Mr. HACKBARTH. In particular we are emphasizing that we think the moratorium ought to stay in place until we can refine the payment system so there is not an opportunity to profit simply from patient selection. That is the most important point. So, long as it is extended, that will also give us time to look at some additional data on these cost and quality issues while we are waiting. I want to be clear-the fact that we might have 2002, 2003, and 2004 data doesn't necessarily mean that we will be able to provide the absolute right answer to these questions, but we will be able to answer them with a bit more confidence than we can today. Mr. MCCRERY. Well, one thing that I hope you will focus on with the new data is this issue of self-referral. Because the data that you have presented to us today, at least to me, doesn't indicate that self-referral is a problem with these specialty hospitals, with physician ownership averaging, I think your study says 4 percent on an individual basis and, Dr. Gustafson, yours says 2 percent or 1 percent, depending on the type of specialty hospital. That doesn't seem to me to be a huge problem in terms of self-referral. Mr. HACKBARTH. Well, as I said in response to Mr. Stark's question, we are concerned about self-referral. Mr. MCCRERY. In general. Mr. HACKBARTH. Yes, as a matter of principle. We have not seen the CMS data, and so we are eager to see the information that they have developed on self-referral and quality. So, that is very much a question in our mind. Mr. MCCRERY. But you did look at utilization rates. Mr. HACKBARTH. We did, yes. Mr. MCCRERY. And what were your findings there between the two? Mr. HACKBARTH. Well, what we did was compare rates of utilization for particular procedures in communities that have physician-owned specialty hospitals and those that do not. And what we found was that the general pattern was what you would expect consistent with the physician-owned hospitals doing more highprofit things, but the differences were not statistically significantexcept in one case for one procedure, we did find a statistically significant difference. Mr. MCCRERY. Well, Madam Chair, it would be interesting to know if the percentage of physician ownership, the average percentage of physician ownership has gone up since 2002. That to me would be a very interesting piece of data for you to retrieve from your ongoing study. Mr. GUSTAFSON. Well, if I could comment just on that briefly, the moratorium introduced by the MMA has effectively prevented that from happening. Mr. MCCRERY. Well, but that wasn't in effect in 2003 and 2004. Mr. GUSTAFSON. It started in-it became effective with the passage of the MMA in late 2003. Mr. MCCRERY. All right. But you are going to have a lot more— well, was the MMA in 2003? Mr. GUSTAFSON. December 8, 2003. Right? Mr. MCCRERY. So, you got one more year of data, 2003, without a moratorium. Mr. GUSTAFSON. That is correct. Mr. MCCRERY. And it would be interesting to see the proliferation of these hospitals in that intervening year and if there has been any change in physician ownership, average physician ownership. Because the data that you have, so far to me, doesn't day anything negative about physician ownership, self-referral, utilization rates, any of that any of the bugaboos that we were supposed to be on the watch for. So, let us see if increased data puts the lie to the data that you already have, the conclusions, at least, that can be reached based on the data you have. Thank you. Chairman JOHNSON. To that point, though, the charts that you showed do show that these hospitals do attract less severely ill patients in their category. So, what you have to know is what is the referral mechanism here and is the referral mechanism influenced by ownership. And you don't actually comment on that in particular. Mr. HACKBARTH. We did not look at the effect of ownership. CMS did look at that issue. Chairman JOHNSON. Do you want to repeat your comments on that? Mr. GUSTAFSON. The basic picture is that when we examined physician ownership patterns and referral patterns related to physician ownership, we discovered no significant difference between the behavior of physicians that were owners of the specialty hospitals and physicians that were not owners of the specialty hospitals. So, there was no there there. Mr. HACKBARTH. You might imagine that there are at least two different types of forces at work in determining where the patients go. One theory is that they are getting less sick patients because of the ownership incentive. There are other possibilities, one of which is that specialization itself inherently means that you are going to get a different selection of patients. Because, for example, patients that have lots of co-morbidities that need services beyond the cardiac service would more naturally go to the community