A little-noticed provision in the House’s version of the SCHIP expansion bill prohibits the construction of physician-owned specialty hospitals, or “focused factories” that specialize in lucrative cardiac, orthopedic, or surgical services.

The restrictions would prohibit new physician-owned hospitals from opening and limit the expansion of existing hospitals. “In order to expand, the facilities would be required to receive approval from the HHS secretary,” Kaiser reports.

Without missing a beat, Physician Hospitals of America, the trade group for physician-owned specialty hospitals, is already lobbying the Senate to pass a clean SCHIP bill:

It is completely counterintuitive that at a time when our country is experiencing an economic downturn, high rates of unemployment and inadequate access to health care, Congress would consider killing an industry that provides over 55,000 jobs nationally and that provides patients access to the best quality health care available in America.

Proponents argue that the small-scale operations — the average orthopedic specialty hospital has 16 beds and the average surgical specialty hospital has 14 — allow doctors to focus on patient-centered care that not only improves clinical outcomes “but also satisfaction among their patients and physicians.” And while a recent study found no difference in the quality of care delivered in a cardiac physician-owned specialty hospital, physician owned hospitals do offer patients a truly luxurious experience. Some hospitals are equipped with dim mood lighting, gourmet menus, wireless capabilities, and other resort-like vacation perks.

So why ban these islands of opulence? Well, critics maintain that physician-owned operations have an unfair competitive advantage with regular community hospitals. That is, by providing a narrow array of profitable services without having to maintain an emergency department or offer services to anyone who walks through the doors, specialty hospitals skim off the most profitable patients and undermine “community hospitals’ ability to subsidize the less profitable services they furnish to their communities.”

But if physician-owned hospitals seem to have a competitive advantage over general hospitals, their effect on community hospitals (and the community) is still unclear. A 2005 MedPac report concluded that overall, physician-owned hospitals had “little impact on community-hospital profitability through 2002.” Yet the report also expressed “concerns that physician-owned specialty hospitals could have incentives to disregard their role in effectively serving Medicare and Medicaid beneficiaries in their communities or to compromise clinical judgment in the pursuit of hospital financial goals.”

Similarly, a 2008 report released by the Office of Inspector General for HHS concluded that “most physician-owned specialty hospitals are poorly equipped to handle medical emergencies.”

“It’s unbelievable that a facility that calls itself a hospital would, at times, not even have a doctor on call or a nurse on duty. It is unacceptable that these facilities are not designed or equipped to handle emergencies,” Sen. Max Baucus (D-MT), a critic of physician-owned hospitals, said.

A new survey released yesterday by the Main Street Alliance found that a majority of small business owners “believe government should provide a public alternative to private coverage” and “are willing to contribute their fair share toward a system that makes health care work for small businesses.” Despite the conventional wisdom — which states that small businesses oppose government involvement or mandates — the survey concluded that small business attitudes actually echo progressive policy prescriptions:

- 73 percent: willing to contribute financially to achieve quality affordable health coverage for their employees.

- 63 percent: willing to contribute 4 to 7 percent or more of total payroll costs, in place of current health care costs, to guarantee quality health coverage.

- 61 percent: expressed interest in being able to buy into a statewide or national health care pool.

- 59 percent: expressed interest in reform that included a public insurance option.

- 70 percent: said government should play a greater role in guaranteeing affordable coverage.

Small businesses grapple with the difficulties of a small risk pool, higher administrative costs and unpredictable premium spikes. In fact, rising prices have led many businesses to drop coverage entirely, increase cost sharing or switch to coverage with higher out of pocket costs and skimpier benefits.

Fifty eight percent of all small-business owners say they’re having a hard time keeping up with the cost of health care and the percentage of businesses with fewer than 200 employees that offer insurance fell to 59 percent last year, “down from 66 percent as recently as 2002, according to the Henry J. Kaiser Family Foundation.”

Comprehensive health care reform can certainly help insulate small businesses from growing health care costs and provide workers with options for coverage. While President-elect Barack Obama’s health care proposal requires large employers to provide health insurance to their employees, small businesses are exempt from the mandate and will be eligible for a new Small Business Health Tax Credit that will “provide small businesses with a refundable tax credit of up to 50 percent on premiums paid by small businesses on behalf of their employees.”

Small business owners and their workers would also be able to purchase coverage through a new Health Insurance Exchange that will allow public and private insurers to compete for applicants. As Sam Blair, the Director of the national Main StreeAlliance, explains “Small business owners recognize that the only way to stop this routine hostage-taking is to create a public alternative that gives those who are tired of the industry’s game another option. That means government is going to need to step in and play a role.”