Academic journal article Journal of Applied Management and Entrepreneurship

When Entrepreneurship and Ethics Collide: The Case of Physician-Owned Specialty Hospitals

Academic journal article Journal of Applied Management and Entrepreneurship

When Entrepreneurship and Ethics Collide: The Case of Physician-Owned Specialty Hospitals

Article excerpt

Executive Summary

Recent effects of inefficiencies in the United States health care system have incited criticism and calls for change. The United States government has expressed a desire for increased entrepreneurial activity to change the inefficiencies in this system, as entrepreneurship has long provided a means to revise inefficient markets. Entrepreneurial activity in health care could be initiated by several experienced players in the market, including nurses, hospitals, researchers, and physicians; however, physician-initiated entrepreneurship activity has been isolated and perceived by many in the health care sector as contrary to their profession's social healing mission.

Physicians have been involved in a variety of entrepreneurial activities, including group practice formation, physician practice management companies, ambulatory surgery centers, and imaging centers. Each of these types of ventures has been met with concern, both from within the ranks of physicians themselves, and within their competitive community. A recent trend in which physicians invest as owners in newly constructed specialty hospitals became such an ethical issue in 2003 that the U.S. Congress and Centers for Medicare and Medicaid Services stepped in, halting reimbursement from the Medicare program for services provided in existing physician-owned specialty hospitals and forbidding the construction of new facilities. For the first time in over a decade, physicians were under scrutiny regarding whether their motivations were for patients or for profits. Very few other groups of entrepreneurs have experienced the need to defend their entrepreneurial behavior; however, physicians' code of ethics could be construed as blocking them from profit-seeking ventures.

Critics of physician-owned specialty hospitals fear that these models motivate physicians to send the most profitable cases to their own hospitals, while sending unprofitable cases to community hospitals. They also contend that the profit motive in these models could result in greater numbers of unnecessary procedures being performed by unethical physician owners. Proponents of physician-owned specialty hospitals argue that these effects do not occur, and that this new market model allows for excellence in specialty disease areas. Research performed to investigate these perspectives has initially shown that specialty hospitals have drawn patients away from community hospitals, but that there is no support for the assertion that demand is being induced for greater numbers of procedures at physician-owned specialty hospitals. Furthermore, research has provided evidence that community hospitals, located in markets where physician-owned specialty hospitals opened, improved in their financial performance. As the moratorium on physician-owned specialty hospitals ends, leaving in its wake several closures due to nascent hospitals' insolvency, questions remain as to the effect of this conflict on future motivation for entrepreneurship in industries and professions with nonpermissive codes of ethics.


Many players in the health care sector are using entrepreneurial approaches to drive innovation into a field that could use new models for more efficient, effective patient care. Lately, research has indicated the need for further inquiry into health care entrepreneurship, to both document and promote the health care sector's development in this direction (Asoh, Rivers, McCleary, and Sarvela, 2005). However, as has been noted, innovation has not always been readily accepted in many areas within the health care sector, especially within the area of direct patient care by physicians and hospitals.

An area of intense debate in the past five years, both in the health care profession and in the halls of the United States government, has been the physician ownership of specialty hospitals. The Medicare Modernization Act of 2003 halted the additional formation, construction, and opening of additional physician-owned specialty hospitals, and Medicare payments to currently operating physician-owned specialty hospitals have been suspended, pending further review by Congress over this change in market structure (Shactman, 2005). …

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