Long-term hospitals, a rapidly expanding market niche fueled by cost-based Medicare payments, is facing some new challenges.
In the trade, these institutions often are referred to generically as "Vencor-type" hospitals. The Louisville, Ky.-based investor-owned company has the unique distinction of having defined its own hospital segment.
Long-term hospitals have an average length of stay of more than 25 days. Their patients, who typically have brain injuries or neurological disorders, often depend on ventilators to breathe.
When the prospective payment system was conceived in 1983, psychiatric, rehabilitation, cancer, children's and long-term hospitals were exempted, leaving them to be reimbursed under the generally more lucrative cost-based system.
Vencor now has 30 long-term hospitals in 14 states (See related story, this page). Its success drew another operator, Laguna Hills, Calif.-based Community Psychiatric Centers, into the business about a year ago when that firm's psychiatric service profits were sagging. Already, CPC, through its Transitional Hospitals Corp. subsidiary, has found that long-term hospitals offer a promising future (See chart).
Clinton's moratorium.However, HCFA is recommending a moratorium on new long-term hospitals. In addition, HCFA is closely examining long-term hospitals that operate within acute-care hospitals, a practice developed by American Transitional Hospitals, Nashville, Tenn.
The moratorium is included in President Clinton's Health Security Act, which estimates that the government could save $530 million over five years by ending the long-term hospitals' PPS exemption. The savings are included in the $124 billion in five-year Medicare cuts that are part of President Clinton's healthcare reform plan.
James R. Laughlin, Transitional Hospitals Corp.'s president, sees HCFA's moratorium as shortsighted and has been lobbying various members of Congress against it. "We know what Medicare doesn't pay for gets shifted to some other sector," Mr. Laughlin said, noting that patients who aren't treated in long-term hospitals will get more costly treatment elsewhere. The problem, he said, is that the treatment may not be specialized enough for these medically complex patients.
All of the long-term hospital operators believe HCFA eventually will see that their hospitals save money, arguing that their rates are 40% to 50% below what it costs for similar treatment in intensive-care units of acute-care hospitals.
Even if President Clinton's healthcare reform bill never gets out of Congress, HCFA still could pursue the moratorium. W. Earl Reed III, Vencor's vice president of finance and development, said he can't predict what HCFA will do, but added, "They're watching the development of long-term hospitals very closely."
Logical expansion.Last year, Vencor began expanding into respiratory therapy services, which it now provides to 250 nursing homes. However, Mr. Reed said that effort is not in response to HCFA's proposed moratorium. "It's just a logical adjunct to what we're doing."
A long-term hospital must establish that the average length of stay is more than 25 days over a six-month period before it can be reimbursed on a cost basis. That reimbursement, combined with Medigap supplemental insurance, increases the revenues of long-term hospitals dramatically.
For example, at Transitional Hospitals Corp., reimbursements average about $500 per day during the six months the long-term hospital is under the standard PPS rate schedule. After the facility qualifies as PPS-exempt, the rate climbs to $700 to $800 a day.
Because long-term hospitals can be more lucrative than typical PPS medical/surgical hospitals, HCFA is concerned about hospitals that open long-term hospitals within their walls simply to get higher reimbursement for those patients.
Hospitals within hospitals.That's led to close scrutiny of the operations of American Transitional Hospitals, which has opened three long-term hospitals within medical/surgical hospitals and has another slated for operation next month.
However, the company's president, Robert Crosby, said his company simply leases space from the host hospital. As for claims that the host hospital is trying to gain more revenue by transferring patients to a PPS-exempt unit, Mr. Crosby said that's not true. The host hospital is paid standard lease rates, regardless of the number of patients in the long-term hospital. In addition, 90% of ATH's patients are transferred from outside the host hospital, he said.
"We are not a hospital within a hospital; we are a freestanding hospital," he said, noting that there's no ownership ties between the two hospitals. "It's no different than leasing a separate building across the street."
Still, he noted that convincing the HCFA regional offices of the differences sometimes has been difficult. "It's been an education process," Mr. Crosby said.