Competitive path to better care: A moratorium's end

Congress did the right thing by letting expire the moratorium on physicians referring to specialty hospitals they own.

Posted July 4, 2005.

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Last month, Congress let expire the 18-month moratorium on physician referrals to specialty hospitals they own, a provision of the 2003 Medicare Modernization Act. In doing so, lawmakers helped create the competition that can mean better patient care.

The 18 months of the moratorium, which effectively shut down construction of new facilities, were to be spent determining the pros and cons of specialty hospitals. Included in that discussion was whether the new facilities had a negative effect on the community hospitals accusing them of cherry-picking profitable patients. Various federal agencies investigated the matter.

As it happened, the arguments favorable to specialty hospitals won out. The Centers for Medicare & Medicaid Services' own studies show that specialty hospitals had lower mortality rates and higher patient satisfaction rates than other facilities.

Also, a study by the Medicare Payment Advisory Commission, which advises Congress on Medicare, found that cost differences at specialty hospitals were not statistically significant compared with full-service hospitals, nor were Medicare costs up in cities that had both facilities. Community hospitals, MedPAC said, did not appear to be suffering financially in the face of specialty hospital competition.

But the point is less to argue that specialty hospitals can necessarily do their job better than community hospitals. The more important point is that specialty hospitals can provide competition to create lower-cost, higher-quality health care no matter what type of hospital a patient might go to.

The AMA long has believed that health care works best when competition allows for innovation. But specialty hospitals are not a physicians vs. hospitals issue.

In fact, at the 2004 Interim Meeting, the AMA House of Delegates approved a Board of Trustees report that included a provision encouraging physicians to "explore the opportunities" to form a joint venture with community hospitals before deciding to invest and build a physician-owned specialty hospital. That's happened in many cases.

Often in the formation of the 130 specialty hospitals already in existence, the impetus for physicians wasn't so much financial control as it was operational control and opportunity to improve their work environment.

The end of the moratorium does not signal that specialty hospitals suddenly will grow unfettered. There's the issue of certificate-of-need laws in certain states. Nationally, there's the matter of CMS setting the pace of construction by how quickly they process applications for Medicare provider numbers.

CMS plans to spend the next six months examining payment issues -- including whether some specialty hospitals should get paid as ambulatory care centers because they are mostly outpatient facilities -- before even thinking about approving other specialty hospitals. MedPAC objected to the moratorium's end because of these financial questions. CMS also wants further discussion about emergency transfers between specialty and community hospitals under the Emergency Medical Treatment and Active Labor Act.

But at least the applications that have been stalled since the moratorium's beginning will be put through. In a report issued June 9, the day after the moratorium's end, CMS said it would move to process applications from 27 prospective specialty hospitals grandfathered under the Medicare Modernization Act. Those facilities were deemed to be far enough under development to qualify as exceptions, but were on hold awaiting CMS approval. CMS had approved a dozen other applications during the course of the moratorium.

Still, while specialty hospitals aren't going to suddenly start popping up all over the place until CMS crosses it's t's and dots its i's, the mere act of ending the moratorium is a huge step. It takes off hold a way for physicians to provide high-quality, lower-cost care to patients and to challenge existing hospitals to do the same.

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