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Physician Ownership and Specialty Hospitals, 2003-2008

The Advisory Board Company

Expert Center – Health Care Advisory Board

August 18, 2008

Evolution Toward a Federal Moratorium
Legislative Timeline, 2003-2008
• December 8th : Moratorium enacted by Congress as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). The MMA excludes from the moratorium hospitals that were in operation before or under development as of November 13, 2008. (P.L. 108173) • June 8th : MMA moratorium provision for specialty hospital reimbursement expires • June 9th : CMS instituted a 6-month suspension in the processing of Medicare enrollment applications submitted by specialty hospitals (CMS-855As) • August 1st : The Children’s Health and Medicare Protection Act (CHAMP) passed the House with modifications to the “whole hospital” exemption for physician referral. The bill applied the exemption only to those facilities with Medicare provider agreements in place prior to July 2007. The Senate has yet to take up the measure. (H.R. 3162)

• March 19th : CMS released a change request specifying that for specialty hospitals to be considered under development, such hospitals had to have completed architectural plans, funding, and state approvals before November 13, 2008.

• February 8th : Congress extended the CMS issued suspension until August 8, 2006 as part of the Deficit Reduction Act of 2005. (P.L.109-171) • August 8th : CMS issued a report to Congress on specialty hospitals and outlined a strategic plan for examining the issues raised

• March 6th : The Mental Health and Addiction Equity Act of 2007 passed the House with a provision to make moratorium permanent. (H.R.1423) • May 22nd : Iraq Supplemental Funding Bill passed the Senate with a provision to make the moratorium permanent

Source: Taylor M, “Offering Guidance,” Modern Healthcare, March 22, 2004; “Physician Self Referral,” Centers for Medicare & Medicaid Services, available at http://www.cms.hhs.gov/PhysicianSelfReferral/, accessed August 18, 2008; Congressional Legislation available at http://www.thomas.gov, accessed on August 18, 2008

Current Legislative Outlook
Support for a permanent moratorium, except if the specialty hospital is a vocal constituent
“On three occasions in the last 10 months, either the House or the Senate has approved legislation that would bar doctors from referring Medicare and Medicaid patients to hospitals in which the doctors have an ownership interests. None of the proposals have gotten all the way through the legislative process. The House approved the restrictions twice, as part of the child health bill in August and a mental health bill in March. The Senate approved the restrictions last month, in a bill providing money for the Iraq war and various domestic programs.” “Senator Patty Murray of Washington, a member of the Appropriations Committee and Senate Democratic Leadership, secured a special dispensation to help Wenatchee Valley Medical Center.”

“Senator Herb Kohl , Democrat of Wisconsin, persuaded the Appropriations Committee and the full Senate to accept legislative language benefitting Aurora BayCare Medical Center in Green Bay.”

Source: Pear R., “Concerned About Costs, Congress Pushes Curbs on Doctor-Owned Hospitals,” New York Times, June 8, 2008; American Hospital Association

Moratorium Preventing a Competitive Threat
Surge in Specialty Hospital Construction if Moratorium Expires

State Moratoriums States in white have adopted complete moratoriums or strict disclosure laws overseeing physician ownership.

Source: Pear R., “Concerned About Costs, Congress Pushes Curbs on Doctor-Owned Hospitals,” New York Times, June 8, 2008; American Hospital Association

Missing Market Expectations
Tenet Healthcare Corporation, Health Management Associates, and Community Health Systems

Trends Remain Consistent “A weak economy might also be expected to manifest itself in increased uninsured and charity volumes and/or bad debt levels. While most components of these metrics grew in the second quarter, the increase was fairly consistent with our recent trends and no cause for alarm.” Trevor Fetter CEO, Tenet Health Care
Source: Lopatto E., “Tenet, Health Management Fall After Earnings Miss,” Bloomberg, August 5, 2008; “Community Health Systems profit falls,” ThomsonReuters, July 28, 2008; “Trevor Fetter Q2’ 08 Conference Call,” available at http://www.tenethealthcare.com/TenetHealth/InvestorCenter, August 5, 2008

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