Medical Device Daily Washington Editor

WASHINGTON – Members of Congress and full-service hospitals have taken careful aim at specialty hospitals over a number of issues, but the Centers for Medicare & Medicaid Services (CMS; Baltimore) has finally worked out a plan to deal with the problem of physician investment and potential conflicts of interest as a result.

However, the threat of hefty fines for failure to disclose financial arrangements and the move toward cost-based prospective payments leave at least one observer feeling that the new rules do not go far enough to enforce Stark laws.

CMS's plan, unveiled Aug. 8, calls for hospitals to disclose to patients and to the government any investment and compensation arrangements made with physicians. Failure to comply with such requirements can cost a hospital as much as $10,000 a day. What is not clear is how a patient might act on such disclosures.

The other end of the CMS plan is the well-publicized use of cost as a basis for hospital prospective payments rather than charges. The idea is that a cost basis will level the profit playing field between various procedures, which presumably will undercut any incentive to refer a Medicare patient to a specialty hospital in which the referring physician has a stake.

As might be predicting, some see the plan as less than airtight.

The Federation of American Hospitals (FAH; Washington), an association of for-profit hospitals, claims that the CMS plan “fails to prescribe the medicine necessary to address the symptoms of physician ownership of, and self-referral to, specialty hospitals.”

FAH argues that the whole-hospital loophole, which applies to specialty hospitals, can induce admissions to specialty hospitals despite the fact that such concerns do not generally extend to full-service hospitals.

The association in a press statement notes that the CMS plan “falls short by not addressing the core issue of conflict of interest.”

However, Richard Coorsh, FAH's director of public relations declined to specify what sort of action the association would like to see in addressing this issue.

However, he told Medical Device Daily that “others – including people on Capitol Hill – call for repeal of the whole hospital exception.”

It may be pertinent to note that given that independent hospitals are becoming a rara avis in many communities in the U.S., avoiding potentially conflicted referral may be next to impossible.

As is well known, Stark law makes an exception for physician referral to full-service hospitals, but the exception has been extended to specialty hospitals, apparently by default.

Stark law does not prohibit physician investment in the entire set of operations at a full-service hospital because such investments were not seen at the time as problematic due to the fact that any effect on a physician's finances would be miniscule.

Stark law prohibits physician referral to a hospital unit if the physician has an ownership interest in the unit offering that set of services, but specialty hospitals qualify for the exception, despite the prospect of a more concentrated effect of referrals on the value of physician investments.

CMS's final plan, according to the agency's administrator, Mark McClellan, is a “comprehensive path forward to address concerns that have been raised.”

McClellan also stated that “hospitals will be required to provide CMS information concerning physician investment and compensation arrangements, and to disclose to patients whether they have physician investors.”

The plan was stipulated in the passage of 2005's Deficit Reduction Act.

CMS noted that its review of operations for 78 specialty hospitals identified over-payments totaling more than $12 million for four specialty hospitals that did not observe the moratorium on billing for care of Medicare patients.

“We have put a lot of effort into enforcing the 18-month moratorium imposed by the Medicare Modernization Act, and subsequently into our suspension of Medicare enrollment for new specialty hospitals that Congress extended through today,” McClellan said. “We intend to put the same effort into enforcing the new disclosure and other requirements for specialty hospitals.”

NIH grants fund imaging purchases

The National Institutes of Health (NIH; Bethesda, Maryland) is not strictly about research into drugs and biologics. As evidence, a series of recently reported grants underscores NIH's commitment to funding a wide range of research initiatives.

NIH's National Center for Research Resources (NCRR) this week said it will administer a group of grants totaling almost $22 million that will “support the purchase of sophisticated instruments costing more than $750,000” each, but costing no more than $2 million.

This so-called High-End Instrumentation program does not require matching funds for purchase of equipment, but the grant awardees are expected to “provide an appropriate level of support for associated infrastructure,” including maintenance and operations according to the announcement.

The University of Washington (Seattle) garnered a $500,000 grant for a supercomputer that researchers will use to study proteins implicated in diseases of the lung and liver. Four universities nailed down the maximum awards, including the University of California Santa Barbara (UCSB) for an 800-megahertz magnetic resonance mass spectrometer for study of protein interactions with bacteria.

The University of Virginia (Charlottesville) will employ the same grant amount for the same piece of equipment to study biopolymers “with a special focus on membrane proteins.” The University of Pennsylvania (Philadelphia) will invest its $2 million in a seven-Tesla whole body MRI system to study neurodegenerative and metabolic disorders, among other things.

Yale University (New Haven, Connecticut) will use its $2 million for another seven-Tesla MRI system to support its research into diabetes, epilepsy, psychiatric diseases and learning disorders.

Other awards went to the University of California Los Angeles and the University of Utah (Salt Lake City). Massachusetts General Hospital (Boston) and Purdue University (West Lafayette, Indiana) also were recipients of the maximum $2 million grants.