Physician-owned specialty hospitals treat a more favorable selection of patients than the average community hospital, supporting arguments made by the acute-care industry that specialized facilities take the most profitable cases from nearby general hospitals. That is a preliminary conclusion of the Medicare Payment Advisory Commission, which is studying the specialty hospital issue under a mandate from the Medicare Modernization Act. In a preliminary report released at its fall meeting, MedPAC said all hospitals have an incentive to specialize in certain DRGs -- such as coronary bypass with cardiac catheterization -- and to treat low-severity patients within those DRGs. Thus, it's attractive for physicians to set up specialized hospitals that focus exclusively on high-paying heart, orthopedic or surgical services.
"It destroys our payment system to have this going on," MedPAC Commissioner Ralph Muller said. The group, which advises Congress on Medicare payment issues, will release a larger report on specialty hospitals in March. A moratorium on new physician investment in specialty hospitals written into the Medicare act expires in June 2005. -- by Jeff Tieman