Specialty Hospitals Required to Disclose Physician Ownership by CMS Final Reports

The Deficit Reduction Act of 2005 (DRA) required the secretary of Health and Human Services to develop a “strategic and implementing plan” with respect to specialty hospitals to address (1) proportionality of investment return, (2) bona fide investments, (3) disclosure of investment information annually, (4) specialty hospitals’ care to patients eligible for Medicaid or receive benefits under an applicable waiver and (5) appropriate enforcement. In a final report issued by CMS to Congress on Aug. 8, CMS reported on the outcome of its survey of specialty hospitals and competitor acute care hospitals along with its strategic and implementing plan.

CMS conducted a survey of specialty hospitals and competitor acute care hospitals to seek information to supplement other data reviewed by CMS in its preparation of the strategic and implementing plan as required by the DRA. Survey findings covered the following:

  • Investment in specialty hospitals by physicians and non-physicians;
  • Compensation arrangements between hospitals and physician investors;
  • Information on patient revenues generated from Medicaid beneficiaries as well as the volume of Medicaid patient admissions or visits;
  • Charity care by specialty hospitals;
  • Patient and payer mix;
  • Inpatient and outpatient services provided; and
  • Existence of a dedicated emergency department and admission rates.

On its face, the survey results did not reveal any disproportionate or non-bona fide investment arrangements by physicians in specialty hospitals, however, the lack of response to survey questions on investment interest and compensation arrangements by the specialty hospitals surveyed has prompted CMS to begin seeking financial disclosure from these specialty hospitals through a regular disclosure process as part of CMS’ strategic and implementing plan. A failure to report data as required by CMS may result in civil monetary penalties of up to $10,000 per day.

Based on these survey results and CMS’s study of previous reports on specialty hospitals, CMS detailed its strategic and implementing plan in its Aug. 8 final report to Congress. The plan sets forth administrative action which CMS has either already undertaken or intends to undertake in the future, including the following:

  • Continue to make improvements to the accuracy of the diagnosis-related group payment system by addition of a system of cost weights over a three-year transition period beginning fiscal year 2007.
  • Reform the fee schedule for ambulatory surgical centers by taking into account resources for specific surgical procedures and the extent to which payments under other payment systems may involve similar procedures and utilization of resources.

  • Align physician and hospital incentives through three initiatives:
- Testing gain-sharing arrangements by soliciting proposals for participation in a three-year gain-sharing demonstration. - Implementing a value-based purchasing program with aligned measures covering clinical quality, patient safety, preventative services, care coordination or cost of care, as well as alignment of payment incentives for a hospital stay or episode of care. - Starting a demonstration project spanning five years to examine how quality improvement strategies, such as aligned financial and non-financial incentives, in health systems can improve qualify of care and increase efficiency.

  • Issue further guidance on CMS expectations for hospitals without emergency departments with respect to appraisal, initial treatment and referral of patients.
  • Clarify CMS’s position that, under the Emergency Medical Treatment and Labor Act, hospitals with specialized capabilities must accept patient transfers of unstable patients.
  • Continue CMS’ review of Office of Attorney General (OIG) findings on patient care and safety issues in physician-owned specialty hospitals.
  • Require disclosure by hospitals of physician investment and compensation arrangements on a periodic basis pursuant to Section 1877(f) of the Social Security Act and the implementing regulation at 42 CFR § 411.361. Failure to provide the requisite disclosure requested by CMS will result in monetary penalties.
  • Take into consideration a requirement under hospital conditions of participation or in provider agreement requirements that hospitals disclose to patients whether it is physician owned, along with the names of the physician owners and compensation arrangements.
  • Continue to identify any non-proportional returns on investments and non-bona fide investments which may violate the physician self-referral statute or anti-kickback statue and take appropriate action, along with the OIG, against such arrangements.
  • Continue to address enforcement of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 moratorium matters with respect to hospitals that have received notices of overpayment.

CMS is not making any legislative recommendations in this final report. Furthermore, CMS has decided that it will not recommend to Congress, at this time, any amendment that would prohibit physician ownership of specialty hospitals under the whole hospital exception. In addition, CMS will continue to interpret “primarily engaged” on a case-by-case basis for purposes of determining that a hospital is an entity “primarily engaged” in furnishing services to hospital inpatients.

A full copy of the final report may be found on the CMS Web site under the heading “Specialty Hospital Report”.

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Melissa J. Llanera
212.492.3319
[email protected]

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