A congressional bill introduced last week that would prohibit physicians from referring patients to for-profit specialty hospitals in which they hold preferential financial interests sounded like the cavalry coming to John Gorski.
Gorski, senior vice president of hospital operations at Community Healthcare System, in Munster, Ind., said the three-hospital system is ramping up to compete with three proposed specialty hospitals within the borders of Munster, a town of 21,511.
"Right across the street an ambulatory surgery center is opening a 40-bed heart hospital and they're picking off our main cardiologists to support it," Gorski said. "Across town another doctor is partnering with a national company to open a surgery hospital, and an existing clinic is considering opening an orthopedic hospital. We're concerned that they're going to pick off the most lucrative procedures and patients and leave us to cover the sickest and poorest. It's not a level playing field."
Reps. Pete Stark (D-Calif.) and Jerry Kleczka (D-Wis.) introduced the bill, known as the Hospital Investment Act of 2003, last week. The bill is intended to plug loopholes in existing laws that allow physicians to refer patients to for-profit specialty hospitals in which they have invested. It has the backing of Rep. Bill Thomas (R-Calif.), the powerful chairman of the House Ways and Means Committee.
The bill was introduced in the wake of public hearings held by the U.S. Justice Department and Federal Trade Commission that examined the effects of specialty hospitals on healthcare competition and cost (March 31, p. 6).
Under the Stark-Kleczka bill, doctors could still invest in such facilities and refer patients to them, but only if the investment opportunities also were opened to the general public. Violations of the civil law would be punishable by fines of up to $15,000 per referral and up to $100,000 per alleged scheme, and both doctors and hospitals could be excluded from government health programs.
Physicians already are prohibited from referring patients to clinical laboratories and diagnostic centers they own. Stark said the specialty hospitals, which he called "boutique hospitals," are cannibalizing profitable business lines such as orthopedic surgery, cancer and cardiac care from community hospitals that depend on those well-reimbursed services to finance charity care.
Gorski said Community Healthcare staffs full-service emergency rooms and takes care of all patients because of its mission.
"We're not afraid of competition," he said. "But it's hard to cover the cost of treating Medicaid patients and the uninsured when commercial insurance doesn't pay like it used to and you're competing with your own doctors." If specialty hospitals continue to proliferate, he said, "the people who can't afford to pay will be the losers."
As Medicare and private insurance reimbursements for physicians have diminished, doctors have sought income opportunities and have partnered with companies like Charlotte, N.C.-based MedCath Corp. to build and operate specialty hospitals. The facilities typically offer investment stakes to physicians not open to the general public with the hope that those physicians will use the hospitals and refer patients to them.
Stark, who introduced a version of the bill in July 2001 that never passed, is the author of two laws known as Stark I and Stark II that prohibit physician referrals to healthcare facilities in which they hold financial interests. Those laws were passed after studies concluded that referral patterns are influenced by physicians' financial interests.
Legislators in at least five states have introduced similar bills to limit physician ownership of specialty hospitals. Those bills have received support from state hospital associations, the American Hospital Association and the Federation of American Hospitals.
The American Surgical Hospital Association estimates there are 50 to 75 specialty hospitals, most of which have been constructed in the last three years, with dozens more in the planning and construction stages. Alan Pierrot, a past ASHA president and current chief executive officer of Fresno, Calif.-based FSC Health, a for-profit company that owns an ambulatory surgery center and specialty hospital, said he was disappointed by the bill, which he characterized as anticompetitive.
"We've had the debate about physician investment in surgical facilities," said Pierrot, who noted that FSC Health owns a portion of one surgery hospital. The more than 3,000 ambulatory surgery centers in the U.S. have benefited patients by offering lower costs and greater efficiency, he said. "If this passes, it unfortunately will not be legislated in the interest of the consumer," he said.
David Crane, president and CEO of MedCath, said each of the company's 10 specialty hospitals is licensed as a general acute-care hospital, staffing emergency rooms 24 hours a day, seven days a week and accepting and treating all patients. "We conclude that we are not only not a burden, but that we are adding critical emergency services capacity in our markets and critical cardiac capacity as shown by the volume of transfers from other hospitals," Crane said.
Federation of American Hospitals President Chip Kahn said the association of investor-owned hospitals welcomes any legislation that pushes the discussion forward on specialty hospitals. "Our members are extremely concerned about the adverse effect upon community hospitals of niche players who entice physicians into ownership to skim the cream off their market," he said.
Kahn said Thomas' support is key to passing the legislation. He said Thomas, who addressed the federation members at their annual conference in March, called boutique hospitals "cash-cow hospitals."
Thomas ordered a General Accounting Office study of specialty hospitals and the HHS' inspector general's office announced in December 2002 that it would seek public comments in preparation for issuing guidance on economic credentialing. Staffers in Stark's office said the bill would not require existing specialty hospitals that opened before July 2001 to comply with the law.