Medicare Compliance & Reimbursement

The compliance ground rules for physician-owned specialty hospitals could be in for a major shakeup.

Last month, physician self-referral law architect Rep. Pete Stark (D-CA) and Rep. Jerry Kleczka (D-WI) introduced legislation that would put restrictions on physician referrals to specialty hospitals in which they have an ownership interest. Stark and Kleczka worry that such "boutique" hospitals, which typically specialize in generously reimbursed niche markets like cardiac care and orthopedic surgery, suck away profitable patients from cash-strapped general community hospitals who are left holding the bag with sicker, high-cost patients.

Now the General Accounting Office has weighed in with similar concerns. In "Specialty Hospitals: Information on National Market Share, Physician Ownership, and Patients Served" (GAO-03-683R), the agency says that patients at specialty hospitals do indeed tend to be less sick than patients - with the same diagnosis - at general hospitals.

"This study suggests that specialty hospitals intentionally cherry pick the healthiest patients so providing care won't be as expensive, and they can pocket as much of the Medicare payment as possible," Kleczka says. "Such a strategy ensures that full-service, community hospitals bear the brunt of providing the most costly care for the same amount of financial support."

And change may be afoot: House Ways and Means Committee Chairman Rep. Bill Thomas (RCA) says the situation "needs to be corrected to maintain fairness."

To see the report, go to http://www.gao.gov/new.items/d03683r.pdf.

Lesson Learned: Physician investors in specialty hospitals should brace themselves for the prospect of tougher regulation.