hospital, where there are those other services. In fact, that may be the patient's preference. Whereas if they are a pure cardiac case, the patient might say I want to go to the cardiac hospital. So, that has nothing to do with the physician's ownership, but rather how patients sort themselves out across a system where you have different types of institutions. Chairman JOHNSON. I hope to come back to this subject. We will turn next to Mr. Doggett. Mr. DOGGETT. Thank you, Madam Chair. Just referring back, Dr. Gustafson, to a portion of the President's budget that was already referenced in an earlier statement, where the Administration says that it will refine the payment system and related provisions to ensure a more level playingfield between specialty and non-specialty hospitals. Does that mean that the Administration believes that the playing field at present is not level or even or fair between the two? Mr. GUSTAFSON. I would say that would be a fair characterization, sir. Mr. DOGGETT. Is the Administration fully committed to not perETT. mitting the moratorium to expire before you have an opportunity to complete all your technical work and make appropriate recommendations and changes? Mr. GUSTAFSON. We have not arrived at a position on the moratorium yet, sir. Mr. DOGGETT. Well, if the playingfield is not level or even fair at present, and you let the moratorium expire, what will be the immediate effect? Mr. GUSTAFSON. That is a speculative question, sir. I think that it would be likely that nascent hospitals that are now expecting to enter this market may proceed to do so; on the other hand, they may be deterred by the possibility of our action or your action, and that might have a chilling effect. Mr. DOGGETT. Well, you would expect that there would be some additional hospitals that would take advantage of the uneven playing field, wouldn't you? Mr. GUSTAFSON. That could very well happen, sir. Mr. DOGGETT. Why is the Administration, given its statements, not fully committed to the extension of the moratorium? Mr. GUSTAFSON. All I can tell you is that we have not-beyond the statement that you were just citing, we have not reached any policy conclusions relative to what our recommendations will be to the Congress. As my remarks earlier indicated, we are waiting until the analysis is complete. We expect to have a report that we are able to deliver to you within a matter of weeks. We are very cognizant that June 8th is the expiration of the moratorium and we appreciate the problem that presents us all in terms of addressing that question. Mr. DOGGETT. Well, not only that it is the expiration date, but that the Congress needs to act to pass a law before that time. Mr. GUSTAFSON. Yes. I appreciate that, sir. Mr. DOGGETT. And as slow as things move around here sometimes, if we started this afternoon it wouldn't be unusual that it could take near that time if there were any dispute over this matter. Mr. GUSTAFSON. I quite agree, sir. Mr. DOGGETT. I am interested as well in the findings that either of you have made at this point about any differences that exist in these types of hospitals and their delivery of services-particularly uncompensated care and Medicaid care, because I have a lot of poor people in my district. Can you comment on that further? Mr. HACKBARTH. The piece of that that we were asked to look at was Medicaid, and then CMS was asked to look at uncompensated care. And what we found on Medicaid is that the specialty hospitals treat proportionally fewer Medicaid patients. Mr. DOGGETT. Can you quantify that? Mr. HACKBARTH. Not off the top of my head. But the differences were quite substantial. Mr. DOGGETT. And with reference to the uncompensated care, Dr. Gustafson? Mr. GUSTAFSON. Yes, we did look at that, sir. And our conclusion, again preliminary here, was that specialty hospitals provided about 40 percent of the share of uncompensated care that we saw in local community hospitals in the same area. Mr. DOGGETT. About 40 percent. Mr. GUSTAFSON. That is correct. Mr. DOGGETT. So, it is a pretty substantial difference. Mr. GUSTAFSON. Yes, sir. Mr. DOGGETT. Thank you very much. Mr. HACKBARTH.