New specialty hospitals on hold for now

Steps taken by CMS could stave off proposed congressional action to extend the soon-to-end moratorium on self-referrals.

By Joel B. Finkelstein, AMNews staff. June 6, 2005.

Washington -- Just as specialty hospitals were set to clear one hurdle -- a soon-to-expire 18-month moratorium on "self-referrals" -- new obstacles popped up in the form of legislative and administrative actions.

Federal officials recently announced their plan to alter the way Medicare pays for care at specialty hospitals in an effort to correct perceived inequities benefiting these facilities over general hospitals.

In addition, the Centers for Medicare & Medicaid Services will take until January 2006 to assess whether the hospitals meet the Medicare requirement that they provide primarily inpatient care, the agency's director, Mark McClellan, MD, PhD, announced at a recent hearing before the House Energy and Commerce health subcommittee. Between now and then, CMS will not approve applications from any new specialty hospitals for participation in the program.

There are currently about 100 specialty hospitals, most of which provide either cardiac, surgical or orthopedic services.

The moratorium on physician referrals to specialty hospitals in which they have an ownership interest has slowed down the creation of new facilities, said Eric Zimmerman, a partner with the international law firm McDermott, Will and Emery, who specializes in Medicare law.

That prohibition, passed as part of the 2003 Medicare reform law, ends June 8. That deadline has prompted opponents of the hospitals to call for extending the moratorium.

The day before the May 12 House hearing, Sens. Chuck Grassley (R, Iowa) and Max Baucus (D, Mont.), respectively the chair and ranking member of the Senate Finance Committee, introduced a bill that would make the moratorium permanent. The measure also would limit the total number of shares that physicians could own in specialty hospitals that existed before December 2003. These facilities were exempt from the original referral ban.