So-called "specialty hospitals", facilities typically owned by for-profit firms and/or practicing physicians, have been the subject of much debate by the Centers for Medicare and Medicaid Services (CMS). Now, it looks like CMS will continue their ban on new facilities at least until the end of the year (and just possibly till 1/1/2007) while they study their impact on cost, quality, and the full service hospitals they compete with.

Specialty facilities focus on a relatively narrow branch of medicine (e.g. spine, cardiac, orthopedics, cancer), are often owned by a partnership including the physicians admitting patients and a for-profit corporation, and rarely have an Emergency Department, overnight stay capacity, or trauma units. What they do have is state-of-the-art facilities, excellent "customer service", efficient management, and lots of profit potential for the owners.

At issue with CMS is the definition of hospital and whether the specialty facilities meet the CMS definition. This is important because reimbursement is typically better for "hospitals" than for non-hospital facilities (many of these specialty hospitals would likely be classified as ambulatory surgery centers which receive lower reimbursement).

According to Congressional Quarterly,

"The (CMS specialty hospital internal) review also could lead the agency to require some specialty facilities to add emergency departments, which "ten[d] to attract Medicaid and other low-income patients," CQ HealthBeat reports (CQ HealthBeat, 5/12).

California HealthLine also reports "In addition, CMS is expected to adjust Medicare reimbursement rates for all providers to better reflect the severity of patients' illnesses, which could lower reimbursement rates for some specialty services."

Congress appears to favor allowing new specialty hospitals into the CMS provider world, with House Energy and Commerce Cmte Chair Barton (R TX) noting he considers McClellan's action to be a reasonable compromise.

"The rise of specialty hospitals will press traditional community hospitals to become leaner, faster and better," he said (AP/Las Vegas Sun, 5/12). Speaking in response Democrats' concerns about physician self-referrals, Barton said, "The real fight ... here is not about quality of care," adding, "It's about control and ownership." He said that banning specialty hospitals goes "against everything in the American culture that says specialization is good."

What does this mean for you?

As the Centers for Medicare and Medicaid Services (CMS) goes, so go commercial payers. The moratorium on specialty hospital construction has served to halt, or at the least reduce, the number of new facilities seeking licensure throughout the country. If CMS moves forward and allows new construction, watch for changes in reimbursement.

It is possible, and some say likely, that reimbursement levels for these facilities will be lower than for full-service hospitals. As many commercial and state (e.g. workers' comp and auto liability) fee schedules and reimbursement contracts are based on CMS' Medicare rates, there will likely be a significant impact on the volume of services delivered through these facilities and the price as well.