Can the government single out physicians as the sole class of citizen NOT allowed to own a hospital?
That’s the question a group of physicians is asking a Texas court to answer.
The Due Process (5th) and Equal Protection Clause (14th) Amendments to the U.S. Constitution require that all citizens be treated the same. That means the mechanic should be treated the same as the physician.
Physician Special Treatment
Over the years however, Congress has treated physicians differently from other citizens for a variety of reasons that purportedly further a public purpose.
If a mechanic figures out how to make a better part for a car, he or she can get a patent, begin manufacturing, distribute and use the product and bill customers whatever the market will bear. The government also does not tell the mechanic that he or she cannot own an auto-body shop if they refer cars to the shop.
But that’s exactly what the government did in the recently passed health care bill. The government told physicians they cannot own a hospital if they refer Medicare patients there.
As the largest payer of heath care in the U.S., the federal government has a legitimate public purpose in getting the biggest bang for its buck in negotiating prices with providers. Through the Medicare/Medicaid program, the government has passed various laws, including Federal Anti Kick-back statutes, which impose requirements on physicians not imposed on the mechanic.
It has been a long time since physicians have gone to court to demand their due process and equal protection rights.
That all changed on June 7, when a small group of physicians at the Texas Spine and Joint Hospital rebelled and asked a court to stop the government from enforcing Section 6001 of the Patient Protection and Affordable Care Act.
They join a long history of American rebellions going back to the Shayes and Whiskey Rebellions. Unfortunately history was not kind to those rebels.
Physician Hospital Law
Section 6001, or the “Physician Hospital Law, ” (PHL) deters the opening of any new physician-owned hospital that cannot obtain Medicare certification by December 31, 2010, and disallows the expansion of existing Medicare-certified physician-owned facilities. In short, the law limits the existence of but one type of Medicare servicing hospital—the facility that happens to be owned by physicians.
In their Motion for a Preliminary Injunction, the physicians claim the purpose of the PHL was to, “permit non-physician-owned hospitals to succeed, and to weaken and ultimately close physician-owned hospitals. Congress was driven by forming cozy legislative coalitions and picking winners in competitive markets…. Driven by these irrational and anticompetitive reasons, Congress has impermissibly prevented the increase of service to Medicare patients at only one type of hospital—those owned by physicians.”
They claim the law is, “illegitimate and irrational, and thus violates the Due Process clause of the U.S. Constitution. The law’s restriction on patient care and patient choice on the basis of the occupation of a hospital’s owner is also a blatant affront to Equal Protection.”
Massachusetts 1986
The last instance we could find of a group of physicians challenging a law on “Due Process” grounds was in 1986 when Massachusetts physicians argued that a ban on “balance billing” deprived doctors of the “liberty” to practice their profession.
A Massachusetts statute made a physician promise not to “balance bill” a condition for obtaining a license.
An appeals court said that a state can require high standards of qualification…but any qualification must have a rational connection with the applicant’s fitness or capacity.
The physicians argued that the “balance bill” condition imposed by the state on medical licenses was not rationally connected with this “fitness or capacity” medicine.
However, the court said the promise not to “balance bill” simply amounted to a rule. And, there is nothing irrational about a state saying a doctor, entering the profession, must promise to follow the rules. The physicians lost.
Government Vendor
The government will likely argue that a physician seeking Medicare/Medicaid payments is simply a vendor, and there is nothing irrational about government, as a third-party payer, establishing rules of reimbursement.
This case will certainly be appealed by the losing side and could eventually reach the U.S. Supreme Court. At that point, a decision could be issued that recognizes a physician’s right to have control over their own means of production. This fight, on behalf of every physician citizen in America, could become a landmark decision as important as Dred Scott, Brown, and Miranda.
The Tyler Rebels
Charley Gordon, M.D., and Mike Russell, M.D., were not looking for a fight. Drs. Russell, Gordon and their partners were just trying to expand their hospital in Tyler, Texas.
They opened their doors in 2002, after converting an abandoned Montgomery Ward store into a hospital. In 2008, they spent $2.1 million to purchase land to double their 20-bed hospital.
The physicians received zoning approval from their city council, which has cost $426, 252 to date. In 2009, they terminated commercial leases for structures located on the newly acquired property. These leases had yielded a total of $533, 236 a year in rents. The group paid $23, 061 in property taxes in 2010 for the additional property, and incurs debt service on the land purchase of $61, 784 annually.
Dr. Russell, the incoming President of the Physician-Owned Hospital Association, conferred with the Association and determined that his hospital was the perfect candidate for challenging the new law. His hospital was 100% physician-owned and the group had just gone through a very public process to get approval for expansion plans.
Unfair and Harmful to Physicians
Russell told OTW that he and his partners were forced to bring legal action, “based on the unfair treatment of physicians with respect to ownership of hospitals. The [PHL] is unfair and harmful to physicians and their patients on a number of fronts. Particularly, physicians are forbidden to have any ownership interest in a hospital to which they refer Medicare beneficiaries.
Imagine telling pilots that they can’t own interest in an airline company. This regressive law in effect takes us back to a time when people of a certain class were denied rights just because of their background.
Not only do the physicians believe the law is unconstitutional, they believe it’s not good for patients. “Numerous studies have demonstrated that physician-owned facilities offer improved outcomes at decreased cost. We are proud to consistently rank in the top 5% of all Texas hospitals for outcomes in orthopedics, ” added Russell.
Backroom Politics
Why was this provision even included in the new law?
“Simple backroom politics, ” said Russell. “The powerful tax-exempt American Hospital Association lobby agreed to support the health care bill, provided that the feds would help stifle their only real competition.”
Russell says he and his partners have clearly been harmed by this law. “But the real injustice has been to our patients, and we feel that we owe it to them to bring it to the attention of the courts.”
Gordon said that when the physicians opened their hospital, he and his partners were concerned with the direction of the two large hospitals in their community.
He says that in the ensuing years he has seen what competition can do. “Both competing general care hospitals have drastically improved their own efficiencies, quality, and physical plants as a result of our being in the marketplace. As a result, all patients in the Tyler area and the East Texas Region have seen improved quality, more comfortable accommodations, and significantly improved customer service and satisfaction, “
Gordon believes a successful outcome of this suit could allow more competition in the marketplace by, “not allowing the government to single out physicians as the single class of citizen NOT allowed to invest in health care.
American Hospital Association Quid Pro Quo
The physicians blame the American Hospital Association for using the health care reform debate in Congress to achieve a goal they could not achieve in the marketplace—put the physicians out of the hospital business.
There are about 5, 815 hospitals in America. Only 265 of them, or 4.5%, are owned by physicians.
According to their Motion, “Highly-placed proponents of health care reform in Washington announced that cuts in Medicare rates would be required for the health care books to balance long term. Faced with the certainty of Medicare reimbursement reductions, complaining hospitals promised vigorous opposition to health care reform.
“To appease the non-physician-owned hospital majority, bill handlers were asked, in a deal cut in early July 2009, to eliminate the competition from physician-owned hospitals. The large-hospital lobby agreed to forgo $155 billion in Medicare payments over ten years to help finance health care reform in exchange for government placing severe restrictions on any new physician-owned facilities.
This promise…enabled the bruised non-physician-owned hospitals to boost revenues and trim outlay by conserving funds they ordinarily spent improving care, training staff, and meeting competition from better-run physician-owned facilities.
The physicians believe that this rebellion can be successful.
“Nearly a century ago, ” states their Motion, “Justice Oliver Wendell Holmes drew a line in the sand…when he wrote, ‘[A] strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.”
Pray for the rebels.
