A bill introduced by Sens. Chuck Grassley (R-Iowa) and Max Baucus (D-Mont.) would exclude specialty hospitals from the "whole-hospital" exemption in physician self-referral law, establishing a powerful disincentive for new physician investment in specialty hospitals. The exclusion would not apply to specialty hospitals already in operation or determined by HHS to be "under development" before Nov. 18, 2003. The legislation, known as the Hospital Fair Competition Act of 2005, also would greenlight gain-sharing between hospitals and physicians, or "coordinated care incentive arrangements," and order an examination or recalculation of DRG weights. HHS would establish gain-sharing criteria allowing hospitals to "align incentives and benefit from hospital cost-containment measures, as long as financial incentives affecting physician referrals are minimized and such arrangements do not compromise quality of care." The changes would be effective June 8, regardless of the date the law is enacted.
The legislation is a dramatic development in the ongoing battle between community hospitals and the 100-some specialty hospitals in the country that focus on high-margin services like orthopedics and cardiac care and benefit partly from referrals from their physician investors. Many observers expected Congress to follow the lead of the Medicare Payment Advisory Commission, which recommended in January that Congress extend a current 18-month moratorium on physician self-referral to specialty hospitals, now set to end June 8. MedPAC suggested Congress impose a new 19-month ban, through Jan. 1, 2007, to give lawmakers time to consider changes to the inpatient prospective payment system to account for differences between specialty and general hospitals. -- by Michael Romano