Sebelius, 781 F. Supp. 2d 431, 434 (E.D. Tex. 2011).
115. Id. (citing Vance v. Bradley, 440 U.S. 93, 111 (1979); Ferguson v. Skrupa, 372 U.S. 726, 730 (1963); Shelton v. City of College Station, 780 F.2d 475, 479 (5th Cir. 1986) (en banc)) (internal quotation marks omitted).
116. Press Release, Physician Hosps. of Am., Physician Hospitals of America and Texas Spine and Joint Hospital Appeal Federal Court Decision (May 27, 2011), available at ; see also Andis Robeznieks, Fight and Flight: Some Physician Investors Getting out of Hospital Ownership While Others Stay Their Course, Mod. Healthcare, Apr. 4, 2011, at 28 (discussing investment trends among physicians who practice in surgical specialty hospitals).
117. H.R. 1186, 112th Cong. (2011) would repeal section 6001, and H.R. 1159, 112th Cong. (2011), would repeal section 6001, as well as section 6002 of the PPACA, which requires physicians to report ownership and investment interests. On November, 14, 2011, the Supreme Court granted certiorari in three cases challenging provisions of the PPACA. Florida ex rel. Atty. Gen. v. U.S. Dep't of Health & Human Servs., 648 F.3d 1235 (11th Cir. 2011), cert. granted sub nom. Nat'l Fed'n of Indep. Bus. v. Sebelius, 2011 WL 5515162 (U.S. Nov. 14, 2011) (No. 11-393), and cert. granted sub nom. Dep't of Health & Human Servs. v. Florida 2011 WL 5515164 (U.S. Nov. 14, 2011) (No. 11-398), and cert. granted sub nom. Florida v. Dep't of Health & Human Servs., 2011 WL 5515165 (U.S. Nov. 14, 2011) (No. 11-400). The central issue presented in these cases is the constitutionality of the mandated minimum insurance coverage provisions of the PPACA. However, National Federation of Independent Business v. Sebelius challenges the constitutionality of the PPACA in its entirety, leaving open the possibility that section 6001 could be struck down. Nat'l Fed'n of Indep. Bus., 2011 WL 5515162.
118. Brennan, 38.
119. See Beauchamp & Childress, 113.
120. See Brennan, at 50-51.
121. See Perry, supra note 11, at 190-201 (describing empirical data suggesting that issues related to commercialism in medicine are frequent and serious causes of moral distress in the professional lives of physicians).
122. See supra Part II.B.
123. See supra note 96 and accompanying text. Any critique of these facilities must inevitably confront what for some is the final arbiter of the debate, namely, the patient survey data showing high levels of satisfied customers.
124. See supra note 25 and accompanying text.
125. Physician-Owned Specialty Hospitals' Ability to Manage Medical Emergencies, supra note 48, at 5.
126. Physician-Owned Specialty Hospitals Revisited, supra note 51, at 7.
127. 42 U.S.C.A. § 1395nn(i)(3)(E)-(F) (West Supp. 2011).
128. Brennan discusses these ethical concerns in terms of conflicts that compromise the "altruism of healing." See Brennan, supra note 15, at 51-52.
129. See supra notes 2, 5-7, 12, and accompanying text.
130. As Kenman Wong observes, "[W]henever money changes hands, the prospect of a conflict of interest is insidiously present." Wong, supra note 5, at 68.
131. Physician-Owned Specialty Hospitals: Profits Before Patients?: Hearing Before the S. Comm. on Fin., 109th Cong. 2 (2006) (statement of Sen. Charles E. Grassley, Chairman, S. Comm. on Fin.).
132. See supra notes 80-85, 105-06, and accompanying text. See generally Jean M. Mitchell, Effect of Physician Ownership of Specialty Hospitals and Ambulatory Surgery Centers on Frequency of Use of Outpatient Orthopedic Surgery, 145 Archives Surgery 732 (2010) (concluding that financial incentives linked to ownership of either specialty hospitals or ambulatory surgery centers influence physicians' practice patterns); Maureen Kwiecinski, Comment, Limiting Conflicts of Interest Arising From Physician Investment in Specialty Hospitals, 88 Marq. L. Rev. 413 (2004) (discussing empirical data that demonstrate patterns of overutilization of medical services when physicians refer patients to providers of medical services in which they have an ownership interest).
