Two reports on so-called “specialty hospitals” were released yesterday in hearings on Capitol Hill. The Medicare Payment Advisory Commission’s (MedPAC) report calls for an extension of the ban on construction of new specialty hospitals. For those who have not been keeping up on this rather esoteric (but critically important) issue, there has been a Federal ban in place preventing the construction of these facilities, which are typically for-profit and partially owned by the physicians practicing at the facilities.
The rationale behind the ban was a concern that these facilities were “skimming” the profitable patients, leaving tertiary and primary hospitals the indigent, Medicaid, and less-healthy patients. According to California HealthLine, the report addressed this concern directly, noting:
“The MedPAC report, presented to the Senate Finance Committee on Tuesday, states that physician-owned specialty facilities could “corrupt clinical decisions and lead to inappropriate care.” The report also said that, relative to full-service hospitals, specialty hospitals generally treat healthier patients, focus on higher-cost procedures, treat fewer Medicaid beneficiaries and do not have lower costs.
The report recommends that Congress recalculate Medicare prospective payments to acute care hospitals to more accurately reflect the cost of care and prevent financial incentives for hospitals to select healthier patients (CQ HealthBeat, 3/8).
MedPAC’s findings were not entirely echoed by a CMS report presented at the same hearing. (Source California HealthLine)
“CMS “unexpectedly released” its preliminary report on specialty hospitals. Thomas Gustafson, deputy director of the CMS Center for Medicare Management, said the CMS study shows “measures of quality at [physician-owned] cardiac hospitals were generally at least as good and in some cases better than the local community hospitals.”
In addition, “[c]omplication and mortality rates were lower at cardiac specialty hospitals even when adjusted” for patient-sickness levels, he testified. CMS conducted its study by examining six markets, which represent 11 of the 59 cardiac, surgery and orthopedic specialty hospitals approved in 2003 as Medicare providers.
The CMS report also found that doctors who have invested in specialty facilities do not refer patients exclusively to the specialty hospitals but they do refer a greater share of patients to specialty facilities than to full-service hospitals. ”
Out here in the real world, there is evidence that specialty facilities do skim the patient pool. A full-service, multi-hospital health care system (client of Health Strategy Associates) has been losing patients to a physician-owned ambulatory surgery center for over a year. Anecdotal information strongly indicates that the patients seen at the doc-owned ASC are more likely to be privately insured or covered by workers’ comp (a profitable payer in this state).

Fed Chairman Alan Greenspan’s recent gloomy pronouncements about the potential impact of the federal deficit have focused even more attention on entitlement programs. Interestingly, Greenspan specifically mentioned governmental health programs, such as Medicaid and Medicare, noting that their contribution to the deficit may well outstrip that of Social Security.
Pres. Bush’s efforts to rein in Federal expenditures on Medicaid has focused on cutting drug reimbursements; eliminating some of the ways seniors have shifted assets to qualify for governmental funding of long term care; and closing “accounting loopholes. As of today, these recommendations have run into a stone wall, as Republican and Democratic governors alike have strongly resisted any Federal cuts to Medicaid funding. Their resistance, combined with less-than-overwhelming support from Congressional Republicans, make it unlikely that Mr. Bush will get all, or much, of what he desires.
If Bush is unable to cut Medicaid significantly, today’s $300 billion in annual costs will continue to escalate at near-double-digit rates. Combine that bad news with the Administration’s refusal to consider any changes to the new Medicare Prescription Drug program (slated to start next year), and it is clear that any progress in reducing governmental expenditures on health insurance programs will have to come from other sources.
So, who’s going to feel the pain?
In a word, providers.
Doctors are slated to receive an automatic 5% fee cut in 2006. Historically, Congress has eliminated or reduced these cuts in the past