CMS offers guidance on specialty hospital moratorium

Washington -- Advanced Surgical Associates, a group of 17 Tacoma, Wash., doctors seeking to build the state's first specialty hospital, simply ran out of time.

Despite being three years into the project, the hospital had not met enough of the benchmarks by the Nov. 18, 2003, deadline to be protected from a federal moratorium on new physician-owned hospitals. In mid-March, the group decided to abandon its efforts.

"We assessed what the federal legislation said, and we just didn't think we met the test," said ASA spokesman Bill Stauffacher. "Ongoing operating costs weighed against the unpredictable outcome of a federal study during the moratorium led the group to determine that our innovative idea would have to wait for another day."

Under a guidance issued March 19 by the Centers for Medicare & Medicaid Services -- two days after ASA announced its decision -- other specialty hospitals in development will have to petition the federal government to know for sure whether they are exempt from the moratorium.

The Medicare reform bill signed into law last year by President Bush implemented an 18-month moratorium starting Jan. 1 on referrals to new specialty hospitals in which the referring physician has an ownership interest. Congress exempted specialty hospitals already in operation or those under development as of Nov. 18, 2003. But lawmakers left it to the secretary of the Dept. of Health and Human Services to define "specialty hospital" and "under development."

The bill did specify that the term "specialty hospital" should include any facility that specializes in cardiac, orthopedic or surgical procedures, and any additional services designated by the secretary. CMS said it would not expand the definition beyond those three categories.

The bill also directed CMS to consider whether architectural plans, funding, zoning and other necessary approvals from state agencies were in place when determining whether a hospital met the Nov. 18 deadline. ASA felt it had met only one of those four criteria.

"We had an option on property, but we hadn't started development. We had some of the architectural work done, but we hadn't had final permit approval. Our licensure request was still under review," Stauffacher said.

Opinions and decisions

The agency said it would consider those factors in making a decision but recognized that it may not have been feasible for hospitals to complete all four. CMS said it would take into account any other evidence that a hospital is under development.

"Hospitals that need this kind of determination ... can come to CMS for an official advisory opinion," said Paul Olenick, division director for CMS' Center for Medicare Management. "When we look at the documentation they send in, the secretary has the discretion as to which of these four items [to consider], what weight to give to them, how they will be applied. It will consequently be very much a case-by-case analysis."

CMS has set no timeline for issuing opinions but pledged to "make every effort to expedite" its decision. The time frames involved probably will discourage most specialty hospitals on the bubble from seeking a ruling, said Eric Zimmerman, a health care attorney with McDermott, Will & Emery.

"I don't think it's really a viable approach given the amount of time it would take to get opinions in the first place and the fact that we're dealing with a moratorium whose time period is rapidly ticking away," he said. "And I would be concerned that CMS would take an overly conservative posture because of congressional concern in the area."

It is unclear how the agency will ensure that specialty hospitals that don't meet the standards for an exception are excluded. CMS officials indicated that they were considering requiring all specialty hospitals opening their doors after the deadline to go through the advisory opinion process in order to receive their Medicare billing number. But no final decision has been made.

Even if CMS does not mandate opinions, specialty hospitals may have to be concerned about a tattletale factor.

"If you are at all in a competitive marketplace, which invariably you are, I would be very concerned about the local hospital raising questions with CMS," Zimmerman said.

During the moratorium, CMS, the General Accounting Office, and the Medicare Payment Advisory Commission will conduct studies of specialty hospitals to determine their impact on general hospitals and the Medicare program.

Meanwhile, Stauffacher said, it is unlikely that the Tacoma physicians would revive their plan after the moratorium ends. The initiative still would face serious hurdles on the state level even if the federal restrictions were lifted.

The prospects of battling further red tape flies in the face of the physicians' motivation for building the hospital. The group began the project in large part because of the stress of practicing in an underserved market.

"Most people won't feel sorry for them, but they're stretched thin," Stauffacher said. "They're trying to do the rounds, the calls, the ER coverage. This in some ways was their way to try to get their quality of life back."