Issue: May 2018
May 16, 2018
13 min read

Specialty, physician-owned hospitals prepare for change

Specialty, physician-owned orthopedic hospitals seek to improve quality, cost of care

Issue: May 2018
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As orthopedic specialty and physician-owned hospitals strive to deliver quality health care that is a good value for patients, these centers are addressing uncertainties in the changing health care landscape, some of which are also felt by other types of hospitals.

In this Orthopedics Today Cover Story, sources discuss key issues with which orthopedic specialty hospitals and physician-owned hospitals (POHs) are dealing, as well as opportunities they see to improve the orthopedic surgical experience and deliver better quality and value for patients. They said, among the critical factors affecting them, are legislative and regulatory issues, new operational challenges related to a growing outpatient surgery market, consolidation and competition within orthopedics, and the consolidation and hybridization among health care payers.

Lately, Timothy E. Dicke, MD, CEO of OrthoIndy, a large, orthopedic single-specialty practice group in the Indianapolis area which includes a POH, has noticed a greater push from private insurance companies to justify whether surgeries are needed. This is reflected in policy changes or requests for preauthorization, he said, noting this trend is not unique to OrthoIndy Hospital or his group.

Frederic E. Liss, MD
Frederic E. Liss, MD, of Rothman Institute, said an aggressive and innovative philosophy like the Rothman Institute’s is having a positive effect on the orthopedic surgery market, driving down costs.

Source: Richard Cushman

“That affects all of us, so that has been a challenge going forward. There will be some legislative changes that could affect hospitals, including POHs, regarding inpatient qualification of certain procedures, including total joint replacement,” Dicke told Orthopedics Today.

For example, OrthoIndy has had patients denied inpatient surgery by an insurance company “almost at random,” he said.

Since CMS moved total knee replacement from the inpatient-only (IPO) to the outpatient surgery list in 2017, POHs and specialty hospitals, like OrthoIndy, await further word about CMS possibly moving more procedures, such as total hip replacement and certain spine surgery codes, from the IPO to the outpatient surgery list.

Transition to outpatient surgery

As physicians at OrthoIndy perform outpatient, as well as inpatient procedures, Dicke said, “we are well-positioned for any kind of transition there. That’s not a threat per se, but it may be to the reimbursement schedule across the board for inpatient and outpatient surgery. I think all of us have to face that.”

He has also noticed that insurance companies are increasingly trying to limit services performed at inpatient facilities. Therefore, he sees those services gradually being moved to the outpatient or ASC environment.

Timothy E. Dicke, MD
Timothy E. Dicke

In terms of recent developments related to the government’s focus on value and quality in orthopedics through the Medicare Comprehensive Care for Joint Replacement (CJR) bundled payment model, Dicke expects OrthoIndy will do well. That is because OrthoIndy and other POHs did well, overall, in the first version of the CJR program, which was mandated for the Indianapolis area, he said.

“We were prepared for that. Local hospitals were not,” Dicke said.

“If that did speak to providing high-quality care at a good cost, we were a leader in that program. That is another attestation to the fact POHs provide high-quality, lower cost care at a good value,” Dicke said.

Leader on quality control

Frederic E. Liss, MD, who has a financial interest in Rothman Institute’s Physicians Care Surgical Hospital, a multispecialty POH in Limerick, Pennsylvania, said the U.S. government grandfathered in that hospital and Rothman Orthopaedic Specialty Hospital, a single-specialty orthopedic hospital, in Bensalem, Pennsylvania. This enabled those facilities to obtain Medicare licenses and operate prior to the restrictions imposed by Section 6001 of the Affordable Care Act that would have otherwise affected their operations.

“When you are talking about the government, it is all about the ability to see Medicare patients. All of us at the Rothman Institute do and we are proud to be able to care for our elderly. We wanted the ability to do that at the highest quality,” Liss said.

Rothman’s philosophy for delivering quality care, which other POHs endorse, is physicians who have “skin in the game” provide better value-based care that inherently includes better care at lower cost, according to Liss.

“We have seen this have a direct effect on quality of care, the satisfaction of our patients, the lowering of infection rates — all those things we have been shooting for,” he said.

