Statement of
American College of Surgeons
Submitted to
House Ways and Means Committee Subcommittee on Health
RE: Physician-Owned Specialty Hospitals
March 8, 2005
STATEMENT FOR THE RECORD
BY
AMERICAN COLLEGE OF SURGEONS
TO
HOUSE WAYS AND MEANS COMMITTEE SUBCOMMITTEE ON HEALTH
ON
PHYSICIAN-OWNED SPECIALTY HOSPITALS
MARCH 8, 2005
The American College of Surgeons is pleased to submit a statement for the record of the Subcommittee on Health's hearing on physician ownership of specialty hospitals. This is a very important issue for the College and its members. As you know, surgeons provide patient care in all of America's hospitals. The College strongly believes that maintaining care in all types of hospitals, including specialty hospitals, is necessary to sustain full patient access to the highest quality of surgical care.
Surgeons advocate the following policies for addressing the issue of specialty hospitals:
- We oppose elimination of the whole hospital exception, either by legislation or regulation;
- We oppose extension of the MMA moratorium temporarily or permanently; and
- We support refining the hospital DRGs to ensure that Medicare payments properly reflect the cost of providing care.
Specialty hospitals are an important marketplace innovation. Indeed, when the hospital prospective payment system was implemented in 1982, it was widely expected to lead to hospital specialization in order to increase efficiency and improve the quality of care. This is exactly what is happening today with the establishment of specialty hospitals. These hospitals provide more choices for patients and they provide high-quality care. Patients frequently choose these hospitals and they report high satisfaction with their care and experience.
Physician-ownership of specialty hospitals is a positive trend. It is the joint ventures among physicians, hospitals, and other investors that are making possible the growth of specialty hospitals and the improvements they bring. Frequently, the initiative to create a specialty hospital comes from a physician group, often a group recognized in the community for its clinical excellence, as Regina Herzlinger notes in her case study of MedCath.1 Physicians and hospitals working together, and with shared incentives, are able to make important changes in the delivery of health care.
The College is concerned about the misplaced emphasis that some attach to financial gain as the prime motivator for physicians becoming involved in these ventures. Physicians are motivated to form specialty hospitals because they recognize the potential to increase productivity and efficiency while also improving quality of care and patient satisfaction. Sometimes physicians have been frustrated while trying to achieve these goals in existing community hospitals. At a MedPAC meeting last September, a MedPAC analyst reported on site visits, saying, "We repeatedly heard about the frustrations physicians had with community hospitals. Many community hospital administrators acknowledged they had been slow to react to the issues raised by their physicians."2
We want to emphasize that physicians have experienced very significant gains in productivity and efficiency through their involvement in specialty hospitals. According to a MedPAC staff report, "Physicians ... told us that they can perform about twice as many cases in a given time period at specialty hospitals as at community hospitals. Physicians mentioned operating room turnaround times at specialty hospitals of 10–20 minutes, compared with over an hour at the community hospitals where they also practice. ... At one specialty hospital, we were told that physician incomes had increased by 30 percent as a result of increased productivity."3
Finally, the entry of a specialty hospital into a community can be a powerful force for change and improvement. Efficiency and quality are the result of competition, which is healthy for the marketplace. In fact, the Federal Trade Commission recently reported that state certificate-of-need laws have an adverse impact on health care because they stifle competition. Further evidence comes from MedPAC, which reported that community hospitals in areas it visited responded to marketplace pressure created by specialty hospitals and improved their own performance. Specialty hospitals provide efficient, high-quality care, and patient satisfaction is high. They bring value to local health care systems.
Indeed, quality and efficiency are the prime motivators for surgeons who choose to practice in these hospitals—including those who have no ownership interest. They can be more productive and have greater access to specialized equipment and staff than is possible in a general hospital. The end result is higher quality at lower cost.
The criticisms of physician-owned specialty hospitals are not well founded. Critics say that they lead to increased utilization and unnecessary services, but there is no evidence to support this claim. Critics also say specialty hospitals do not serve low-income patients or those who lack health insurance coverage. While it is true that specialty hospitals tend to treat relatively few Medicaid and uninsured patients, this is because of the markets where they are located. Investors tend to build specialty hospitals in financially stable suburban areas, where community hospitals also tend to treat fewer Medicaid and uninsured patients. Further, unlike most hospitals in these markets, specialty hospitals support their communities through the taxes they pay.
Finally, critics say that specialty hospitals tend to treat less severely ill—and more profitable—patients, thus leaving the less profitable patients to community hospitals that provide a full range of services to all types of patients. Many of these services tend to be unprofitable. Unprofitable services, for example, include medical admissions rather than surgical ones, emergency and trauma care, and burn care. Thus, critics are concerned that specialty hospitals will drain resources from full-service community hospitals and perhaps hurt them financially.
