Big Hospitals Putting Community Clinics Out of Business
Health care giants are squeezing out mom and pop physical therapy shops.
America's healthcare system is at a critical juncture. Once known for high-quality care, our healthcare system is increasingly failing patients and its own independent providers. As a physical therapist, I am witnessing firsthand how large hospital systems are reshaping healthcare delivery—and not for the better.
I own and operate a physical therapy clinic which has been serving my community for more than forty years. We accept MediCAL, Medicare and many other insurance providers. We deliver care to the young, the old, the wealthy and the unhoused. My clinic is a lifeline for people facing mobility challenges—injury, surgery, degenerative disease and plain old aging.
We treat our patients in a one-on-one setting applying manual therapy techniques in tandem with individualized therapeutic exercises. This direct and individualized approach leads to better patient outcomes compared to the “patient mills” we are being replaced by, wherein unlicensed individuals “treat” multiple patients at once in a gym.
Since the 1990s there has been a 40% decrease in reimbursement levels to independent PT practices like mine, with the most significant drop occurring since the onset of the pandemic. In fact, in my city there are only two independently run PT clinics remaining. The others were bought out by health conglomerates and hospital systems.
More than ever before, independent physical therapy clinics are being forced to either close or sell to hospital systems. The reason? Hospital systems charge substantially more for identically billed services, simply because they're hospitals. Additional hospital fees generate pay for the therapist and staff working there and they are in on it. The clinic owners often feel forced to sell their clinic to make a buck too, instead of losing money all the time. The impact on patients is severe.
When seeking physical therapy, many face months-long wait times. Often, they unknowingly end up at hospital-owned outpatient clinics where they pay significantly higher out-of-pocket costs for care they could receive at an independent clinic. The cruel irony is that independent clinics typically offer longer treatment sessions and more personalized care at a fraction of the cost.
The ”facility fees” problem
How do hospitals justify these higher charges? They use "facility fees”— additional charges they justify as essential services, regulatory compliance, and infrastructure costs. However, hospital-owned outpatient clinics operate independently and don't carry such overhead costs; yet they are allowed to charge the hospital rate.
Global real estate as a financialized asset is the biggest commodity in the history of mankind. Unsurprisingly, hospital systems are increasingly functioning as real estate enterprises with their CEOs behaving more like property moguls than healthcare administrators. In high value urban areas, hospital systems use their real estate holdings as collateral for loans and expansion, while leasing properties to independent providers at premium rates. They also benefit from substantial tax credits from local governments, depleting public resources that would otherwise fund essential services like public transportation, housing programs and infrastructure.
The impact on our commons is staggering. In the San Francisco Bay Area alone, four "non-profit" hospital systems control real estate assets totaling more than $31 billion, with Kaiser and Stanford showing remarkable asset growth in recent years. This consolidation comes at a heavy cost to the public treasury. Why? Because these funds originate from avoided taxes, taking public funds which would otherwise be collected by cities to care for the unhoused, build public transportation, strengthen public education and on and on.
There is hope for change. Eighteen states have adopted "site-neutral" reimbursement policies, requiring equal payment for the same service regardless of location. California is not one of these states. In May 2023, the US House of Representatives passed a healthcare transparency package consisting of six bills. Two of these, the “PATIENT Act” and the “Lower Costs, More Transparency Act” would prevent Medicare from reimbursing off-campus hospital departments at higher rates than independent physician offices providing identical services. The American Hospital Association estimates these changes could reduce hospital reimbursement by $50 billion over ten years—but more importantly, it would redirect funds back to independent healthcare providers and public budgets at the municipal and county levels.
California initiatives gathering support
The California legislature is presently proposing several bills that advance site-neutral payment reform. These initiatives have garnered support from patient advocacy groups, professional associations and policy makers who correctly argue that the status quo amounts to a giveaway of public funds and a watering down of services by aggregated providers.
The for-profit hospital industrial complex claims that revenue reductions from these proposed laws could cause some hospitals to shut down outpatient programs or other service lines, diminishing patient access to care. Meanwhile, hospital systems continue aggressively acquiring properties and clinics, further consolidating their market power. While the Centers for Medicare & Medicaid Services (CMS) await full Congressional approval of these new legislative reforms, eighteen states have already successfully passed legislation to address facility fees charged by health systems for services.
As Democratic Socialists we must understand what is at stake if we maintain a system that prioritizes hospital expansion and real estate acquisition over affordable, accessible care.
We must demand that our representatives enact policies that level the playing field for independent healthcare providers—benefitting our communities.
We must educate ourselves and our communities to dispel the myths constructed by the medical industrial complex and its many lobbyists. We must organize to ensure that legislation at the federal level already enacted in support of site-neutral reimbursement is enforced.