Well-rated organizations

Research has shown that, as a category of hospital, U.S. orthopedic specialty hospitals tend to be well-rated. However, some groups question whether orthopedic specialty POHs overutilize THR and TKR. In addition, there are claims specialty hospitals and POHs are rated as highly are because these select the best-suited patients for TJR and can thus achieve optimal outcomes.

Thirty-day readmission scores for POHs and non-POHs for TKR and THR in the CMS Hospital Compare Database were similar — at 4.48 for POHs and 4.62 for non-POHs — in a 2017 study by Courtney and colleagues. There was a lower risk-adjusted complication score and better results for patient satisfaction for POHs vs. non-POHs.


“Our findings suggest that [POHs] are associated with lower mean Medicare costs, fewer complications and higher patient satisfaction following [total hip arthroplasty] and [total knee arthroplasty] than non-POHs. Policymakers should consider these data when debating the current moratorium on [POH] expansion,” the study authors wrote.

The American Hospital Association (AHA) contends physician hospital ownership is known to drive up the number of procedures surgeons perform per month. This was a finding of a 2010 study by Jean M. Mitchell, professor of public policy at Georgetown Public Policy Institute in Washington, DC, who wrote, “The consistent finding of higher use rates by physician owners across time clearly suggests that financial incentives linked to ownership of either specialty hospitals or ambulatory surgery centers influence physicians’ practice patterns.”

In a 2015 study, Hollenbeck and colleagues found establishing an ASC produced a shift in surgical procedures to the ASC from the hospital service area.

The AHA, which maintains an anti-POH lobby, declined an interview with Orthopedics Today to discuss the advantages of non-POHs and its position on orthopedic POHs and Section 6001 of the ACA, which prohibits expanding existing POHs and forming new POHs.

An AHA spokesperson said in an emailed statement, “That statute is clear that new [POHs] are prohibited from participating in the Medicare program, and that grandfathered [POHs] are only permitted to expand under limited circumstances. When physicians are allowed to self-refer patients, they tend to send the healthiest and wealthiest patients to their own facilities. This ‘cherry-picking’ of healthier, better-insured patients erodes the health care safety net, unfairly leaves other hospitals with higher costs and can jeopardize access to critical services in many communities.”

A 2018 study on the effect of hospital ownership on health care utilization by Schroeder and colleagues showed almost a three-case increase in surgical cases performed per orthopedic surgeon per year from 2010 to 2015.

Catherine H. MacLean, MD, PhD
Catherine H. MacLean

“The average increase in cases per year was lower for equity partners by 1.51 cases per year (P < .0001),” the authors wrote.

The practice with which the investigators were affiliated purchased an ownership stake in one hospital and three ASCs. In the 2 years after the specialty hospital purchase, there was a per case decrease in cases performed per surgeon per month.

“In a well-established large orthopedic practice, surgeon ownership of a hospital or ASC does not lead to an increase in surgical volume,” the investigators wrote.

Episode of care management

Orthopedic surgery post-acute care is another challenge POHs and specialty hospitals increasingly need to address. James D. Slover, MD, MS, examined the value to providers participating in bundled-payment programs of using cost-effective post-acute care strategies. He reported management of the post-discharge period of a bundled care episode was needed for patients to receive quality care and have their expectations met.


Most patients treated at Hospital for Special Surgery (HSS) are now discharged to home, which has led HSS, a physician-specialty hospital, to focus more on quality post-discharge care.

“That has been a big change for orthopedic specialty hospitals, managing that whole episode of care,” Catherine H. MacLean, MD, PhD, chief value medical officer at HSS, told Orthopedics Today.

Mechanisms are now in place so HSS hospital staff can identify patients who may be at risk for certain complications and proactively reach out to them to see how they are doing. HSS also developed a system to get those patients seen by a provider same-day, if needed, she said.

“The challenge, especially for specialty hospitals, particularly for the ones that are standalone and do not have primary care doctors, is for them to manage the whole episode of care. I think we have done that well,” but it has taken years of experience to achieve that, according to MacLean.

“We had to scale up hugely,” she said.

John W. Dietz Jr., MD
John W. Dietz Jr.

Beyond an administrative infrastructure to track patients and focus on payment and reimbursement, HSS built out a “clinical infrastructure on top of that, to manage patients across the entire episode of care,” MacLean told Orthopedics Today.

