Grassley, Baucus chide CMS on specialty hospitals

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Sen. Max Baucus (D-Mont.) grilled Centers for Medicare and Medicaid Services Administrator Mark McClellan at a hearing yesterday, saying his agency defied congressional intent in its enforcement of restrictions on specialty hospitals.

In legislation passed this year, Congress gave CMS greater responsibility for overseeing specialty hospitals, but Grassley and Baucus indicated they are underwhelmed with agency’s actions.

“It is time for CMS to make a serious commitment to oversight of specialty hospitals,” Grassley said, adding that “the committee’s oversight work found that, in spite of a congressional moratorium on new specialty hospitals and an administrative extension of that ban, it appears more than 40 specialty hospitals have opened” since 2004.

An 88-year-old woman died after back surgery at one of these facilities, Physicians’ Hospital in Portland, Ore., Grassley said. The Rev. Mike Wilson, a Baptist minister and the deceased woman’s son, also testified yesterday.

Grassley said CMS has not been aggressive enough in keeping new specialty hospitals off the market. CMS plans to finalize new policies to regulate the facilities by August, but Grassley dismissed its efforts as inadequate.

“I think it is clear from today’s testimony that something other than just another report needs to be done on this issue,” Grassley said. “CMS still has time before the August deadline to implement these reforms in line with [congressional] intent.”

Specialty hospitals typically are at least partially owned by the physicians who work in them and tend to focus on cardiac, orthopedic or surgical care.

The Finance Committee leaders, other lawmakers and lobbyists for large hospitals say these smaller facilities are built upon inequities in the Medicare payment system that favor those types of services.

They argue, too, that specialty hospitals benefit from a loophole in laws forbidding doctors from referring patients to facilities in which they hold a financial interest. Under the so-called “whole-hospital exception,” doctors are permitted to send patients for services at a facility if they are part owners of the whole facility, not just one department.

An 18-month ban on new specialty hospitals expired last June, but CMS determined it could use its own authority to extend the moratorium until Feb. 15. In the meantime, Congress passed the Deficit Reduction Act, which put a six-month moratorium in place and required CMS to develop a detailed “strategic and implementing” plan to establish permanent restrictions on the facilities.

McClellan asserted yesterday that after the final report is issued in August the agency would not have further authority to block the opening of any new specialty hospitals or decline to pay claims filed by the hospitals.

“I’m quite disappointed for you to … summarily conclude that you do not have the authority now that you did then,” Baucus said.

McClellan said CMS never had the authority simply to ban new specialty hospitals. The statutory moratorium that expired last June “wasn’t a prohibition on opening. It wasn’t a prohibition on [assigning Medicare] provider numbers. It wasn’t a prohibition on billing Medicare at all,” McClellan said. All Medicare providers must have a provider number to get paid by the program.

The agency’s only mandate, McClellan said, was to decline to pay for services when a physician improperly referred a patient to a facility in which he or she had an ownership stake. CMS did not have the authority to deny payments to facilities that lawfully fell under the whole-hospital exception, McClellan said.

When the statutory moratorium expired, CMS used its regulatory authority to refuse new Medicare provider numbers to hospitals as it prepared its report.

Among the issues CMS planned to address in its review was whether specialty hospitals technically qualified as “hospitals” under Medicare’s rules because their services are limited, McClellan said. But the agency has determined that changing the definition of “hospital” to exclude specialty hospitals would harm other small hospitals.

McClellan defended the agency’s approach, saying CMS is developing comprehensive new policies that would reform Medicare’s payment system, ensure that all facilities classified as hospitals are able to provide emergency services and institute safeguards against financial conflicts of interest.

CMS has been implementing some of these new policies for more than six months.

The agency reevaluated the formula used to set Medicare’s payments to hospitals in order to remove financial incentives that made some specialty services vastly more profitable than others and is rolling out the new payment system. The agency also is reformulating its payments to ambulatory surgical centers, which are similar to specialty hospitals but generally receive lower payments and focus on outpatient services.

CMS also plans to step up enforcement of laws requiring all hospitals to treat emergency patients and to provide medical services regardless of the patient’s ability to pay.

Grassley emphasized that CMS needs to write new rules requiring doctors to disclose their financial interests in hospitals, and comparative quality information, when referring patients for treatment.