Specialty hospitals face further scrutiny

Washington -- The latest barrier stopping new physician-owned specialty hospitals from opening their doors is set to fall in a matter of months, but congressional critics of the facilities are already calling for new government rules on how they can operate.

The leaders of the Senate Finance Committee are asking the Centers for Medicare & Medicaid Services to require greater disclosure when physicians refer patients to specialty facilities in which they have an ownership interest. Such mandated transparency would include not only physician investments involved but also the quality and level of care that the patient would receive at the specialty facility compared with a full-service community hospital.

CMS in April took steps to address complaints that physician-owned specialty hospitals focus on providing more lucrative services and attract healthier, wealthier patients. Its inpatient payment rule proposes redistributing Medicare reimbursements to all hospitals over the next several years so pay is more accurately based on actual costs and severity of patient illness.

"Payments that accurately reflect resource needs create a level financial playing field for all hospitals and discourage hospitals from concentrating on certain services because they are more profitable, rather than because they are more needed by patients," said CMS Administrator Mark McClellan, MD, PhD, at a Senate Finance hearing last month.

Groups supporting specialty hospitals, such as the American Medical Association and the American Surgical Hospital Assn., endorsed the move despite the fact that such changes would decrease average Medicare payments to the facilities by nearly 10%.

"We have supported these changes from the start as an appropriate way to handle the continued concern about acuity-based payment and the need for hospitals to shift costs to make up for the more costly procedures," said Molly Gutierrez, ASHA's executive director. "We continue to support them even though this means a hit to us financially."

Critics said that the CMS plan did not go far enough.

"Payment reforms are only part of a solution," Senate Finance Committee Chair Charles Grassley (R, Iowa) said at the hearing. "Clear disclosure to patients about the investment interests physicians have in specialty hospitals will provide much-needed transparency and peace of mind for patients."

The debate likely will come to a head in August, when CMS has plans to release a strategic plan for the future of specialty hospitals. That event will coincide with expiration of a six-month congressional moratorium on Medicare participation by new specialty facilities, a provision that lawmakers tucked into a massive deficit reduction bill that became law in February.

CMS does not have the authority to extend the latest moratorium despite having imposed a similar prohibition of its own from June 2005 through the end of last year, Dr. McClellan said.

Although Congress in an earlier moratorium banned new specialty hospital owners from referring Medicare patients to their own facilities from the end of 2003 until June 2005, CMS determined that the statute did not prevent new facilities from opening or treating Medicare patients who were not referred by a physician investor. Grassley said more than 40 new specialty hospitals opened for business during that period and the subsequent CMS moratorium.

Dr. McClellan told the Senate panel that the agency is busy reviewing the financial arrangements physicians have in specialty hospitals to see what additional regulatory changes might be necessary to ensure that the facilities are good players in the Medicare system. The Dept. of Health and Human Services Office of Inspector General and state enforcement agencies, for example, may be asked to play a larger role in finding and stopping improper investment schemes that have unreasonable rates of return, he said.

Patient safety concerns

Congress may act on its own if lawmakers are dissatisfied with the CMS plan. Senate Finance Committee Ranking Democrat Max Baucus (Mont.) said he was re-energized in his quest to stop specialty hospitals by the story of an elective surgery patient who died after respiratory arrest at Physicians' Hospital in Portland, Ore., when there were no doctors or other staff present who were equipped to resuscitate her. The patient's son, who was a witness at the hearing, testified that he would have thought twice about the surgery location if he had known about the facility's limitations and the surgeon's ownership interest in the hospital.

CMS has since determined that Physicians' Hospital owners improperly billed Medicare during the 18-month congressional moratorium and has moved to strip the facility of its Medicare certification and recoup hundreds of thousands of federal dollars.

Physicians' Hospital continues to challenge the assertion that it is a specialty hospital and thus subject to the congressional moratorium, a spokeswoman said.

But patient safety issues continue to weigh heavily on the minds of community hospital physicians who are concerned that many other specialty hospitals cannot provide the comprehensive services needed by a patient whose condition can become more complex than originally thought, said James C. Cobey, MD, an orthopedic surgeon in Washington, D.C.

"Vascular compromise can happen to anybody in an unexpected way," he said. "Other specialists must be immediately available in-house for big procedures."

Other physicians dispute the patient safety concerns. Recent research by CMS and others demonstrate that quality of care at doctor-owned specialty hospitals is as good as or better than the care at community hospitals, said John M. House, MD, a urologist and investor in USMD Hospital, a specialty facility in Arlington, Texas.

On the connection between physician self-referral and quality of care, Dr. House noted that hundreds of physicians refer patients to his hospital even when they have no financial stake in it because doctors recognize the high quality of care, he said.

"If you are concerned about the potential conflicts of interest when physicians have an ownership interest in a hospital, perhaps you should look closely at the potential for conflict when a hospital owns the physicians," he said.