General, acute-care hospitals are saying a new report by the Medicare Payment Advisory Commission bolsters their argument that physician-owned specialty hospitals take the most profitable cases away from their competitors.
Such specialty hospitals treat a more favorable selection of patients than the average community hospital, MedPAC concluded in a preliminary report. The commission is studying the specialty hospital issue under a mandate from the Medicare Modernization Act.
In the report, released at its fall meeting in Washington, MedPAC said that 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. That makes it attractive for doctors to set up speciality facilities that focus exclusively on high-paying services (For a related profile, see p. 34).
"It destroys our payment system to have this going on," Ralph Muller, a MedPAC commissioner, said of current incentives that favor specialty services. MedPAC will release its final study on specialty hospitals in March; a moratorium on the construction of new specialty hospitals written into the Medicare reform act expires in June 2005.
"(MedPAC) found limited-service hospitals serve healthier patients, choose more profitable services, and that they avoid serving Medicaid and other low-income patients," said Caroline Steinberg, vice president for trends analysis at the American Hospital Association. "The differences were quite striking."
Backers of doctor-owned surgical hospitals did not read MedPAC's findings the same way.
"The AHA and the Federation (of American Hospitals) came out with the claim that surgical hospitals are skimming the cream," said Michael Lipomi, immediate past president of the American Surgical Hospital Association. "What MedPAC is saying is that the payment system is flawed. Every report that has come out has bolstered our cause by deflating the claims of the AHA and the federation."
In a separate report, MedPAC commissioners said pay-for-performance initiatives need to move forward and that special attention should be paid to rural facilities that may not be able to report quality measures as easily as their urban counterparts. Patient satisfaction surveys that could one day help determine qual-ity-based payment will be available for hospitals to use on a voluntary basis beginning next summer, MedPAC reported. Those surveys were initially planned as a condition of participation in Medicare, but former CMS Administrator Tom Scully backed off the requirement before it went into effect. In any case, MedPAC Chairman Glenn Hackbarth said of pay-for-performance initiatives, "We need to start acting on it."
While it has not yet made Medicare payment recommendations for 2006, MedPAC did indicate that it views the hospital field as financially healthy. According to MedPAC, hospitals appear to have adequate access to capital, with nearly 87% of not-for-profit hospitals reporting that they have the same or greater access to capital compared with five years ago. Nearly 82% of hospitals plan to increase capacity, and private hospitals will spend $16.5 billion on construction in 2004, up from $14.8 billion in 2003. "If hospital margins are improving, that's good news, but it also may indicate bad news when Congress looks at how much the rate of increase should be going forward," said Larry Goldberg, a health policy analyst and director in the Washington office of Deloitte & Touche.
-with Michael Romano