Specialty Hospitals and Community Hospitals
The Medicare Prescription Drug, Improvement, and Moderation Act of 2003 enacted an 18-month moratorium to investigate whether specialty hospitals privately owned by physicians were unjustly profiting from self-referrals to their own hospital (McLauglin & McLauglin, 2008). Many critics of these specialty hospitals contend that they draw the most profitable patients to their facilities; therefore making it more difficult for community hospitals to generate funding for their less-profitable services such as the emergency room (Tynan, November, Lauer, Pham, and Cram, 2009). However, the defenders of specialty hospitals claim they provide better quality services and receive higher patient satisfaction ratings than community hospitals (Tyanan et al., 2009). This case study discusses new reforms for specialty physician-owned hospitals since the Medicare Payment Advisory Commission (MedPAC) moratorium was lifted in 2006, the implications of these reforms for both specialty physician-owned and community hospitals, why possible specialty physician-owned hospitals were opened during the 18-month moratorium period, and changes to Medicare diagnosis-related groups (DRGs) used for reimbursement.
Reforms for Physician-Owned Specialty Hospitals
There have been a few significant changes since 2006 that affect how physician owned specialty hospitals run their private businesses. In August 2006, the moratorium for specialty hospitals was ended with MedPAC proposing new reforms affecting private for profit specialty hospitals (McLauglin & McLauglin, 2008). The proposals stated that the Medicare DRG reimbursement hospital payments should be revised so they more closely matched actual costs and specialty hospitals start accepting more patients under the Emergency Medical Treatment and Labor Act (McLauglin & McLauglin, 2008). In 2007, the Centers for Medicare and Medicaid Services (CMS) did finalize reforms to the DRG hospital reimbursement system that were implemented in 2008 (CMS, 2007). CMS (2007) reported they would begin the inpatient prospective payment system (IPPS) ensuring Medicare inpatient hospital payments more accurately reflected the patients’ actual medical conditions by restructuring the DRGs. They also put measures in place to make sure Medicare was not providing extra payments for hospital-acquired conditions that patients developed during their hospitalizations. They state the old 538 DRGs were revised and replaced with 745 new DRGs that are more predictable, reliable, and fair. In addition, they emphasize hospitals that take care of more critically ill patients will receive more reimbursement compared to those that only treat healthier patients. Finally, they reveal regulations will be put in place stating physician-owned specialty hospitals will have to notify their patients if a doctor of medicine or osteopathy is not available at all times in the hospital and provide CMS a plan of how...