Texas Senate Backs Study of Physician Self-Referral Issue with SB 872

April 13, 2005

Senate Bill 872, authored by Sen. Jane Nelson (R-Flower Mound), which would require the state to study the potential economic harm to community hospitals that results when physicians steer patients to health care facilities in which the doctor is an investor, received the support of the Texas Senate this week.

“It appears that both the Texas Senate and physicians agree that this
problem warrants greater scrutiny and a better understanding of the impact it has on the community health care system,” said Charles Bailey, J.D., general counsel for the Texas Hospital Association. “The Texas Hospital Association shares their belief that this growing problem merits complete and comprehensive study. We applaud Senator Nelson’s leadership in addressing this issue.”

Texas reportedly leads the nation in the number of doctor-owned, limited service health care businesses. More than 100 doctor-owned limited service businesses now operate nationally; 47 of these are in Texas, with an additional 29 under development in the state. A recent study of the issue conducted by THA reportedly demonstrates that the growth of these doctor-owned businesses, such as surgical or diagnostic testing centers, is having a negative impact on full- service community hospitals, especially those in smaller urban and rural

The ability of physician owners to steer well-insured, less complicated
patients to their specialty facilities reportedly creates a conflict of interest. “In a free market, one competitor does not have an advantage or disadvantage over another,” Bailey noted. THA’s study shows that many physician-owned limited service facilities treat fewer Medicaid and uninsured patients than full service community hospitals. “Full-service community hospitals need a broad base of patients to sustain necessary but unprofitable services, like emergency and trauma services and neonatal intensive care units.”

“Senate Bill 872 is a great first step in addressing the issue,” said Bailey. “But we already know that the health of Texas’ full-service
hospitals is suffering as a result of this unfair competition. Further
expansion of these facilities will only exacerbate the problem.”

As passed, S.B. 872 would:
* Require the Texas Department of State Health Services to conduct a comprehensive study regarding the impact of niche hospitals on the financial viability of other general hospitals located in the state.
* Compare the referral patterns of physicians with an ownership interest in a niche hospital to the referral patterns of physicians with
privileges at a niche hospital who do not have an ownership interest.
* Mandate physicians to disclose their ownership interest in a niche hospital.

Senate Bill 872 does not reportedly halt the growth of doctor- owned “limited service” or niche health care facilities while the study is being conducted. The Texas Hospital Association believes that a two-year moratorium is warranted given the dramatic impact these limited service facilities can have on the sustainability of vital community health care services in the interim.

“If you knew something was hurting your health, would you keep on doing it?” asked Bailey. “Of course not. If we all agree the issue merits study, let’s not wait until false competition damages or in rural areas, eliminates, community hospitals and the full-service care they provide.”

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