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PHA Airs Update on Industry

SIOUX FALLS — Physician Hospitals of America (PHA) held a conference call on May 22 to update its members on the current state of the physician-owned hospital industry. Molly Gutierrez, PHA’s executive director, began the call with introductions and a brief review of the call agenda.

Randy Fenninger, PHA’s longtime lobbyist, provided an update on the Centers for Medicare and Medicaid Services (CMS) inpatient prospective payment system (IPPS). He notes the proposed IPPS has two primary effects: financial and disclosure provisions.

Fenninger explained that disclosure will be required in two areas: 

1. Disclosure of ownership interest, names and percent of ownership of hospital investor (this will be required of all hospitals with physician ownership) 

2. Disclosure of 24/7 physician coverage and hospital emergency service plans.

Fenninger commented that CMS is seeking comments as to whether regulations governing emergency service requirements need to be strengthened. PHA has submitted a letter to CMS (available at www.physicianhospitals.org ) and plans to submit further comments.

To continue on the topic, Bernie Patashnik, an analyst with Marc Associates, provided an analysis of the financial changes expected under the proposed IPPS. Patashnik notes the changes are primarily threefold:

1. There will be a substantial increase in the number of diagnosis related groups (DRGs) — from 530 to 745 severity adjusted DRGs. This increase is related to CMS re-examining their diagnoses and creating a more refined list of DRGs specifying procedures with no complications, with some complications and with significant complications.

2. There is a transition from charge-based to cost-based DRGs. CMS has implemented a three-year phase-in plan for upcoming fiscal years 2007, 2008 and 2009.

3. CMS is reworking the inflationary update to the “market basket” to preserve budget neutrality. Rather than the typical 3.3 percent increase inflationary rate, CMS is proposing a 2.4 percent reduction in 2008 and in 2009 in order to preserve budget neutrality. This does not reflect a change in the actual cases treated, but reflects CMS’s assumption that more accurate coding and reporting will occur due to the change in funds available for higher acuity cases.

These proposed changes reportedly have been severely criticized by the American Hospital Association (AHA). The changes proposed are the largest since the implementation of the DRG payment system over 20 years ago, PHA comments.

In closing, Gutierrez reminded members of the upcoming random state surveys that are expected. Following a memorandum from CMS to state surveyors regarding emergency service standards, Gutierrez notes there may be a possibility of more frequent state surveys of physician owned hospitals.

For more information, contact PHA at (605) 321-3483 or email Gutierrez at molly@physicianhospitals.org.