Specialty hospitals were in the spotlight again last week as federal regulators and congressional leaders took conflicting actions to control the future of the controversial healthcare delivery model.
Last week, the Centers for Medicare and Medicaid Services withdrew a proposed regulation that would have prohibited physicians from referring patients to for-profit specialty hospitals they own. Four days earlier, Sen. John Breaux (D-La.) added a specialty hospital amendment to the Prescription Drug and Medicare Improvement Act of 2003 that passed the powerful Senate Finance Committee and was being debated by the full Senate last week.
If signed into law, the Breaux amendment would close a loophole in the physician self-referral laws that allows physicians to refer patients to a "whole hospital" in which they own a financial stake. The amendment, while prohibiting physician referrals to their own specialty hospitals, would make an exception for existing specialty facilities and those substantially completed.
The House of Representatives' versions of the Medicare reform bill calls for Congress to refer the issue for study to the Medicare Payment Advisory Commission. House Ways and Means Committee Chairman Bill Thomas (R-Calif.) and Rep. Pete Stark (D-Calif.) have expressed concerns about the growth of specialty hospitals and their impact on com- munity hospitals. Congressional aides said they're comfortable with the Breaux amendment's language and expect some version of it in the final bill to be sent to the president. They said Thomas is exploring reducing Medicare reimbursements for specialty hospitals, which he has called "cash cows."
Specialty hospital operators said the Breaux amendment represents bad public healthcare policy that would slow innovation and reduce competition. They said the proposed law could hamper a growing sector of the hospital industry.
David Crane, president and chief executive officer of Charlotte, N.C.-based MedCath Corp., which owns and operates hospitals with physicians in eight states, said the company is pleased the CMS dropped its proposed regulation.
"While we appreciate the exclusion of our existing hospitals and the three hospitals we have under construction from the provisions contained in the Breaux amendment, we believe this amendment is bad public healthcare policy that will result in reduced competition and stifle innovation in needed healthcare services," said Crane, who pointed out that MedCath's hospitals are licensed as acute-care hospitals offering round-the-clock emergency services and treating a full range of patients. "But we feel physician involvement directly produces (the) better clinical outcomes that we've been able to generate in our hospitals."
John Rex-Waller, president and chairman of Chicago-based National Surgical Hospitals, a chain of specialty hospitals, said if the Breaux amendment passes "it would be a shame. I think it would have a short-term dampening effect on the business model. But ultimately, the soundness of this model will prevail. It is a natural evolution in the surgery industry."
Rex-Waller, whose company owns five specialty hospitals and has five more in development, blamed the lobbying efforts of hospital associations for the legislative heat. "I see this as anticompetitive," he said.
In recent months the American Hospital Association, the Federation of American Hospitals and several state hospital associations have lobbied state and federal legislators to investigate specialty hospitals with a goal of banning physician investment in those for-profit niche facilities.
Several bills proposed bans on specialty hospitals in state legislatures, but none have passed. After the failure of a Louisiana bill, Breaux proposed his amendment to the Senate Finance Committee.
Stark, author of the physician self-referral laws, and Rep. Jerry Kleczka (D-Wis.) proposed a bill several months ago that would extend the self-referral law prohibitions to specialty hospitals. CMS Administrator Tom Scully got into the act, saying he hoped to close the "whole hospital" loophole.
On May 27, the CMS published its proposed regulation in the Federal Register, but it withdrew the regulation last week. At a press event last week, Scully said that although he would like to ban doctors who have ownership stakes in specialty hospitals from self-referring, it isn't clear the CMS has the authority to do so.