133. 42 U.S.C.A. § 1395nn(i)(1)(C)(iv) (West Supp. 2011).
134. See George J. Annas, The Rights of Patients 128 (3d ed. 2004).
135. See, e.g., Joan H. Krause, Can Health Law Truly Become Patient Centered?, 45 Wake Forest L. Rev. 1489, 1491 (2010) ("Informed consent law manages to stand, simultaneously, as both the clearest hope for a truly patient-centered legal doctrine and the clearest example of its shortcomings.... Despite decades of case law, statutes, and commentary, ... there is scant evidence that the legal rules mandating informed consent actually work." (footnote omitted)); Jessica W. Berg etal., Informed Consent: Legal Theory and Clinical Practice 188 (2d ed. 2001); Ruth R. Faden & Tom L. Beauchamp with Nancy M. P. King, A History and Theory of Informed Consent 53-101 (1986); Janet L. Dolgin, The Legal Development of the Informed Consent Doctrine: Past and Present, 19 Cambridge Q. Healthcare Ethics 97, 102 (2010); Harlan M. Krumholz, Informed Consent to Promote Patient-Centered Care, 303 JAMA 1190, 1190 (2010). See generally Jay Katz, Informed Consent-A Fairy Tale? Law's Vision, 39 U. Pitt. L. Rev. 137 (1977) (arguing that the doctrine of informed consent actually has little impact on patients' decision making).
136. See supra note 39 and accompanying text.
137. See Perry, 27.
138. See supra notes 32-35 and accompanying text.
139. See Brennan, supra note 15, at 51-53; supra note 30 and accompanying text.
140. See, e.g., supra note 35 and accompanying text.
141. See Rodwin, supra note 6, at 215 (citing eighteen studies published between 1970 and 1992 by academic researchers and government regulators as evidence "that physicians who make referrals to medical facilities that they either own or have a financial interest in recommend more (or more expensive) medical tests and procedures than do physicians without a financial interest"); Blumstein, supra note 105, at 207 (noting the basic motivation of the antikickback law was "to prohibit payment for referrals in order to reduce incentives for overutilization" and thereby contain rising health care costs). Blumstein provides the following specific evidence of overutilization in a variety of contexts: The Medicare patients of referring physicians who owned clinical laboratories received forty-five percent more clinical laboratory services than all Medicare patients in general. Studies of the use of diagnostic imaging equipment done in 1990 and 1994 showed that patients of physicians who had an ownership interest in such equipment utilized some equipment 400% more than the patients of nonowning physicians. Physicians having ownership interests in physical therapy clinics or radiation therapy centers similarly recommended patient visits to such facilities fifty percent more than did other physicians. Id. at 209 (footnotes omitted).
142. 42 U.S.C.A. § 1395nn(i)(1)(D)(i)-(vii) (West Supp. 2011).
143. Even absent such legislative action, section 6001 may still result in the physician-owned specialty hospital industry's demise. "Work-arounds" to the PPACA section 6001 reforms are not viewed as viable. Lew Lefko & Cheryl Camin, "Work-Arounds" For Physician-Owned Hospitals: Are They Workable? Health Law., Dec. 2010, at 44, 47 ("Each available 'workaround' entails careful planning and physician acceptance that their investments may not result in the expected financial return, governance or operational control of the hospital."). Moreover, some physician-owned specialty hospitals have begun to reorganize by cashing out physician/surgeon investors and converting to a nonprofit ownership model. See Robeznieks, supra note 153; J.K. Wall, IU Health Buying Docs in Hospital Ventures, Indianapolis Bus. J. (May 23, 2011), .
144. See Churchill, 53.