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IU Health buying docs in hospital ventures

May 23, 2011

Indiana University Health is now quietly unwinding the physician ownership of its hospitals in Carmel and Avon—which sparked loud controversy when they opened in 2004 and 2005.

The move by IU Health, formerly known as Clarian, will remove two of the most recognizable examples of physician-owned hospitals, leaving the Indiana Orthopaedic Hospital as the only Indianapolis-area hospital that is majority-owned by physicians.

The culprit is the 2010 health care reform law, the Patient Protection and Affordable Care Act. It stipulates that physician-owned hospitals cannot increase their total number of beds, operating rooms and procedure rooms—or if they do, they will no longer be eligible for payments under the federal Medicare program.

Since Medicare, which covers all Americans 65 and older, is the largest health plan in the nation, no health care provider can operate profitably without it.

Carmel and Avon are growing communities, and IU Health wanted to have the option of expanding its hospitals there as needs arise, said Ron Stiver, IU Health's senior vice president of engagement and external affairs.

“Nothing’s inevitable at this point, but we’d like to have that opportunity,” Stiver said. “It was a no-brainer.”

The hospital in Avon, IU Health West, was 20-percent owned by physicians. They will all be cashed out within a month, Stiver said, though he declined to disclose the details of the buyouts.

At IU Health North in Carmel, the process is just getting started to cash out the physicians, who own 36 percent of that hospital.

Both the Avon and Carmel hospitals will be converted to not-for-profit status, according to IU Health officials.

Also, IU Health had intended to sign up physician investors for its next hospital, IU Health Saxony in Fishers. But that option is now off the table.

Physicians surged into ownership of their surgery centers and even hospitals in the 1990s as a way to better control patient care—and to boost their incomes. In  Indianapolis, the Indiana Orthopaedic Hospital and the IU Health Hospital were joined by two physician-owned heart hospitals: The Indiana Heart Hospital in Castleton and the St. Vincent Heart Center in Carmel.

The physicians owners of the Indiana Heart Hospital were bought out in 2008 by Community Health Network. And St. Vincent Health, by acquiring The Care Group physician practice in 2010, has control of the St. Vincent Heart Center.

Physician-owned hospitals like the Indiana Orthopaedic Hospital have produced the best patient outcomes, but were criticized harshly for siphoning off the most lucrative patients from community hospitals, who claimed they were stuck with too many money-losing patients to turn a profit.

Those arguments finally gained traction during the 2009 debate over health care reform, and the growth restrictions made it into the final law.

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