-which table to look at. And what we found was that heart specialty hospitals had on average 4 percent Medicaid this is share of hospital discharges-whereas community hospitals in the same market had an average of 15 percent of their discharges being Medicaid. In the case of orthopedic hospitals, specialty hospitals had 1 percent Medicaid versus 16 percent for the community hospitals. Mr. DOGGETT. One percent versus 16 percent. Mr. HACKBARTH. That is right. And then for the surgical, I think they were too small and there were too few discharges to really have a meaningful result. Mr. DOGGETT. So, while there may be some notable exceptions to that with hospitals, the playingfield for poor people between these hospitals is very different. Mr. HACKBARTH. Yes, and I think we did, in fact, find that there was some significant variation in some cases. So, there were some individual specialty institutions that had much higher Medicaid caseloads than these. But this is the average. Mr. DOGGETT. I think I have one of those as well, where a specialty hospital is really reaching out trying to include poor people, but for the survey as a whole it looks like a rather stark disparity. Chairman JOHNSON. Mr. Johnson. Mr. JOHNSON. Thank you, Madam Chairman. Well, I think you all are waffling all over the place. Thank you for being here today. I am concerned about the extension of the moratorium. It is my understanding that of the 100 or so specialty hospitals, they have 1 percent of the cardiac market, 2 percent of the orthopedic market. Is that correct? Mr. HACKBARTH. Are you talking about on a nationwide basis or within Mr. JOHNSON. Yes. Mr. HACKBARTH. I don't know. Mr. GUSTAFSON. I can confirm your figure on cardiac. It is about, in fact, .95 percent of the national market. I don't have comparable figures on the others. Mr. JOHNSON. Well, it seems to me, you know, according to your little chart, the bulk of your specialty hospitals are around the middle of the country. How do you account for that? Mr. HACKBARTH. I think that a significant factor in that is State law. Mr. JOHNSON. Is what? Mr. HACKBARTH. State law. If you look at the map, I think we show on here States that have certificate of need. They are the shaded States. And there are relatively few, if any-just a couple specialty hospitals in States that have certificate of need laws. Another factor is State licensing laws. Some of the States where in fact there are a lot of specialty hospitals have basically made accommodation for them in their licensing requirements, making it easier to develop the sort of smaller institution that may not have all of the capabilities of a full-service hospital. Then there are some States that explicitly prohibit physician ownership of hospitals. So, there are a variety of State laws that influence this pattern. Mr. JOHNSON. Then why does the Federal Government need to get involved? You know, it begs the question why do we need a government-mandated extension of a moratorium that the States are handling pretty well, it looks like to me, themselves. Seems like you didn't talk to, but the patients pick hospitals, too. You know that. Mr. HACKBARTH. Yes. Mr. JOHNSON. And especially in the area I am from, the Dallas area, you know there is a ton of them in that area. And they will choose a hospital, it doesn't matter whether it is a specialty hospital or a community hospital. They are going to go where the best docs are. I do. And I think most people do. So, I don't think that the Federal Government can prescribe how specialty hospitals operate. I mean, if you have a cardiac hospital or an orthopedic hospital or some other form of specialty hospital out there and it is competing with a larger hospital that has multiple services, and people choose to go there, what is wrong with that? This is America. Mr. HACKBARTH. Well, the table, Table 1 on page 7, indicates why we think this is an issue for the Medicare Program. These institutions are consistently treating patients that are healthier, less severely ill, with consequences for the Medicare Program. So, what we are saying is that, at a minimum, allow the time to level the playingfield so that there aren't undue profit opportunities. At a minimum, that is what we think ought to be done through an extension of the moratorium regardless of how you come down on the issues of self-referral and whether that is good or bad. Mr. JOHNSON. Well, if you think changing the DRG will help, you know, it seems to me you don't need a moratorium to do that. We just change the DRG and it fixes it, according to you. Mr. HACKBARTH. I am sorry, I didn't follow that. What we are saying is that the competition ought to occur on a level playingfield Mr. JOHNSON. I heard you. Mr. HACKBARTH.-that does not exist today. It will take time to accomplish that, and hence an extension of the moratorium is appropriate, from our perspective. Mr. JOHNSON. Okay. I happen to disagree with you. Do you have a comment on that subject? Mr. GUSTAFSON. No, sir. Mr. JOHNSON. Thank you very much. Mr. JOHNSON. Thank you, Madam Chair. Mr. THOMPSON. Mr. Hackbarth, you had mentioned in a summary that there is limited fiscal impact on community hospitals from the specialty hospitals, but you qualified it by saying “at this time" or "thus far." Is that qualifier in there because you see something coming down the road in the not-too-distant future that could in fact fiscally impact the communities? Mr. HACKBARTH. Well, the qualifier, again, is because we are analyzing such a limited amount of data. So, what we did in this |