House Republicans Strike a Blow for Self-Referral

Today’s Managing Health Care Costs Indicator is $300 million


The House passed its payroll tax reduction extension – and it’s got a provision that repeals elements of the Affordable Care Act that restrict physician-owned hospitals. These are the hospitals that were immortalized in Atul Gawande’s Cost Conundrum, which described how physician-owned hospitals lead to overutilization in McAllen, Texas.

[Renaissance Hospital] is the newest hospital in the area. It is physician-owned. And it has a reputation (which it disclaims) for aggressively recruiting high-volume physicians to become investors and send patients there. Physicians who do so receive not only their fee for whatever service they provide but also a percentage of the hospital’s profits from the tests, surgery, or other care patients are given. (In 2007, its profits totalled thirty-four million dollars.) Romero and others argued that this gives physicians an unholy temptation to overorder.

Self-referral leads to more utilization. The CBO estimates that this provision will increase costs for Medicare alone by $300 million.

If we want to control health care costs and control the federal deficit, this is the wrong direction.