On May 9, 2006, the U.S. Department of Health and Human Services (HHS) submitted to Congress an interim report divulging plans to respond to perceived concerns about specialty hospitals. The interim report discusses several significant changes that will affect specialty and general hospitals alike, and announces the Centers for Medicare and Medicaid Services’ (CMS) intent to survey specialty and general hospitals on a variety of sensitive topics.
In recent years Congress has been keenly focused on, and deeply divided over, specialty hospital development. In 2003 Congress amended the physician self-referral proscription, commonly referred to as the “Stark Law,” to impose an 18-month moratorium during which physician-investors in new specialty hospitals could not refer Medicare patients to those hospitals. The 2003 changes effectively stifled development of new specialty hospitals.
Congress continued to debate specialty hospitals throughout 2005. At the same time the American Hospital Association and other hospital lobbying organizations pressed for a permanent ban on physician self-referrals to specialty hospitals.
In early 2006 Congress approved more specialty hospital legislation in the Deficit Reduction Act. However, this time Congress refused to extend the ban on physician self-referrals to specialty hospitals. Instead Congress directed the Secretary of HHS, Michael Leavitt, to prepare a strategic and implementing plan regarding physician investment in specialty hospitals that addressed issues related to proportionality of investment return, bona fide investments, annual disclosure of investment information, and the provision of Medicaid and charity care by specialty hospitals. Congress likewise directed the secretary to withhold provider numbers from new specialty hospitals while the report was developed. The legislation required the secretary to issue an interim report within three months and a final report no later than six months after the date of enactment.
The secretary submitted his interim report to Congress on May 9. The report details a variety of steps the Centers for Medicare and Medicaid Services has already taken to address specialty hospital development and announces several additional steps the agency intends to take over the next few months.
CMS took initial steps to refine payments under the hospital inpatient prospective payment system last year when it expanded the number of cardiovascular diagnosis-related groups (DRGs) within major diagnostic category (MDC) 5 (diseases and disorders of the circulatory system), a commonly billed MDC by cardiac specialty hospitals. The changes more accurately reflect intra-DRG differences in severity of illness and more closely relate reimbursement with resource utilization.
CMS has recommended two additional major hospital payment reforms that could be implemented as early as October 1: CMS has proposed to assign weights to DRGs based on estimated hospital costs, rather than on reported charges, and to reconfigure DRGs to better reflect a patient’s diagnosis and severity of illness. These changes will profoundly affect Medicare payment to all hospitals.
CMS likewise intends to reform payments to ambulatory surgery centers beginning in 2008. It aims to discourage physician investors from forming orthopedic and surgical specialty hospitals to take advantage of the typically higher payments under hospital payment systems.
CMS also is exploring ways to better ensure specialty hospitals meet current Medicare conditions of participation, which require that participating hospitals be “primarily engaged in providing [services] to inpatients.” CMS has never defined and only lightly enforced this standard. Secretary Leavitt’s interim report suggests that no further definition will be forthcoming. He has been unable to identify any quantitative method, such as a percentage of services ratio of inpatient to outpatient services, that would not disqualify both community and specialty hospitals.
The Deficit Reduction Act also required the secretary to study the amount of charity care and care to Medicaid enrollees furnished by specialty hospitals; this study is ongoing. However, of potentially great interest to all hospitals is the definition of “charity care” the secretary has embraced for purposes of this study. There presently is no Medicare statutory or regulatory definition of what constitutes charity care. Nonetheless, the secretary intends to define it as “medical care furnished to uninsured individuals from whom the hospital never intended to seek payment.” Although this rather limiting definition presently applies only for purposes of this study, it is useful for all hospitals to take note of this definition. The imprimatur could mean other federal and state regulators may embrace it more broadly. Courts may employ it in disputes involving charity care (including perhaps in pending class action cases). Hospitals currently evaluating their charity care, charge and bad debt policies may wish to examine such policies in the context of this definition.
Hospitals of all types also should take note that Secretary Leavitt intends to survey approximately 400 specialty and general hospitals. He will ask recipients to identify their physician investors and the returns on investments, whether the physicians have stop losses or other types of liability limits available to them, whether the physicians received a loan from the hospital to purchase their investment interest, and whether the physicians have or have had a compensation arrangement (such as a management contract) with the hospital or an entity related to the hospital. It is not clear from the report whether the survey will extend to common joint venture arrangements between hospitals and physicians. The survey also asks about the hospital’s number of Medicaid patient discharges, its revenue from Medicaid patients and the amount of charity care it provides. Of note, the interim report says the secretary will promptly refer information that indicates possible misconduct, including violation of the federal anti-kickback statute or other federal law, to the inspector general. Hospitals receiving the survey might wish to consult with a lawyer about these questions before responding.