November 20, 2002

Sponsor Testimony - House Bill 666

Representative Peterson

Chairman Jolivette and committee members, thank you for the opportunity to present to you and to speak in support of House Bill 666 – legislation which was introduced yesterday. The purpose of this legislation is to expand upon current Ohio law regarding referral conflicts of interest for physicians. This bill would prohibit physicians from referring patients to inpatient hospitals in which the physician has an ownership interest. This bill is companion legislation to Senate Bill 309 which was introduced last week by Senator David Goodman of Bexley.

I am deeply concerned that the increasing occurrence of physician owned “specialty” or “boutique” hospitals will threaten and undermine the ability of full-service community hospitals to serve their communities. While I speak with particular emphasis on Central Ohio hospitals, you will hear from witnesses representing some of the 170 community hospitals located throughout the State of Ohio. I have introduced this legislation at the request of Central Ohio hospitals as well as the Ohio Hospital Association.

I believe we could be on the threshold of a major health care crisis. In recent years, the number of for-profit specialty hospitals has increased dramatically nationwide. These specialty hospitals focus on high-cost, high-profit procedures and there is a growing concern that full-service hospitals will be left to perform only the least profitable services, forcing increases in rates or even closures. This is a relatively new development and there is a scarcity of empirical research on the full impact of these for-profit enterprises. However, the research that does exist, suggests that the emergence of specialty hospitals threatens the very structure of the non-profit community hospital concept. The loss of revenue producing services such as orthopedics and heart services, will negatively impact the ability of community hospitals to subsidize care for the indigent, uninsured and under-insured. This should be of great concern to each of us.

The formula for specialty hospitals is simple. (1) Attract low risk/well insured patients (2) Specialize in the most cash generating procedures and (3) Get physicians to invest and share in profits – thus guaranteeing appropriate patient referrals.

Ohio hospitals are seeking passage of this legislation to clarify state law and provide that physicians cannot refer patients to inpatient facilities in which they have an ownership interest. Physicians with an ownership interest in such facilities find themselves in a rather awkward position. They are accountable to two masters. On the one hand, as an owner the physician needs to ensure a reasonable return on investment to shareholders and needs to ensure profitability. On the other hand, the physician has a medical and ethical responsibility to make objective medical decisions that are in the patient’s best interest. This is an inherent conflict.

And, in fact, physician conflict of interest is not a new issue. We’ve been here before. The 119^th General Assembly recognized the problems associated with physician self-referral in 1992 and acted to bar physicians from referring patients to clinical labs in which they had an ownership interest. Subsequently, the law has been modified to also recognize the conflict of interest created when physicians refer patients to other facilities they own. Ohio law now includes prohibitions against referring patients to clinical labs, outpatient prescription drug services and home health care facilities they own.

I am asking for your support of this legislation before Ohio sees the proliferation of physician-owned facilities which has occurred elsewhere in this county and which, I believe, will ultimately threaten the viability of community hospitals in this state.

Thank you for you consideration.