A post-acute care program provides feedback to HSS from its nursing home, skilled nursing facility, visiting nurse, physical therapy and rehabilitation partners about how well patients are progressing. MacLean expects there will be more episodes of care with big payment-type methodologies going forward, as well as more involvement from employers in New York state.

“We see that to some degree currently from employers wanting to do episode payments and direct-to-provider contracting. I anticipate we will see more of that. I think the challenge to hospitals in that realm is an administrative one,” she said.

Employers doing direct-to-provider contracting may want to offer different coverages and services for their employees, according to MacLean, who said this challenge is not insurmountable, but must be planned for.

“You have so much consolidation in the payer market,” among the big national and a few local payers, she said. “When you start to bring in the employers, if they want to start doing this, there is much more infrastructure [needed] as far as administration to be able to manage all those different employers,” she said.

MacLean anticipates large employer coalitions will also begin to work directly with providers, like HSS, to obtain high-value health care for their employees that is high-quality and lower cost.


Focused care, quality care

Dicke said all hospital systems seek to provide a high level of health care.

“In the early 2000s, there was a great opportunity for improving patient care, not just the outpatient status, but in the inpatient arena,” Dicke said about when the OrthoIndy group’s POH was established.

“It was designed around improving patient care, providing that at a reasonable cost and being able to control that within our own environment. So, [it was] good for patient care, [and] good for the surgeons operating within that arena,” he said.

Those factors were major motivators for establishing OrthoIndy Hospital, a nationally ranked hospital that opened in March 2005 and was, at one time, voted the safest hospital in the United States. Dicke said OrthoIndy Hospital has done well when it comes to measures that look at the value of service and it has received a series of Press Ganey awards.

“Whether it is the value-based purchasing or other programs, there is no doubt a single-specialty POH is a great value to our environment and to our community. That is something that would be a great opportunity going forward in the country, if that [type of facility] was allowed,” he said.

ACA restraints, uncertainty

Since 2010, orthopedic practices have followed the efforts to repeal restrictions on POHs in Section 6001 of the ACA. Orthopedic surgeon John W. Dietz Jr., MD, who is president of Physician Hospitals of America, told Orthopedics Today, “There is a series of other regulations in [the ACA] that are onerous, too, some reporting regulations and restrictions on existing hospitals.”

For example, despite some hospitals being grandfathered in and able to bill Medicare for services by physician owners, POHs are unable to change ownership percentages and the number of inpatient beds and ORs, “which is kind of a slow way to put your competition out of business if you cannot adapt to changing markets,” Dietz said.

Christina M. Dalton, PhD
Christina M. Dalton

Christina M. Dalton, PhD, a health economics and health care markets expert at Wake Forest University, told Orthopedics Today the midterm election results should prove interesting. These will be an indicator of movement to dismantle the ACA, “kind of a signal for how much of the ACA we want dismantled,” she said.

As the fate of the ACA remains uncertain, “overall uncertainty is usually not a useful thing in the economy. People cannot plan. People don’t know who their providers are going to be. The providers don’t know what decisions they should make. So, all this uncertainty is certainly not good looking forward,” Dalton said.


Orthopedic POHs and specialty hospitals should pay attention to consolidation within the orthopedic industry, she said.

Dalton also stressed the importance of consolidation and hybridization among payers as a key trend of note, such as the recently announced plans of Amazon, Berkshire Hathaway and JPMorgan Chase & Co. to form a company to reduce health care costs for their U.S. employees.

Regarding orthopedic POHs and specialty hospitals, “The important factors for them are about consolidation and who they are going to be sitting down at the table and negotiating prices with. That’s going to have the most impact on how they operate and the quality and cost for consumers,” Dalton said.

POHs in the community

Anthony A. Romeo, MD, Chief Medical Editor of Orthopedics Today, wrote in his May 2017 Commentary in Orthopedics Today, “[POHs] have significant positive impacts in their communities. The patient-recognized quality of care creates competition in the hospital market, forcing traditional non-POHs to improve, innovate and raise the level of care and patient satisfaction.”

A Medicare Payment Advisory Commission study of the revenue benefit to communities in which tax-exempt and tax-paying hospitals are located, including orthopedic and cardiac specialty POHs, showed “about 7.2% of total revenue for orthopedic specialty hospitals went back to community benefit,” Dietz said.

