CMS Study Finds Physician-Owned Specialty
Hospitals Provide High Quality Care; Agency Still
Decides to Continue Moratorium Beyond June Cutoff
[Posted 05/19/05]

Physician-owned specialty hospitals deliver high-quality care and have a high level of patient satisfaction, according to a study submited to Congress last week by the Centers for Medicare & Medicaid Services (CMS). The study also found that such physician-operated hospitals provide greater predictability in scheduling and services and make significant tax contributions to the community.

Congress in 2003 placed a temporary moratorium on construction of new physician-owned specialty hospitals and on physician referral of Medicare and Medicaid patients to specialty hospitals in which they have a financial interest. The moratorium allowed CMS time to study and report back to Congress on the issues, including the effect for-profit specialty hospitals have on nonprofit community hospitals. Critics charge, without specific proof, that these physician-owned specialty hospitals “cherry-pick” healthier, well-insured patients, leaving community hospitals with sicker, uninsured and underinsured patients.

The study found that while physician-owned specialty hospitals do provide less uncompensated care, the money they return to the community through sales tax, income tax, and real estate and property tax exceeds “the proportion of net revenues that community hospitals [devote] to uncompensated care.”

CMS also announced last week that it would take administrative actions that would effectively extend the specialty hospital moratorium through the end of the year. Although the moratorium officially expires on June 8, CMS administrator Mark McClellan has said he will direct state and certification agencies to “refrain from processing further participation applications” from physician-owned specialty hospitals until CMS has had an opportunity “to correct system problems [identified in the study] that may unfairly advantage physician-owned specialty hospitals.”

CMA opposes the extension of the present moratorium and any prohibition on physician ownership, control, or governance of specialty hospitals. CMA says it is illogical to call corporate-owned hospitals that specialize in orthopedic or cardiac care “centers of excellence” but then attack similar facilities if they are operated by physicians.

To eliminate any unfair advantage for physician-owned specialty hospitals, CMS last week announced plans to adjust payments to better reflect the seriousness of illnesses. CMS also said it would more closely scrutinize these physician-operated hospitals to see if they meet the government’s definition of a hospital (a facility that provides primarily inpatient care). Facilities that do not qualify as a hospital would be classified as ambulatory surgical centers, which are paid lower reimbursement rates than hospitals.

CMA supports CMS’s plan to adjust reimbursement rates to more accurately reflect the true cost of providing care.

Contact: Robin Flagg, 415/882-5110 or rflagg@cmanet.org.