[ Friday, July 09, 2004 ]


Off topic, but interesting: Specialty hospitals, and the moratorium against new ones. You've likely heard about the kerfuffle involving specialty hospitals: Stark prevents physicians from owning an interest in an entity they refer patients to for certain designated health services (such as a hospital), but there are a handful of exceptions. One of the exceptions is the "whole hospital" exception: a physician can own an interest in a hospital he refers to, so long as the interest owned is in the whole hospital, not just a branch or division of it. In other words, you can own a piece of the whole hospital operation, but can't own a piece of the radiology department. There's some good rationale for this: you don't want to discourage doctors from investing in and keeping open a hospital that serves the rural area where the doctors practice; doctors may be willing to invest in and keep operating a hospital when other investors would close up shop; and doctors may be better able to run a hospital and ensure that it offers the right procedures and is well run since it has a bigger impact on their lives than on most anyone else. Or at least that's the theory.

This has helped the boom in "specialty hospitals," especially those that are associated with or related to a "full service" hospital. For example, cardiologists and vascular surgeons want to tap into the technical fee component of the cardiology procedures and heart and vascular surgeries they perform, but aren't necessarily interested in buying a piece of the whole hospital (they don't care about -- i.e., they can't financially impact -- the gastroenterology surgery business). But if you carved out the specific part of the business attractive to a group of physicians and put it into its own hospital, and the physicians in that area owned a piece of it, the docs could (i) impact their investment and make sure it was profitable and (ii) get a piece of the action they've otherwise been pretty much giving to the hospital. Because of this specific linking of the specific medical specialty and the availability of the "whole hospital" exception to Stark, there has been an explosion of "specialty hospitals."

Some of the regulators feel that this is "gaming the system." Allowing the doctors to strip the profitable business out of a general hospital by setting up a "specialty" hospital next door -- or even in the same building as the general hospital -- isn't what the "whole hospital" exception was intended for. So, Congress just slapped a moratorium on new "specialty" hospitals for purposes of the Stark exception. The problem is that many "specialty" hospitals were already under development under the rules already in place. The moratorium wasn't removing the exception, just pulling up the drawbridge. And it wouldn't be fair to people who were playing by the rules to have the goalposts moved at the last minute (caution, mixed metaphor alert). So, if your "specialty" hospital was already "under development," it was effectively grandfathered as being under the exception and not subject to the moratorium. But what's "under development" mean?

There are some descriptions, but it's not going to be clear in most cases. So, there's a process where a group of physicians and others developing a "specialty" hospital can seek a letter confirming that their project was "under development" and therefore is not subject to the moratorium. One letter has been issued so far, and as this article points out, that letter has some useful hints on the current thinking regarding these types of entities.

Jeff [9:41 AM]

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