Specialty hospitals hit the news this week because the moratorium on constructing new facilities is due to expire June 8. The moratorium was imposed by the Medicare Modernization Act in 2003 when large hospitals won their legislative fight to try to quash competition from these smaller, more focused hospitals, which are at least partly owned by physicians.

This is a key battlefront between protectionists and innovators. The large, multi-specialty hospitals have argued that the focused hospitals, especially those that specialize in cardiac care, are taking the less sick and most profitable patients and leaving them with more complex cases and more uncompensated care.

The week’s drama began in the Senate with Finance Committee Chairman Chuck Grassley and Ranking Member Max Baucus introducing a bill on Wednesday that would have extended the moratorium indefinitely. A win for protectionists.

Then on Thursday, the House Energy and Commerce Committee held a hearing on specialty hospitals, and Chairman Joe Barton announced that he has no plans to advance legislation that would continue the moratorium. A win for the innovators.

You’ll see below a summary of a CMS study released Thursday that provides ample details on this pivotal fight. Two key facts from the report: ?The notion that specialty cardiac hospitals are systematically screening out more severely ill patients using the ED [emergency department] is not supported by our findings.? And the notion that physicians are profiting from these referrals certainly is called into question: ?The average ownership share per physician in a cardiac hospital is only 0.9%, based upon hospitals in our study,? CMS said.

My own experience from visiting a MedCath cardiac hospital in Austin is that doctors like these hospitals because they are more efficient, have state-of-the-art equipment and better nursing care, and their patients get better treatment.

CMS announced four steps it will take to ?correct system problems that may unfairly advantage physician-owned specialty hospitals.? It plans to refine its payment system, which many acknowledge is overpaid especially for cardiac care, creating an incentive for creation of the specialty hospitals. In addition, CMS won’t approve creation of any new hospitals for up to six months to more closely scrutinize ?whether entities meet the definition of a hospital.?

The health care system needs more competition, efficiency, and specialization, and specialty hospitals offer all three. The battle isn’t over, but the good guys won this week.

And to show that you never can be too surprised in politics: Sen. Hillary Clinton and former House Speaker Newt Gingrich – arch enemies during the health care battles of the 1990s – teamed up this week to show their joint support for bringing the health sector into the Information Age.

They are both supporting the 21st Century Health Information Act that would provide $50 million next year to develop ?regional health information organizations.? Sen. Clinton also is working with Senate Majority Leader Bill Frist on a larger health IT measure.

Favoring ideas to enhance health IT is a political winner that clearly crosses partisan lines. (BTW, Clinton, Gingrich, and Frist all are rumored to be thinking of presidential runs in 2008.)

But the more government gets involved in dictating the structures of these new information systems, the more potential there will be for decisions to be delayed and to be driven by politics rather than the best science or technology. We need to keep an eye on this.

A fix for HSAs: If you, like me, are perpetually annoyed that Word insists on automatically changing HSA to has? Take heart! Tara Persico, who serves among many other things as Galen’s IT troubleshooter, has the fix. Here are the simple directions to teach your computer about HSAs. (My only question is why I didn’t think to ask Tara to help fix this sooner!)

Grace-Marie Turner


  • CMS study of physician-owned specialty hospitals
  • Improving vaccine supply and development: Who needs what?
  • Pain relief is major casualty of drug war
  • FDA goes straight to press
  • Stolen, counterfeit drug problems rise

Source: Centers for Medicare & Medicaid Services, 05/12/05

The Centers for Medicare & Medicaid Services (CMS) presented the results of its study of physician-owned specialty hospitals to Congress this week. The study found that cardiac hospitals, which typically are 49% physician owned, more closely resemble full service hospitals in their size, presence of emergency departments, and community outreach programs. Orthopedic/surgery hospitals, with physicians owning a majority interest, focus on outpatient services and do not have active emergency departments. The study refutes some common criticisms of specialty hospitals. ?We found specialty hospitals provide high patient satisfaction, high quality of care and patient outcomes in some important dimensions, greater predictability in scheduling and services, and significant tax contributions to the community,? said CMS Administrator Dr. Mark McClellan, reporting the findings in testimony before the House Committee on Energy and Commerce.
Full text:

