With the moratorium on physician self-referral to specialty hospitals set to expire June 8, the policy debate over the long-term fate of such facilities has taken a turn against general hospitals.
When Chuck Grassley (R-Iowa), chairman of the powerful Senate Finance Committee, introduced legislation earlier this month to exclude specialty hospitals from the "whole hospital" exemption in physician self-referral law, it appeared as if hospitals had gained a significant victory in their battle against physician-owned specialty facilities.
But in the weeks since, the atmosphere in Congress has shifted. Despite proclamations from the hospital industry that the exemption given to specialty hospitals could still be removed, that likelihood may be growing dimmer.
Last week, the Senate Republican Policy Committee issued a report arguing that the exemption should remain in place, a day before a Senate subcommittee chairman strongly hinted that he agreed at a hearing. That was in addition to statements by House Energy and Commerce Committee Chairman Joe Barton (R-Texas) during a hearing earlier this month that he opposes extending a moratorium on physician self-referrals to new specialty hospitals. Barton said he would not allow any bill seeking an extension to move through his committee.
"I think there are very clear signals that any extension of the moratorium is very much in doubt right now," said Eric Zimmerman, a partner in the Washington office of law firm McDermott Will & Emery. "Making it permanent is highly unlikely."
The final outcome may remain uncertain until the fall. Even if Grassley and bill co-sponsor Max Baucus (D-Mont.) cannot find enough supporters for their proposal, they can tack parts of it onto spending bills during the appropriations and budget process. But Sen. Jon Kyl of Arizona, chairman of the Republican Policy Committee, and Sen. Tom Coburn (R-Okla.), chairman of a subcommittee of the Senate Committee on Homeland Security and Governmental Affairs, who held last week's hearing, would oppose such a maneuver, sources have said.
Given that his committee doesn't have jurisdiction on the matter, the fact that Coburn, a physician, scheduled a hearing on specialty hospitals last week signals that he is closely following the matter. During the hearing he indicated his opposition to the moratorium, though he did not explicitly say so.
Anne Ubl, vice president of federal relations for the American Hospital Association, said the AHA always expected a fight on the issue, given the controversial nature of the moratorium.
Pointing to the Baucus-Grassley bill and a recent CMS report that said some specialty facilities might not meet the statutory definition of a hospital, Ubl said there are "lots and lots of signals that this model of physician-ownership and self-referral to hospitals is raising lots of red flags."
However, that may not translate into any congressional action with regard to the exemption. The CMS has already said it expects to change the DRG system and other policies that would effectively extend the June 8 moratorium for another six months.
Under the CMS' changes, any new specialty hospitals hoping to receive Medicare payments will not be approved for them for the rest of the year. The Grassley-Baucus bill, if enacted, would be retroactive to June 8.
Much of how the issue plays out depends on what steps, if any, will be taken by Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee. So far, he has publicly taken a neutral stand.
Rather than extending the moratorium, Congress may lean toward refining the Medicare reimbursement system to fix any inequities between hospitals and specialty facilities. The CMS and the Medicare Payment Advisory Commission both recommended realigning Medicare payments to give higher rates to providers caring for patients with more severe illnesses after discovering specialty hospitals tend to treat healthier, and thus more profitable, patients than community hospitals.
While Ubl said the approach is inadequate to address all the hospital industry's concerns, Jamie Harris, chief financial officer of MedCath Corp., operator of 12 physician-owned heart hospitals, said, "We think a good comprehensive review of DRGs will let market forces determine which facilities will be built."
In its report, the Republican Policy Committee said, "Medicare payment reform provides a possible solution that will address the concerns that prompted the moratorium, ensuring that whatever the past impacts, both community and specialty hospitals can be paid fairly for the services they provide."
During last week's hearing, Coburn repeatedly peppered MedPAC Executive Director Mark Miller with questions about the commission's recommendation to extend the moratorium through Jan. 1, 2007, and challenged Miller about what an extension would achieve. Coburn also questioned Miller about the not-for-profit status of most hospitals (See related story above).
"How do you take into account that hospitals don't pay taxes?" Coburn asked. "It's an unlevel playing field in the opposite direction."