The College would share this concern, but we do not believe that this will occur or that prohibiting specialty hospitals is the most appropriate way to address the issue. As you know, the College has long championed improvements to our nation's emergency medical systems and trauma care systems, and we continue do so. We also support the DRG changes that will address this issue of unprofitable services, as recommended by MedPAC in its March 1 report to Congress and repeated today in its report on specialty hospitals.
It is also important to recognize that, by their nature, specialty hospitals can only treat patients whose medical needs can be met by their resources. Patients with underlying conditions beyond a hospital's capabilities must be referred to more comprehensive facilities. The same is true for ambulatory surgical centers (ASCs)–some patients cannot be cared for appropriately in these facilities and must be referred to general or tertiary care hospitals. We also note that some comprehensive hospitals have denied privileges to physicians who practice in competing hospitals or ASCs, a development that clearly should cause concern among patients.
Like nearly all hospitals, specialty hospitals are paid based on DRG payments that vary according patient diagnosis, complications, procedures, and the average resources required to treat comparable cases. The recent MedPAC reports describe flaws in the Medicare DRG system that cause payments for some cases to be higher than would be dictated by the average cost of providing services and, conversely, to pay less than would be indicated for other cases. These discrepancies can provide an opportunity for any hospital, whether specialty or comprehensive, to select patients that are more profitable and to provide fewer services—or even none at all—for less profitable patients. The College believes that these perverse incentives ought to be addressed and so we strongly support the recommendations advanced by MedPAC in its recent reports to Congress.
We also are pleased that, as reported in the President's budget for FY 2005, CMS plans to adopt MedPAC's recommendation by initiating a DRG refinement process. Done properly, this process will ensure that Medicare payments accurately reflect the cost of providing care and that all hospitals are paid fairly and appropriately for their services to Medicare patients. We believe that these changes should resolve concerns that have been raised about the impact that specialty hospitals can have on community hospitals. In effect, the changes will create a level playing field in which healthy competition can operate, leading to enhanced quality and efficiency in the delivery of all healthcare services. The College believes that improvements like those recommended by MedPAC must be implemented in order to ensure the financial viability of providing emergency and trauma care as well as the broad range of care provided by tertiary care centers and other comprehensive hospitals.
In closing, we want to emphasize that specialty hospitals are not new—physicians and others have been establishing them for 75 years. In fact, some of the nation's finest hospitals are specialty specific. Also, it is worth noting that the average physician investor has a very small financial stake in specialty hospitals, and the majority of surgeons who work in physician-owned hospitals have no ownership interest. Further, a ban on physician ownership of specialty hospitals will not stop the trend. Corporations, including hospitals, are building them and they will continue to do so. Clearly, any action to prohibit specialty hospitals would be an action to limit the competition that is so vital to keep the healthcare system improving its efficiency, quality of care, and patient satisfaction. This is healthy competition and it is an example of the values that have been promoted by the Administration and by Congress. We must work together to preserve specialty hospitals, support healthy competition, and end distortions in our payment systems that can interfere with patient access and harm providers.
Surgeons remain committed to community health care. Teaching hospitals, tertiary care centers, trauma and burn centers, and the network of community hospitals are all vital to the well-being of surgical patients. Considering this, the American College of Surgeons encourages all physician hospital owners to practice according to the following principles:
- Specialty hospitals should accept all patients for which they can provide appropriate care, without regard to source of payment.
- Patient selection should be based on medical criteria and facility capabilities. Those patients with needs that extend beyond a facility's resources should be referred to a tertiary care center or other hospital that is appropriately equipped and staffed.
- Surgeons practicing in specialty hospitals should maintain their commitment to providing the emergency services needed in their communities and should take call in community hospital emergency departments, as necessary.
- The issue of whether specialty hospitals should have their own emergency rooms is, and should remain, a matter of state law and community need.
- Physician investors should disclose their financial interest to patients they propose to treat in a specialty hospital.
Thank you for the opportunity to share the views of the College of Surgeons. Questions and comments may be directed to the College's Washington Office, at 202-337-2701.
__________
- Herzlinger RE. MedCath Corporation. Harvard Business School case 9-303-041. Cambridge, Mass.: Harvard University, 2003.
- Transcript of public meeting: Medicare Payment Advisory Commission, September 10, 2004, Washington, D.C; available at www.MedPAC.gov.
- Specialty hospital study meeting brief: prepared for meeting of Medicare Payment Advisory Commission, September 9-10, 2004, Washington, D.C.
Online March 16, 2005
