Not-for-profit community and for-profit hospitals are in arms over CMS' plan to allow physician-owned hospitals to expand if they treat large numbers of Medicaid beneficiaries.
The proposed outpatient payment rule would end "the cap on the number of additional operating rooms, procedure rooms and beds" that CMS can approve when a physician-owned hospital applies for a waiver to federal regulations barring physician-owned hospitals from taking part in Medicare, the agency said in a fact sheet.
It would also lift restrictions mandating that any expansion occur at the hospital's main campus and allow physician-owned hospitals to apply for a waiver more than once every two years. The proposal would change how the agency calculates "a hospital's baseline number of operating rooms, procedure rooms and beds," according to CMS.
Experts say the policy changes would likely increase beneficiaries' access to care in areas where physician-owned hospitals expand.
"Most physician-owned hospitals have an immediate need to expand, and many could add bed capacity quickly, which is extremely important during the current pandemic," said John Richardson, executive director of Physician Hospitals of America, an industry group for physician-owned hospitals.
But the effects would probably be small since there are less than 250 physician-owned hospitals in the U.S., and only a fraction of them disproportionately care for people covered by Medicaid. According to the American Hospital Association, there are more than 6,000 hospitals nationwide, including nearly 5,200 community hospitals.
"It's hard to see a substantial downside for anybody … including hospitals that are in the same market segment," said former Federal Trade Commission official Dr. David Hyman, now a law professor at Georgetown University.
But AHA and the Federation of American Hospitals, a for-profit hospital trade group, oppose the changes. Both argue that physician-owned hospitals select only the most profitable patients and have higher utilization than full-service hospitals, which drives up Medicare spending.
"Giving them the option to expand is providing an opportunity for more wallet biopsies," FAH CEO Chip Kahn said.
He added that clinicians with ownership stakes in physician-owned hospitals "can pick and choose" which patients to accept because they often have admitting privileges at the hospitals they own and neighboring full-service hospitals.
Community hospitals argue that physician-owned hospitals threaten access to care because they siphon off profitable patients and make it harder for them to earn enough revenue to keep their doors open.
But experts say CMS' plan wouldn't hurt community hospitals' finances because it would only apply to so-called "high Medicaid facilities." Medicaid's comparatively low payment rates offer providers small financial margins, so those physician-owned hospitals are "not cream-skimming," Hyman said.
Hospitals probably oppose the changes because they open the door to more competition from physician-owned hospitals and other providers, experts say.
"They would view this as the camel's nose under the tent. They don't want the precedent to be set," Hyman said.
CMS is also catching flak for proposing to get rid of the notice and comment period for waiver applications from high Medicaid facilities because it would make the process less transparent.
"The community should always have the opportunity to share with the policymakers and with the public their views on policy regarding physician-owned hospitals," Kahn said. Industry insiders say the stakeholders most likely to comment on exemption applications are competing providers.
During the debate over the Affordable Care Act, hospital lobbyists convinced Congress to ban physicians from referring Medicare and Medicaid patients to any hospital they have a financial interest in or allowing physician-owned hospitals to increase physicians' total ownership stakes. They also lobbied Congress to prevent physician-owned hospitals from growing their operating rooms or beds, except under limited circumstances.
"The administration hasn't gotten the memo that the law is set in place on physician ownership and referral," Kahn said. "It was already decided on years ago."
