Tuesday, May 24, 2005

Stopping the Shipwreck?

Galen's interesting post about specialty hospitals, as well as thoughts from Symtym, got my motor running the other day. Basically, these facilities have been shown to provide, in the words of CMS Administrator Mark McClellan, M.D. :

"high patient satisfaction, high quality of care and patient outcomes in some important dimensions, greater predictability in scheduling and services, and significant tax contributions to the community."
Sounds good, but in the shipwreck of medicine, politics, and money, nothing is ever quite that simple. Specialty hospitals have been good investments for certain types of physicians -- squeezed by ever-shrinking reimbursement for their primary purpose in life (caring for patients), they invest in specialty hospitals to get the facility fees these places generate. Certain types of care (i.e., procedures) generate higher facility fees than other types of care (non-procedural medicine). That is why you will never see a "specialty hospital" for pneumonia, or congestive heart failure, or any of the hundreds of other disease processes regular hospitals must provide care for. So, when a specialty hospital opens its doors, it generally pulls better-paying patients away from a neighboring general hospital, significantly impacting its bottom line. Additionally, physicians investing in these facilities are far less likely to care for uninsured or Medicaid patients at their own place, shifting that burden once again onto the general hospital.

The essence of this really lies in the DRG system of payments to hospitals, and the way that CMS has manipulated payment over the years to encourage certain behaviors on the part of hospitals and physicians. Hospitals are pushing for legislation that pushes back at specialty hospital growth; there is already a moratorium on building new ones. To that end, Sens. Grassley and Baucus have introduced the Hospital Fair Competition Act of 2005. There are four main CMS plans touted in this legislation (from AAMC):
  1. Reform payment rates for inpatient hospital services through changes to the DRG system
  2. Reform payment rates for ambulatory surgical centers
  3. Scrutinize whether facilities meet the definition of a hospital (Medicare specifies that to be defined as a hospital, a facility must provide the majority of care to inpatients; the percentage is unclear)
  4. Review hospital procedures for participating in Medicare (Medicare compliance, EMTALA, etc.)
Per Sen. Grassley, "Congress needs to take additional steps to address these issues. Physician-owned specialty hospitals treat the most profitable patients and services, leaving community hospitals to treat a disproportionate share of less profitable cases."

This is a fairly broad piece of legislation that on its surface seems to favor general hospitals --- in theory, it cuts reimbursement to specialty hospitals and ambulatory surgery centers. As well, it may allow CMS to revoke Medicare provider agreements with some specialty hospitals:
(The CMS) Administrator also announced that the Agency may revoke provider agreements from some specialty hospitals that fail to satisfy a long-standing Medicare condition of participation that hospitals be predominantly engaged in furnishing services to inpatients. If CMS determines that a participating hospital is not primarily engaged in inpatient care, the hospital may have its provider agreement terminated. The Administrator gave little clue as to how CMS would measure whether a hospital is primarily engaged in inpatient care.

But there's a catch, which negatively impacts general hospitals as well --- specialty hospitals are not being singled out for decreases in DRG reimbursement. That means that payment for certain inpatient services will be cut, for all types of facilities, so the bottom line at both specialty and general hospitals will be affected:

As a long-term remedy, CMS further proposed to address perceived disparities by adjusting payment rates for certain inpatient hospital services, such as cardiac, orthopedic, and surgical services, that are alleged to be overpaid and that may create incentives for physicians to form specialty hospitals, and payment rates for ambulatory surgical centers, which are perceived to be too low, and likewise encourage physicians to form specialty hospitals to receive higher hospital reimbursements. CMS'’s proposed payment reforms, as well as similar provisions in the Grassley-Baucus legislation that also would direct Medicare inpatient service payment refinements, would apply to general and specialty hospitals alike. To the extent general acute care hospitals see these changes as cutting into their margins, their enthusiasm for the Grassley-Baucus bill may diminish.
All in all, this seems to be a mixed bag for both types of facilities. As a general principle, I am very much in favor of the free market driving what can and should be offered; due to the long-standing, overwhelming government involvement with health care, that is a hard thing to achieve. I feel that presently, general hospitals are at a significant disadvantage when ambulatory facilities and specialty hospitals are operating nearby. Unfortunately, this bill will likely come across as bad for both, rather than addressing many of the underlying disparities.

There is one, far less publicized aspect of the bill that I think may have some far-reaching benefits. Presently, it is illegal for a hospital to share the results of collaborative cost saving efforts with physicians. This "gainsharing" could be allowed, and might promote better cooperation between physicians and hospitals on "best practices," EMRs, etc.