Hospitals Narrowly Avert a War Down on the Farm

For much of the past two decades, a war has been brewing between traditional community hospitals and a new breed of doctor-owned specialty hospitals that focus on specific treatments such as cardiac angioplasty, outpatient surgery or knee and hip replacements. Although often cast in loftier terms, in reality the fight is largely over money, particularly the question of whether specialty hospitals “skim” relatively healthier, better-insured patients for the most lucrative medical procedures.

Until yesterday, that battle threatened to flare up again in an unexpected theater –a farm bill now pending before Congress, which specialty-hospital foes briefly hoped might put down their rivals once and for all. Although community-hospital supporters apparently withdrew the provision in question last night, fans of real medical drama — the money-grubbing, cost-shifting kind, that is — have nothing to fear: This issue isn’t going away any time soon.

Agriculture and medicine, of course, typically have little more than a passing acquaintance. But the gigantic farm bill, which mostly authorizes the nation’s Byzantine and hugely expensive system of agricultural subsidies, has recently turned into a grab bag of new handouts for farmers and unrelated tax breaks — $12.5 billion worth as of the most recent count. That’s left House and Senate lawmakers scrambling to find offsetting budget cuts, one of which turned out to involve Medicare payments to specialty hospitals.

Some legislators proposed forbidding doctors to refer patients to their own specialty hospitals, a change that would most likely kill them outright. A Congressional Budget Office analysis apparently suggested the move would save Medicare $2.4 billion over ten years, although that number appears to be a moving target. In any event, the American Medical Assocation got wind of the idea last week and promptly blasted it as a “sneak attack” on specialty hospitals that would limit patient choice. (The fact that AMA member-physicians also have financial interests at stake went oddly unmentioned.)

Just this morning, CongressDaily (via the Kaiser Family Foundation) reports that the measure has been withdrawn, so specialty hospitals will live to fight another day. They’ll almost certainly remain a political hot potato, however: Five years ago, Congress enacted an 18 month moratorium on new specialty-hospital construction as part of a Medicare bill, and ever since doctors and hospital systems have sparred on Capitol Hill over whether specialty care can — or should — be allowed to survive. Powerful senators such as Democrat Max Baucus and Republican Charles Grassley, both ranking members of the Finance Committee, have squarely taken the side of community hospitals, even going so far as to denounce a recent Forbes story that extolled the virtues of specialty care.

The main problem here is that both sides are right. Specialty hospitals do offer the possibility of encouraging better, more efficient and innovative care for various medical conditions — although it hasn’t been proven yet, to the best of my knowledge — and they do represent competition for community hospitals that all too often seem utterly resistant to change, particularly given the shameful rate of medical errors they currently tolerate.

Yet specialty outfits also benefit from a loophole to a general prohibition on physician self-referral, they specifically concentrate on procedures that reap higher reimbursements from Medicare and private insurance, and they do benefit from treating patients who are generally healthier and better-insured (PDF link) than the overall patient population — all of which has the potential to leave community hospitals in the lurch due to no fault of their own. (There’s also a separate question raging over whether specialty hospitals can provide decent emergency care when something goes wrong, or whether they should be able to dump their emergency cases back on the community-hospital system.)

I certainly don’t have an answer to the problem, but until someone comes up with one, this legislative tug-of-war is going to be a recurring issue for hospitals of all stripes.

(Hat tip to Bob Laszewski’s Health Care Policy and Market Review.)

(Photo of a South Korean medevac exercise from Flickr user soldiersmediacenter, CC 2.0)