A Windfall

One of the many beneficiaries of Congress’ Medicare prescription drug bill is Nashville’s own Hospital Corp. of America, which was among those to successfully advocate a temporary chill on new specialty hospitals. Such specialty hospitals skim profits from full-service, urban hospitals like the ones HCA owns.

The provision in question made it into the legislation, even though it has nothing to do with prescription drugs. In fact, the same can be said for much of the 678-page bill, which includes such questionable giveaways as a $50 million subsidy to doctors—one of the nation’s highest paid professional classes—to buy computers.

“What about computers for poor, urban schools?” Nashville Congressman Jim Cooper asks rhetorically. He was among those who voted against the bill because it reads like a wish list for many of Washington’s most powerful lobbies—pharmaceutical companies and hospitals, among others. (Fun fact: There are 675 drug company lobbyists on Capitol Hill, about 1.3 for every member of Congress.)

The specialty hospital provision benefits not only HCA but pretty much all full-service hospitals, because it places an 18-month moratorium on Medicare reimbursements to new specialty hospitals. Existing ones are grandfathered in. It was a priority for the influential American Hospital Association.

Health care policy purists believe that the provision had no business being in the bill. But they add that, in the dispute between for-profit health care providers (of which HCA is the nation’s largest) and specialty hospitals, specialty hospitals are far more repulsive.

Here’s why: Specialty hospitals are often owned by physician groups and perform only one or two kinds of procedures that Medicare tends to overreimburse for. (Orthopedic and heart procedures top the list.) At the same time, such hospitals don’t have to staff an emergency room or provide indigent care, which is often a drain on full-service hospitals. If the blatant profit-skimming weren’t enough, physicians with ownership in specialty hospitals often refer business there, which is a fundamental conflict of interest.

“The whole specialty hospital fight was a fight over who could get the most money from sick people, and it’s a testament to the miserable state of affairs of American health care policy,” says one Washington, D.C., health care lobbyist, who watched the legislative debate in astonishment.

Even Cooper, who voted against the bill and calls it “outrageous” and a “a total capitulation to the drug industry,” believes the specialty hospital measure within the bill has merit. “Physicians are motivated by money like anybody else, and they will refer more business to those facilities in which they have a stake,” he says. Cooper predicts that the 18-month blow to the specialty hospital industry won’t kill it entirely, though it will have “a chilling effect.”

Of course, a subtext of all this is that the man responsible for the bill’s passage in the Senate is Tennessee Sen. Bill Frist, the majority leader, whose family founded HCA and who, as of a few months ago, still owned a good bit of the stock himself. Frist, however, has been gradually divesting his HCA holdings, which are held in a blind trust. Frist spokesman Nick Smith says, “I would assume that’s what the trust fund manager continues to do.”

While some specialty hospital executives have suggested, without evidence, that they might have been hurt by Frist’s leadership on the legislation—given his biases—Smith says Frist “did not participate in discussions or negotiations on that part of the bill.”