Medicare ban extended 6 months; new specialty hospitals blocked

Washington -- The close of 2005 did not bring the cessation of hostilities that supporters of physician-owned specialty hospitals hoped for in the battle over the future of these facilities.

Tucked away in the massive deficit reduction measure that President Bush signed into law last month was more bad news for physician investors waiting in the wings to launch new cardiac, orthopedic or surgical hospitals. Congress has stipulated that the Centers for Medicare & Medicaid Services not approve any application to participate in Medicare from specialty hospitals for another six months -- or until the agency releases a report on how to regulate future physician investment in the facilities.

The latest delay will keep investors in limbo for more months on top of the years they already had to wait. The construction of new specialty hospitals effectively has been on hold since the end of 2003, when Congress implemented an 18-month ban on physician referrals to facilities in which they have an ownership interest. Although the moratorium expired last June, CMS announced it would not approve new specialty hospital applications through the end of 2005. The agency wants to determine if the facilities provide the level of care required by Medicare.

More delays simply will deprive physicians and patients of proven alternatives to general hospitals, said American Medical Association President-elect William G. Plested, MD, a thoracic and cardiovascular surgeon in Brentwood, Calif. Specialty hospitals often provide higher-quality care with higher rates of patient satisfaction, he said. The AMA sees continued legislative barriers as anticompetitive measures that stifle medical innovation.

"In the specialty hospital, if you're doing one thing well, you just keep pouring your investment back into the thing for which you exist, and quality increases," Dr. Plested said. "To say instead that we're going to support a system that guarantees inferior quality is a tough sell."

Physicians on both sides

Community hospitals and many of the physicians who work in them see the situation differently.

The fact that the ban on physician self-referral shut down growth in the specialty hospital field makes it clear that physician investors are only interested in funding facilities to which they can provide a steady patient load to boost their investment, said Charles O'Brien, MD, a cardiologist at Sioux Valley Health System in South Dakota.

"If you take away self-referral, all the fun is gone for them," said Dr. O'Brien, who noted that his cardiology department had survived an attempt by a group of its physicians to form a specialty cardiac center in the area. "That's why they do it, and you only see them spring up in specialties where it's very, very lucrative."

Daniel Heinemann, MD, a family physician at the same hospital group, said doctors worry about patients with multiple, complex conditions going to a specialty facility that treats only one of these conditions.

"My specialty uses all of the services of a community hospital, and if any one of those are threatened, it impacts the care of all my patients -- not just my cardiac patients, not just my orthopedic surgery patients," Dr. Heinemann said.

Now a potentially serious wrinkle has emerged in the debate. The Senate Finance Committee's leaders have challenged the Dept. of Health and Human Services in light of a patient death that is potentially related to care received at a physician-owned hospital that was given the federal green light to launch during the 18-month ban.

Senate Finance Committee Chair Charles Grassley (R, Iowa) and ranking Democrat Max Baucus (Montana) note in a letter to HHS that an elective surgery patient died after going into cardiac arrest at Physicians' Hospital in Portland, Ore., while no physicians were on site to resuscitate her. The lawmakers said the incident illustrated the drawbacks of limiting patient care to a very specific set of services and introducing potential financial conflicts of interest.

"If patients think they're going to a full-fledged hospital, then they should not get treated like they're at a clinic," Grassley said. "If specialty hospitals are putting physician profit before patient care, we have a problem."

Physicians' Hospital spokeswoman Dianne Danowski-Smith said the lawmakers' arguments were moot because they have their facts wrong. The facility started operating in December 2004 as a federally approved community hospital, not a specialty facility, and is not required by federal or state law to have a physician present at all times, she said.

Regardless of HHS' ultimate decision on the hospital's designation, Grassley and Baucus have given no sign they are letting up pressure in this debate. The lawmakers are continuing to try to drum up support for an indefinite ban on any new specialty hospitals by pointing to the quality concerns raised by facilities similar in focus to the Portland hospital.

Hopes of a turning tide

Doctors who support an end to the two-year specialty hospital hiatus say the clinical and fiscal evidence is on their side and that they soon will prevail on Capitol Hill. A 2005 Medicare Payment Advisory Commission study said that although the facilities tend to steer healthier patients away from community hospitals, the specialty hospitals consistently provide high-quality care.

"The community hospital claims were largely not supported by the investigation," said Alan Pierrot, MD, president and CEO of Fresno Surgery Center, a California specialty hospital. "Arguing for a permanent moratorium when the arguments for a temporary moratorium were not substantiated is a tough argument to make."

Specialty hospital supporters received a boost from a recent CMS-sponsored study by the North Carolina research group RTI International. CMS is compiling a separate report on the quality of care in specialty settings. The RTI report concludes that specialty hospitals often enhance competition, provide great community benefit and serve patients well.

"Physicians' commitment to and pride in their specialty hospitals are powerful positive forces that critics have underappreciated," the researchers said.