House SCHIP Legislation Would Prohibit Construction of New Physician-Owned Hospitals, Limit Expansion of Existing Facilities

Legislation (HR 2, S 275) under consideration in Congress that would reauthorize and expand SCHIP "could spell financial trouble" for physician-owned specialty hospitals, the Wall Street Journal reports.

Since 1990, the number of physician-owned specialty hospitals has increased by three times to about 200 facilities nationwide. According to the Journal, supporters maintain that specialty hospitals -- which often focus on one or two profitable services, such as cardiac care or orthopedics -- are "highly efficient, saving expenses for both patients and insurance programs, including Medicare." However, critics argue that "physicians who refer patients to hospitals in which they have an ownership stake drive up costs because they order more tests or perform unnecessary surgery" and that specialty hospitals "cherry-pick the healthiest patients, which hurts the finances of other hospitals, the majority of which are nonprofits," the Journal reports.

The House version of the SCHIP bill, which passed last week, includes a provision proposed by House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.) that would prevent construction of any new specialty hospitals and restrict the expansion of current facilities. In addition, the provision would limit Medicare payments to specialty hospitals that received final approval to participate in the program by Jan. 1. According to a Congressional Budget Office analysis, the provision could result in as much as $1.2 billion in savings for the federal government over 10 years through lower Medicare costs. Stark said that the provision would prevent the "unethical kickbacks that physicians receive from ownership hospitals, most of which are of questionable safety and quality."

The Senate version of the SCHIP bill does not include the provision, but the final version of the legislation could include the measure.

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Brett Gosney, president of the Physician Hospitals of America, said that specialty hospitals increase health care costs as "completely outrageous and false" and called the CBO analysis as "highly flawed." He said that specialty hospitals "save the government money" because they have lower rates of complications, infections and repeat procedures than other hospitals.

However, Rick Pollack, executive vice president of the American Hospital Association, said of specialty hospitals, "It's a conflict of interest between the needs of the patient and the physician's self-interest," adding, "Very often, they are going to refer the well-reimbursed and less difficult cases to the places they have a financial interest in, because it's going to be more lucrative" (Martinez, Wall Street Journal, 1/22).