Should physician-owned specialty hospitals -- those that limit care to a specific set of diagnosis-related groups, or DRGs -- be allowed to proliferate unfettered? Two government agencies recently presented their views in congressional testimony -- but the issue is far from settled.
The AAFP has taken a "wait-and-see" approach to the issue. The AAFP Board of Directors in January voted to support continuing a congressionally imposed moratorium on development of such facilities until questions about the hospitals' effects on care and access could be answered. The moratorium is scheduled to end June 8.Some of those answers came March 8, when representatives from the two agencies -- the Medicare Payment Advisory Commission and CMS -- testified to congressional leaders.
Specialty Hospital Issue Comes to Capitol Hill
MedPAC, CMS Studies Raise More Questions, Offer Few Answers
Point, Counterpoint
Proponents of physician-owned specialty hospitals -- those that provide exclusively cardiac, orthopedic and/or surgical services -- claim that such facilities take advantage of a convergence of financial incentives for physicians and hospitals, producing more efficient operations and better patient outcomes than do conventional community hospitals.
Opponents counter that physician-owners who refer patients to hospitals in which they have a financial interest are competing unfairly with nonowner physicians referring patients to community facilities. Furthermore, these critics say, specialty hospitals concentrate on only the most lucrative procedures and treat the healthiest and best-insured patients -- leaving community hospitals to shoulder the burden of providing less profitable services and caring for the poorest, sickest patients.
Opponents counter that physician-owners who refer patients to hospitals in which they have a financial interest are competing unfairly with nonowner physicians referring patients to community facilities. Furthermore, these critics say, specialty hospitals concentrate on only the most lucrative procedures and treat the healthiest and best-insured patients -- leaving community hospitals to shoulder the burden of providing less profitable services and caring for the poorest, sickest patients.
MedPAC Report
MedPAC Chair Glenn Hackbarth, J.D., presented the commission's report to the Senate Finance Committee (read Hackbarth's testimony online [11 pages / 251 KB. More about PDF files.]). The report was based largely on 2002 Medicare cost reports and patient claims -- the latest data available.
Hackbarth's testimony summarized several key points:
Hackbarth's testimony summarized several key points:
- In general, physician-owned specialty hospitals treated patients whose conditions were less severe than those of patients treated at community hospitals. Additionally, specialty facilities concentrated on specific DRGs, some of which were relatively more profitable.
- Specialty hospitals tended to treat a lower proportion of Medicaid patients than did community hospitals.
- In 2002, specialty facilities did not report overall lower Medicare costs than did community hospitals, although inpatient lengths of stay were shorter.
- The overall financial performance of community hospitals in areas with specialty hospitals was comparable to that of community hospitals in areas without specialty facilities.
- Many profitability differences creating financial incentives for patient selection could be reduced by modifying Medicare's inpatient prospective payment system.
Hackbarth listed specific measures MedPAC recommended to improve the IPPS. Chief among them: Refine the current DRGs to more fully capture differences in patients' severity of illness and modify the processes used to determine DRG relative weights.
Permitting gainsharing by hospitals and physicians while regulating quality could provide an appealing alternative to physician ownership of hospital interests, he added.
Permitting gainsharing by hospitals and physicians while regulating quality could provide an appealing alternative to physician ownership of hospital interests, he added.
The commission recommended continuing the moratorium until Jan. 1, 2007, Hackbarth said, to "allow time for efforts to implement our recommendations and time to gather more information."
CMS Study
Thomas Gustafson, Ph.D., deputy director of CMS' Center for Medicare Management, gave testimony before the same Senate committee and before the House Ways and Means Health Subcommittee. He said CMS had studied the referral patterns of specialty hospital physician-owners, assessed quality of care and patient satisfaction in specialty and community hospitals, and examined uncompensated care and tax payments for both facility types.
The CMS study based its findings on 2003 Medicare claims data, Gustafson said, as well as on patient focus groups and hospital staff interviews.
Because CMS had not finalized its report, Gustafson testified, no recommendations had yet been developed. But he offered several early observations:
The CMS study based its findings on 2003 Medicare claims data, Gustafson said, as well as on patient focus groups and hospital staff interviews.
Because CMS had not finalized its report, Gustafson testified, no recommendations had yet been developed. But he offered several early observations:
- Most Medicare patients in specialty hospitals were referred or admitted by physician-owners. Those physicians also referred a similar but slightly lower proportion of patients to community hospitals.
- Overall, Medicare cardiac patients treated in community hospitals were more severely ill than those treated in cardiac specialty facilities. The difference in proportions of severely ill patients treated in community hospitals compared with specialty hospitals was even greater for orthopedic and surgical patients than for cardiac patients.
- Quality measures at cardiac specialty hospitals were in general at least as good as those at community hospitals. Complication and mortality rates were comparatively lower at cardiac hospitals, even when adjusted for severity of illness. No such comparisons could be made for orthopedic or surgical specialty facilities. Patient satisfaction was "extremely high" in specialty facilities.
- Relative to net revenue, specialty hospitals provided only about 40 percent of the amount of the uncompensated care community hospitals provided. However, specialty facilities paid various taxes nonprofit community hospitals did not pay. The result: The proportion of total net revenue specialty hospitals devoted to uncompensated care plus taxes exceeded the proportion community hospitals devoted to uncompensated care.
Gustafson concluded by addressing MedPAC's finding of profitability differences across severity classes within DRGs that create financial incentives to select the least severely ill patients.
"MedPAC has recommended refining the DRGs to reduce these incentives," Gustafson noted, "and we are currently evaluating their recommendations."
"MedPAC has recommended refining the DRGs to reduce these incentives," Gustafson noted, "and we are currently evaluating their recommendations."
A Reflection of Complexity
It was precisely because of this issue's complexity, said AAFP Board Chair Michael Fleming, M.D., of Shreveport, La., that the Academy's Board of Directors wanted all the available evidence at hand before deciding on a final policy.
"I think the reports confirm our thoughts that we don't know (enough) yet," Fleming said of the MedPAC and CMS testimonies. "Our belief that the moratorium should be continued is the right course -- at least until this has been studied exhaustively -- considering the serious adverse effects that may occur if community hospitals are further weakened."
"The MedPAC position and statement do indeed support the AAFP's position and the policy it has adopted," said Daniel Heinemann, M.D., of Canton, S.D., a former AAFP director who has dealt with the specialty hospital issue in his state.
Heinemann said the CMS report, while admittedly preliminary, raised additional questions without offering any answers. "It created questions about methodology," he said. "Many of the data are qualitative, not quantitative."
Heinemann warned physicians and policy-makers not to allow themselves to be led off-target. "Payment is not the real issue; physician self-referral is the real problem here," he said.
"I think the reports confirm our thoughts that we don't know (enough) yet," Fleming said of the MedPAC and CMS testimonies. "Our belief that the moratorium should be continued is the right course -- at least until this has been studied exhaustively -- considering the serious adverse effects that may occur if community hospitals are further weakened."
"The MedPAC position and statement do indeed support the AAFP's position and the policy it has adopted," said Daniel Heinemann, M.D., of Canton, S.D., a former AAFP director who has dealt with the specialty hospital issue in his state.
Heinemann said the CMS report, while admittedly preliminary, raised additional questions without offering any answers. "It created questions about methodology," he said. "Many of the data are qualitative, not quantitative."
Heinemann warned physicians and policy-makers not to allow themselves to be led off-target. "Payment is not the real issue; physician self-referral is the real problem here," he said.
