Blog: Predicting success for doc-owned hospitals

Although they face significant obstacles, physician hospital investors will likely succeed in the end because they have a history of doing so, a crowd of these investors was told at the Physician Hospitals of America annual conference in Austin, Texas. The opening keynote speaker, futurist Jim Carroll, first voiced the message, which was later echoed by healthcare consultant Kevin McDonough.

Carroll's general theme was nothing new, and it reminded me of Alvin Toffler's book Future Shock, which I was assigned to read in my high school sociology class more than 30 years ago. But the more he tailored his message, the more Carroll's words resonated.

"There is so much opportunity in front of you, it's staggering," Carroll said, adding that—even though the Patient Protection and Affordable Care Act restricted business opportunities for physician-owned hospitals—growth was still possible with a change in mindset and a change in business models.

McDonough, a senior manager with Dallas-based consultants VMG Health, and VMG Health manager Sarina Hickey offered some specifics. "Margins have remained remarkably stable" for physician-owned hospitals, Hickey said. She added that doctor owners have been "adept at controlling costs," and, while legal and market challenges are daunting, "survivors will emerge stronger." McDonough noted that the ACA's limits on growth may increase the value of existing physician-owned hospitals because they have been made a "limited commodity."

New strategies are emerging for physician investors, McDonough said, including "indirect ownership" leasing arrangements and public equity deals where physicians own publicly traded shares of a hospital's ownership. Ultimately, McDonough concluded, the "entrepreneurial spirit that serves as the bedrock of the physician-owned hospital industry" will serve as a driver for its future success.

During a session on PHA political advocacy, the group's president, Dr. Michael Russell, said the PHA "continues to fight the fight" despite recent legislative and legal defeats.

These defeats could explain why attendance for this year's conference is only around 300 compared with 360 at last year's event in Keystone, Colo., so it will be interesting to see if Hickey's prediction that "survivors will emerge stronger" will come true.

Follow Andis Robeznieks on Twitter: @MHARobeznieks.