Sen. Grassley zeroes in on specialty hospitals

To the dismay of physician groups, a key Senate Republican lawmaker yesterday said he is in favor of extending a moratorium on so-called specialty hospitals.

For the past several years, lawmakers have been grappling with specialty hospitals, which tend to focus on a specific health concerns and do not offer comprehensive medical care.

Critics say these hospitals are overpaid by the government and entice some doctors away from community hospitals, diminishing quality of care.

After a Finance Committee hearing yesterday on hospitals, panel Chairman Chuck Grassley (R-Iowa) told The Hill that he backed an extension of the moratorium on the hospitals, which is due to expire June 8.

The upcoming decision whether to extend the moratorium has sparked an intense lobbying battle that has pitted physician groups such as the American Medical Association (AMA) against hospital giants such as the American Hospital Association (AHA).

Regulation of the small, for-profit and mostly physician-owned hospitals was — and remains — one of the more contentious issues of the 2003 prescription-drug bill, titled the Medicare Modernization Act (MMA).

“The controversy [over specialty hospitals] continues,” Sen. Max Baucus (D-Mont.) said yesterday. “I don’t want to stand in the way of innovation and competition, but when it comes to physician ownership of specialty hospitals, I’m not sure the playing field is level.”

Baucus and Grassley are in the process of drafting legislation to address conflict-of-interest and Medicare-reimbursement issues related to specialty hospitals. The hearing yesterday brought together major stakeholders and included testimony from Glenn Hackbarth of the Medicare Payment Advisory Commission (MedPAC) and Tom Gustafson of the Centers for Medicare and Medicaid Services (CMS).

Both Hackbarth and Gustafson reported on the preliminary findings of research conducted by MedPAC and CMS, as required under the MMA, on physician-owned heart, orthopedic and surgical specialty hospitals.

While stressing the preliminary nature of the MedPAC findings and the fact that the research was based on data from 2002, Hackbarth recommended that payment adjustments be made to ensure that Medicare is not overpaying specialty hospitals. “Improving the accuracy of the payment system would help make competition more equitable,” said Hackbarth, who repeated his testimony later yesterday afternoon to the House Ways and Means Committee Subcommittee on Health.

Hackbarth suggested balancing the system with payment reforms, adding, “We remain concerned about specialty hospitals … but we don’t want to conclude that they should be outlawed.” In the short term, Hackbarth recommended that the moratorium on physician-owned hospitals be extended through December 2006.

Gustafson described the current network of physician-owned hospitals as an “infant industry” and testified that CMS had found no difference in the referral patterns for physician owners and non-owners, despite concerns being raised over conflicts of interest. “Patients also had very favorable perceptions of the clinical quality of care they received at specialty hospitals,” Gustafson said.

Baucus dismissed the testimony, openly questioning the quality of the CMS study. “The selection method [for hospitals] is unclear; the sample is not large enough,” the senator charged.

Sen. Ron Wyden (D-Ore.) was similarly skeptical, describing the advent of specialty hospitals as “another step towards two-tier medicine.”

Proponents of the hospitals — organizations such as the cardiovascular services provider MedCath, the AMA and the American College of Surgeons — argue that, on average, specialty hospitals provide better care in a shorter period of time and offer healthy competition to local community hospitals. Those groups argue that the moratorium on the hospitals should not be extended.

Hospital groups such as the AHA suggest that physician owners are more likely to direct healthier, well-insured patients to their own facilities.

There are approximately 100 specialty hospitals in the United States, predominantly in South Dakota, Kansas, Oklahoma and Texas.

Grassley said the number of specialty hospitals has more than tripled in the past five or six years.

In a March 20, 2003, speech, House Ways and Means Committee Chairman Bill Thomas (R-Calif.) called boutique hospitals “cash cows” because they focus on medical services designed to maximize their profits.