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. 108-
173)
• 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,” Thomson-
Reuters, July 28, 2008; “Trevor Fetter Q2’ 08 Conference Call,” available at
http://www.tenethealthcare.com/TenetHealth/InvestorCenter, August 5, 2008