The CMS issued guidance clarifying exceptions to the specialty hospital moratorium enacted last year as part of the Medicare Prescription Drug, Improvement and Modernization Act. The moratorium, which went into effect Dec. 8, 2003, and expires June 8, 2005, prohibits physicians from referring patients to specialty hospitals in which they hold financial interests.
The five-page guidance, known as a "change request," describes which specialty hospitals are covered by the moratorium and which are not. Unlike the rule-making process, which can take several years to implement, the change request is intended to define key terms and clarify questions relating to the moratorium that were not addressed by the legislation. It is not open to public comment. The guidance becomes Medicare policy immediately, said a CMS spokesperson.
According to the guidance, released late Friday, March 19, the moratorium does not apply to a class of hospital projects that were "under development" as of Nov. 18, 2003, when Congress passed the Medicare bill that was signed into law the following month. In the guidance, the CMS specifies that such hospitals had to have complete architectural plans, funding, and state approvals, among other requirements.
Investors who are still unclear about whether their specialty hospital projects are exempt may request an expedited advisory opinion from the CMS, according to the guidance. The CMS has said specialty hospitals that had Medicare provider agreements in effect by the November date are considered to be in operation and do not require a CMS determination.
But health lawyers questioned whether the guidance clears up ambiguities created by the moratorium.
Healthcare attorney Scott Becker of McGuireWoods said the CMS change request clarifies little for his specialty hospital clients. "Some people who have already spent millions of dollars will remain uncertain whether they will be grandfathered under the moratorium," said Becker, noting that one client he declined to name is preparing to open for business this week and does not yet know whether the project will qualify.
"And it is also unclear whether the advisory opinion suggested in the guidance is mandatory or discretionary," Becker said. "The guidance throws in a great deal of uncertainty that still needs to be cleared up."
Becker said the CMS would probably have to clarify its clarification.
The moratorium "expressly applies to hospitals that are primarily or exclusively engaged in the care and treatment of patients with cardiac or orthopedic conditions, patients receiving surgical procedures and patients receiving any other specialized types of services that CMS may designate," the guidance states. Not subject to the moratorium are psychiatric, rehabilitation, children's, long-term-care or cancer hospitals not paid under the prospective payment system and grandfathered specialty hospitals.
After heavy lobbying from the acute-care hospital industry last year, Sen. John Breaux (D-La.) successfully included the moratorium in the drug bill. Hospitals have complained that physicians who refer patients to specialty hospitals have a conflict of interest. Acute-care hospitals said the specialty hospitals "cherry pick" the cream of their business lines that reimburse well, such as cardiac care and orthopedic surgery, leaving them with money-losing services and patients. Specialty hospitals respond that they offer focused, quality care at lower prices than acute-care hospitals.
However, an investigation by Modern Healthcare revealed that the specialty hospital boom is being fueled partly by not-for-profit hospitals themselves (Sept. 30, 2002, p. 26). Many specialty hospitals are being built by not-for-profits by themselves or through partnerships with physicians.
There are more than 100 for-profit specialty hospitals operating now, with scores more in the planning stages. Most have physician investors. A General Accounting Office report found that the number of specialty hospitals has tripled since 1990.
The moratorium also requires two studies of specialty hospitals to be completed within 15 months of the drug act's passage.
John Rex-Waller, president of National Surgical Hospitals, said he's grateful that the CMS did not expand the moratorium to include other types of specialty hospital services. "But the advisory opinion process is not helpful at all," said Rex-Waller, whose firm owns and operates eight specialty hospitals. "We have several hospitals under development and now we have to decide whether we're safe under our own interpretation or risk an advisory opinion that tells us otherwise."
Kevin McAnaney, who formerly headed the industry guidance section of HHS' inspector general's office and is now in private practice in Washington, said the guidance accomplishes the purpose of enforcing the moratorium.
"By failing to clearly define who is grandfathered, CMS has effectively frozen projects until they can obtain these advisory opinions," McAnaney said. "And the advisory opinion process is not known for being terribly fast. Realistically, the earliest advisory opinion probably won't come until autumn."