Author: Mark V. Pauly
Source: Health Affairs, May/June 2005

?No foolproof method for securing financing for vaccine production or development has yet been developed,? writes Wharton Professor Mark Pauly. Recent problems, including last year’s influenza vaccine shortfall, ?may have stemmed from undervaluation by government payer-negotiators, by private insurers, and ultimately by consumers themselves,? writes Pauly. ?On the supply side, the high profits available to other kinds of drug-firm investments may have inhibited allocation of resources to development of new vaccines, and the low profitability and near-monopoly status of current products may have produced insufficient incentives for producers to protect supply against accidents.? He suggests that a new hybrid public-private model may be needed to improve the system. ?Shifting to more public provision of demand-side financing can be combined with greater reliance on markets to invent, produce, and distribute vaccines, as the IOM report suggested.?
Full text (requires subscription):

Source: The Washington Examiner, 05/11/05

?As federal prosecutors target physicians who prescribe large doses of pain-killing drugs because they can also be abused, doctors are increasingly afraid to provide relief for sick people with intractable pain,? according to an editorial in the Capital’s newest daily, The Washington Examiner. “Ninety-eight percent of doctors won’t touch [chronic pain patients] with a 10-foot pole,” says Siobhan Reynolds, president of the Pain Relief Network. Recent high-profile convictions of pain doctors are making physicians ?afraid to adjust doses upward until their [patients’] pain is relieved.? Doctors ?simply don’t know where the line is between a legal dose and a prescription that will land them in jail,? write the editors.
Full text:

A new survey by ABC News, USA Today, and the Stanford University Medical Center finds that ?[m]ore than half of Americans live with chronic or recurrent pain, with broad numbers saying it interferes with their activities, mood and enjoyment of life.? The survey also measures medical care for pain, where the pain is located, use of pain therapies, and the correlation between pain and age.
Survey results:

Author: Scott Gottlieb, MD
Source: USA Today, 05/11/05

?Working in the emergency room recently, I admitted a patient with chest pain,? writes Scott Gottlieb, a physician and fellow at the American Enterprise Institute. ?He blamed it on a drug that he was taking for schizophrenia. The medicine probably had nothing to do with his pain, but he didn’t believe me. He had heard a warning from the government that the pills could kill him.? Gottlieb argues that the FDA’s recent press releases warning Americans about ?emerging risks? instead of scientifically proven drug side effects are confusing to the public and potentially harmful to patients. ?All drugs have certain risks, so when regulators choose to highlight one in the press, it should be for good reason,? he writes. ?Too much information, especially when it is poorly conceived or scientifically shaky, can be as bad as too little. Overstating a product’s risk can discourage legitimate use, too.?
Full text:

Author: Julie Appleby
Source: USA Today, 05/11/05

An analysis by the Pharmaceutical Security Institute finds that ?[c]ounterfeiting, theft and diversion of prescription medications jumped 16% worldwide last year – and the United States topped the list of countries with reported problems,? according to a report in USA Today. In 2004, the United States had 76 reported cases of counterfeit, stolen, or diverted drugs, followed by Colombia with 60, China with 59, and Russia with 50. ?In the past two years, a number of counterfeit high-profile drugs, including anti-cholesterol drug Lipitor and anemia treatment Epogen, have been seized in the USA,? reports USA Today. By most estimates the statistical threat of counterfeit drugs in the U.S. is still low, but the ?concern is rising,? writes Appleby.
Full text:


The Market for Health Care and Health Insurance: Can the Government Improve It?
Cato Institute Capitol Hill Briefing
Thursday, June 2, 2005, 12:00 PM (Luncheon to follow)
B-354 Rayburn House Office Building
Washington, DC

For additional details and registration information, go to:

2005 Health Care Conference
Hosted by the Washington Policy Center
Thursday, June 16, 2005, 7:30 a.m. – 1:30 p.m.
Seattle, WA

For additional details and registration information, go to:

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