Long-awaited hospital bill unveiled

The hospital industry is cautiously eyeing legislation introduced yesterday by Sens. Chuck Grassley (R-Iowa) and Max Baucus (D-Mont.) that would place considerable restrictions on the burgeoning specialty-hospital sector while altering Medicare payments to all hospitals.

The influence of the powerful chairman of the Senate Finance Committee and the panel’s ranking member is considerable, but not enough to push a moratorium on new physician-owned specialty hospitals or the payment changes through Congress.

The specialty hospitals expect strong backing from key House Republicans. Ways and Means Committee Chairman Bill Thomas (R-Calif.) and Energy and Commerce Committee Chairman Joe Barton (R-Texas) have not publicly chosen sides.

“We fully expect [our position] to be received differently in the House,” said a spokesman for the American Surgical Hospital Association.

Grassley and Baucus have bowed to the “800-pound gorilla” that is the hospital lobby, he said. He described key House members as more steadfastly “pro-competition.”

Rep. Nathan Deal’s (R-Ga.) Health Subcommittee of the Energy and Commerce Committee is holding a hearing on the issue today. The Centers for Medicare and Medicaid Services is finalizing a report on the impact of specialty hospitals that will be presented at the hearing by agency chief Mark McClellan. Medicare Payment Advisory Commission (MedPAC) Chairman Glenn Hackbarth and several hospital executives also will testify.

Rep. Nancy Johnson (R-Conn.) convened a Ways and Means Health Subcommittee hearing on the issue in March.

Sen. Tom Coburn (R-Okla.), a physician and a supporter of specialty hospitals, also is considering a hearing later this month of his Subcommittee on Federal Financial Management, Government Information and International Security of the Homeland Security and Governmental Affairs Committee.

A moratorium on new specialty hospitals was established by the Medicare Modernization Act of 2003 in response to concerns that facilities providing specialized care — such as heart or orthopedic surgery — were siphoning off patients from community hospitals. The moratorium is slated to expire June 8.

“Physician-owned specialty hospitals treat the most profitable patients and services, leaving community hospitals to treat a disproportionate share of less profitable cases, Medicaid patients and the uninsured,” Grassley said.

The bill effectively would permanently extend the ban and could kill off interest in the sector. Physicians who refer Medicare and Medicaid patients to the facilities would be forbidden from investing in them. Although existing specialty hospitals could continue operating, they would not be permitted to increase the number of doctors who invest or the amount invested by current physician owners, offer more services or add beds or operating rooms.

Although a new moratorium would represent a victory for large hospitals, the sector may not be enthusiastic about the changes to components of the payment system called “diagnosis-related groups,” or DRGs, that determine how much a hospital is paid for each service performed. The bill would update the DRGs every five years and base them on individual hospital charges rather than the national average.

Supporters of changing the payment system contend that the current formula inequitably reimburses for medical services, creating incentives for the creation of hospitals that only provide higher-paying services. This part of the Grassley-Baucus bill is based on the recommendations of MedPAC.

The hospital industry has maintained, however, that the payment system and the specialty-hospitals issue are not related. Federation of American Hospitals President Chip Kahn said that the Grassley-Baucus provisions are “very complex” and that the organization is still reviewing them.

“The DRGs are 20 years old. It’s a worthy discussion,” Kahn acknowledged.

He said that he expects a long process toward the final outcome and that it’s too early to tell what that outcome may be.

Despite entrenched opposition and uneasy support for parts of the bill, even among its strongest backers, Kahn emphasized that the legislation is the “first, major, definitive policy statement by any of the major players.”

Grassley and Baucus have not said whether they will move the bill through the Finance Committee or seek a legislative vehicle to which to attach it. In either case, an extension of the moratorium is highly unlikely to be enacted before June 8.

The bill would be retroactively effective to that date even if it were to pass later. Kahn said that provision of the bill is intended as a signal to potential investors in specialty hospitals that they should hold off.

The legislation also would require the Department of Health and Human Services to draft regulations that would permit “gainsharing” arrangements between doctors and hospitals.

This provision would allow physicians and the hospitals at which they work to split the savings that resulted from cutting costs. Currently, such arrangements run afoul of anti-kickback rules governing Medicare and Medicaid that are designed to ensure that beneficiaries are not denied care.