He noted that included taxes, uncompensated care, bad debt — all forms of community benefit.

“The shocking number is [.87%] of total revenue for tax exempt or nonprofit hospitals went back to community benefit,” Dietz said.

Through consolidation, not-for-profit hospitals have grown large and, due to their size, can behave as competitors in the market, according to Dietz.

“It becomes an open question as to whether the community benefit is matching what the community should be getting for their tax-exempt status,” he said. “The main point being that specialty hospitals are providing back to their communities.”

Continued challenges

Dietz said some physicians are now opening hospitals not designed to treat Medicare, Medicaid or Tricare patients. The ACA takes away the physicians’ ability to treat Medicare patients at their own facility, but physicians still want the efficiency and value of a POH, so they open a hospital for non-Medicare patients. This may be good for non-Medicare patients, but we want to treat elderly and military populations with the same quality and value everyone else receives. In effect, the ACA is denying Medicare patients access to these high-quality hospitals. Ironically, the ACA mandates “cherry-picking” of the best patients, even though physicians would prefer to treat everyone equally well.


“We want Medicare patients to have access to all POHs,” Dietz said.

Among the continuing challenges MacLean sees is preparing for patient-reported outcome measures (PROMs) as a component of quality measurement.

“We have initiated routine collection of PROMs now on all our patients at HSS, so that is a big list to do that,” MacLean said.

As more IPO procedures for Medicare patients move to the list of procedures that can also be approved as outpatient surgery, “that is a big deal going forward on that,” she said.

“We believe in innovation and doing the right thing at the right time for the right reason. If that means developing our resources and facilities to accommodate this trend, we will do that,” Dietz said of OrthoIndy, where he practices, which has two outpatient departments nearby.

“The most important part of that trend is figuring out patient selection, ... the right person for that type of operation, the right set of support and avoiding the wrong person,” he said.


Demand-matching is the term Liss and Rothman Institute leadership use for that process, a concept developed at the Lahey Clinic, which is part of the vision of Michael E. West, CPA, MBA, CEO of Rothman Institute. It means each person is matched to the best TJR procedure for them at the best facility.

“Community hospitals, tertiary care hospitals and ambulatory surgery centers should fall together into a logical system when patients are placed in the proper setting at the highest quality and the greatest safety for them,” Liss said.

Medicare payments graphic

The university setting or a tertiary care hospital, which may have a higher infection rate and higher costs, is not necessarily the best setting for a 50-year-old patient with no comorbidities undergoing THR. What’s more, an ASC, specialty orthopedic hospital or a smaller multispecialty POH that may not have an ICU is not necessarily the best setting for someone with comorbidities, such as heart disease, to undergo THR, according to Liss.

He said patients should have their surgery performed at the facility with the lowest cost and highest safety rating for their condition.

“We are aligning ourselves so the care in each of our hospitals is put together in a logical way that is best for patients,” Liss said noting Rothman Institute has affiliations with a growing number of large health systems and the orthopedists do surgeries in other hospitals, all based on the patient’s need.

In the forecast

Liss said the innovative philosophy of Rothman Institute is disrupting the market in a positive way.


“It is driving the cost down in the market and at the same time we are increasing quality and patient satisfaction,” he told Orthopedics Today.

Dalton said, “The biggest change happening right now has to do with consolidation across the industry and ... it is kind of like a domino effect. As insurers consolidate, then they have more power, so hospitals want to consolidate as well, to balance the increased bargaining power that insurers have. Physicians have been also caught up in this.”

In response to these changes, she expects more physicians will integrate to balance the power equation between hospitals, payers and physicians.

“Everyone is trying to make sure they can cover their costs. In the case of quality, usually quality costs more,” Dalton said. – by Susan M. Rapp

Disclosures: Dicke reports he is a physician at and shareholder of OrthoIndy. Dietz reports he helped establish and is a past chairman of OrthoIndy. Liss reports he is a founder and minority owner of Physicians Care Surgical Hospital. Dalton and MacLean report no relevant financial disclosures.

Click here to read the POINTCOUNTER, “Is it time to end the Affordable Care Act’s restrictions on physician-owned hospitals?