Two powerful senators kicked off the newest round in the legislative fight over specialty hospitals last week, introducing a bill that would impose a permanent ban on physician referrals to boutique facilities in which the doctors hold a financial interest.
The bipartisan legislation, sponsored by Sens. Chuck Grassley (R-Iowa) and Max Baucus (D-Mont.), shuts down the so-called "whole hospital" exemption in the Stark law that now allows such self-referrals. If passed, it would also be tantamount to a death sentence for a fledgling industry reeling from the effects of an 18-month moratorium and an announcement from the CMS last week that it would halt approval of any new boutique facilities through the end of the year while it considers changes in reimbursement rules.
Still, the legislation may prove to be only a temporary victory for proponents like the American Hospital Association, which could face a long, hard fight in a Republican-controlled Congress, whose members are not usually inclined to support what the specialty hospital industry describes as anticompetitive legislation.
Jim Grant, president of the American Surgical Hospital Association and chief operating officer of Chicago-based National Surgical Hospitals, said it is "way too early to speculate" on how Congress will grapple with the issue. But he expressed disappointment that the two lawmakers have "sided with HCA and other big-money hospital systems against quality of care, better equipment and patient satisfaction."
"I think this is going to be the 'third rail' in healthcare," Grant said. "We're hopeful that other senators will recognize this is anticompetitive, a very emotional issue. We also have good support in the House," he said.
Tom Nickels, the AHA's senior vice president of federal relations, accused specialty hospital interests of mischaracterizing the true source of anticompetitive behavior. "We and our members are totally in favor of competition. But this is not fair competition when one entity has the ability to self-refer and another does not. The playing field isn't level."
Both sides are likely to launch a full-scale lobbying assault on Congress. Nickels said he believes a majority of senators "would support the measure today." The prospects in the House are not as good. "That will be more challenging," he said.
A day after the bill was introduced in the Senate, a hearing on specialty hospitals by a key House committee demonstrated just how tough a job that might be. Rep. Joe Barton (R-Texas) said he opposed the original moratorium and would not allow any legislation through his committee to extend it-much less slap a permanent ban on the facilities. "I don't believe further action by Congress is necessary," said Barton, chairman of the House Energy and Commerce Committee. "Even if specialty hospitals are bad, why should we ban them? Why not let the market sort it out?"
Alec Vachon, president of the Washington-based consulting firm Hamilton PPB and a former Senate Finance Committee aide, said the legislation does not have broad support in the House and isn't likely to get it anytime soon.
"Global warming won't happen fast enough to get the House to warm up on that," Vachon said. "If anyone broke out the champagne on the Grassley-Baucus physician self-referral ban, certainly the champagne went flat after the (House) Energy and Commerce hearing."
The legislation came as a mild surprise since federal agencies that have studied the impact of specialty facilities on community hospitals have stopped short of advocating a permanent ban. In its report last week, the CMS did not explicitly recommend an extension of the current 18-month moratorium scheduled to expire June 8. Earlier this year, the Medicare Payment Advisory Commission recommended an extension of the moratorium through Jan. 1, 2007.
But Grassley, chairman of the Senate Finance Committee, said three separate federal studies have determined that physician-owned specialty hospitals "treat the most profitable patients" and leave community hospitals with a disproportionate share of the least-profitable cases. He also criticized what he called the "inherent conflict of interest in physician self-referral" to hospitals in which they have a vested financial interest.
Grant, however, called the bill a "slap in the face" to physicians and said he expects to work closely with the American Medical Association to lobby against it.
In a statement, AMA Trustee William Plested said, "Competition works. In the hospital industry, the addition of specialty hospitals to the mix gives patients more choice, forcing hospitals to innovate to keep patients coming to them."
The Grassley-Baucus bill, titled the Hospital Fair Competition Act of 2005, also would give the green light to "coordinated-care incentive arrangements," or gain-sharing between hospitals and physicians, directing HHS to establish criteria to do so while minimizing financial incentives affecting physician referrals.
The bill also calls for a re-calculation of DRG weights. The CMS advocated a similar position, recommending that DRGs be refined to better reflect differences in patient severity between acute-care and specialty hospitals.
This story was originally published in the May 16, 2005 issue of Modern Healthcare.