The Centers for Medicare and Medicaid Services has allowed the moratorium on physician-owned specialty hospitals to expire, which means that those facilities—whether old or new—again can receive federal reimbursement.
However, in its report to Congress that ended the moratorium, CMS said that ownership arrangements at the facilities—which offer specialized care in the cardiac, surgical, and orthopedic areas—warrant more federal scrutiny.
The moratorium began in 2003; from late that year until June 2005, specialty hospitals could open and receive a Medicare provider number, but physician-owners could not bill for services for Medicare beneficiaries they referred to the facilities. Hospitals also were prohibited from increasing the number of physician investors or the number of beds or changing the kind of services provided.
The moratorium was essentially extended in mid-2005, when no new hospitals were allowed to enroll in Medicare. In the meantime, Congress directed CMS to study the hospitals' financial arrangements and provision of charity care and report back by last Aug. 8.
The final report “provides a comprehensive path forward to address the concerns that have been raised,” said CMS Administrator Mark McClellan at a press conference sponsored by CMS to announce the moratorium's end.
Now, specialty hospitals may receive Medicare payments provided they meet certain criteria outlined in the CMS report.
The report, combined with new proposals governing inpatient, outpatient, and ambulatory surgery center payments, “should put an end to the debate over specialty hospitals,” said Randy Fenninger, Washington representative for the American Surgical Hospital Association, an organization of specialty hospitals.
But, the American Hospital Association and the Federation of American Hospitals said the report shows that specialty-oriented facilities are skirting the law. Both organizations said CMS found evidence that specialty hospitals are soliciting physician-investors who can refer a high volume of patients.
For instance, CMS reported that cardiac hospitals always offered the same payment terms to noninvestor- and investor-physicians, but that orthopedic and surgical hospitals offered noninvestors a lesser rate. According to a CMS statement, “Although not explicitly given by the hospitals as a criterion for selecting investors, it appears that the volume of referrals and revenue generated may have been a critical factor for some hospitals in determining which physicians were permitted to invest.”
Mary Beth Savary Taylor, vice president for executive branch relations at the AHA, said, “More action is needed to really take a look at conflict of interest when physicians own and refer patients [to a facility].” She added that AHA believes that “physician referrals to limited-service hospitals should be banned.”
“The CMS plan includes some potentially promising initiatives, such as increasing enforcement scrutiny, but it falls short by not addressing the core issue of conflict of interest,” said the Federation of American Hospitals in a statement.
The CMS report is based on a survey of 130 specialty hospitals and 270 general acute care competitor hospitals.
While the response rate overall was good, there was a lack of full participation in many areas. Sen. Chuck Grassley (R-Iowa) and Sen. Max Baucus (D-Mont.) wrote to CMS just before the report was issued to complain about the paucity of responses.
After the report's release, they said they would still seek more data. “I'm concerned that a survey of just 140 facilities was used to develop policy for the roughly 4,000 hospitals reimbursed by Medicare,” said Sen. Baucus in a statement.
The senators are cosponsors of the Hospital Fair Competition Act of 2005 (S. 1002), which they said will “rein in the growth of physician-owned specialty hospitals.”
In the survey, specialty hospitals were asked, for instance, to report on returns on physician investment. CMS found that among the hospitals that responded, the returns overall were proportionate to investment. But, said CMS, only 47% of the hospitals surveyed responded to this question.
The agency said it considers nonproportional returns to be violations of physician self-referral and antikickback laws, and that it would go after suspect arrangements.
Some hospitals are already being disciplined for violations under the moratorium. CMS said that four hospitals improperly sought Medicare reimbursement for patients who had been referred by physicians who had an ownership interest in the hospital, resulting in an overpayment of $12.1 million. The agency is seeking repayment of those funds.
In the report, CMS also said it would require all hospitals to disclose compensation arrangements and the fact that physicians are investors.
Hospitals that did not fully respond to the survey will be the first to receive forms seeking such disclosures. If they don't respond in a timely manner, they will be fined up to $10,000 a day.