Senators work to extend ban on specialty hospitals

Two leading hospital groups are poised for another victory over the nascent specialty hospital sector they contend is siphoning off their most profitable patients . The Senate Finance Committee is drafting legislation that would extend a ban on the expansion of specialty hospitals after months of intense lobbying on the controversial issue.

Two leading hospital groups are poised for another victory over the nascent specialty hospital sector they contend is siphoning off their most profitable patients.

The Senate Finance Committee is drafting legislation that would extend a ban on the expansion of specialty hospitals after months of intense lobbying on the controversial issue.

On June 8, a moratorium on the creation of new specialty hospitals will expire unless Congress acts. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Max Baucus (D-Mont.) plan to introduce a bill in the coming weeks that would continue to ban on new facilities, Republican and Democratic committee aides said. Key members of the House such as Ways and Means Committee Chairman Bill Thomas (R-Calif.) and Energy and Commerce Committee Chairman Joe Barton (R-Texas) have held off on staking clear positions.

Specialty hospitals provide lucrative services such as heart and orthopedic surgery in competition with large community hospitals, which offer a wide array of services. Moreover, community hospitals are required by federal law to provide emergency room care to all patients, regardless of their ability to pay.

Large hospitals claim that specialty hospitals reap the rewards of a Medicare payment system that pays high sums for certain expensive procedures and low sums for others, such as trauma care.

Specialty hospitals typically are partly owned by physicians, who are permitted under a narrow exception in federal statute—named the “Stark Law”after Rep. Pete Stark (D-Calif.)—to refer patients they treat at community hospitals for surgery at specialty hospitals in which they have an ownership stake.

The American Hospital Association (AHA) and the Federation of American Hospitals, along with Grassley, Baucus and others, have expressed serious concern about doctors’ potential financial conflicts of interests under this arrangement.

The AHA and the Federation support closing off what they term the “loophole” in the Stark Law that permits self-referrals to specialty hospitals. The American Medical Association backs the expansion of specialty hospitals.

The Finance Committee and the Ways and Means health subcommittee both held hearings on specialty hospitals March 8 to coincide with the release of a report by the Medicare Payment Advisory Commission (MedPAC).

MedPAC concluded that insufficient information is available to determine whether specialty hospitals threaten the financial stability of community hospitals, but advocated an 18-month extension of the moratorium. A Finance Committee GOP staffer said the report “was used as a starting point” for their bill.

Grassley and Baucus also are eyeing changes to the way hospitals are reimbursed by Medicare. Based on the MedPAC findings, the Finance measure could seek to adjust these disparate payments by shifting some of the dollars from more highly paid categories to those that are reimbursed at a lower rate. This mechanism would not require new spending.

Federation vice president Jeff Cohen said that the organization recognizes the need for refining the system to ensure accurate payment. The calculation of reimbursements, however, is not related to the specialty hospitals issue, insisted Cohen. The for-profit hospitals represented by the Federation reject any form of physician self-referral, he said.

Lobbyists for specialty hospitals continue to press their case that their larger counterparts—and the formidable trade associations that represent them—simply fear competition.

“We’re going to survive because our [business] model works and people like it,” one specialty hospitals lobbyist remarked.

The Federation’s Cohen said that the industry welcomes specialty hospitals that do not engage in self-referral.

The specialty hospitals lack the resources and the influence of the AHA and the Federation, however, and have no association representing their broad interests. Companies such as Charlotte, N.C.-based MedCath and nonprofit entities such as the Dallas-based Baylor Health Care System have hired independent representation.

The facilities also claim they are able to provide superior care more efficiently, and that patient satisfaction is higher at specialty hospitals.

The smaller facilities may be able to alleviate some lawmakers’ concerns about “cherry picking” the most lucrative patients by promoting the so-called joint venture model,  in which the community hospital owns a majority of the specialty facilities and the remainder is owned by doctors or other investors.

Hospitals then would share in the financial benefits of the facilities, but Grassley and Baucus remain skeptical of physician self-referral, aides said.

The Finance Committee leaders have not decided whether to mark up the bill or to seek an alternative legislative vehicle.