House of Representatives
Health and Family Services Committee
Chairman Jolivette
March 12, 2003
Sponsor Testimony – House Bill 71
Representative Peterson
Chairman
Jolivette, members of the House Health and Family Services Committee, thank you
for the opportunity to speak in support of House Bill 71, the measure I’ve
introduced to incorporate in-patient hospitals into the existing statute that
prohibits physicians from referring patients to certain health care facilities
in which they have an ownership interest.
This
bill, which I have introduced at the request of the Ohio Hospital Association,
would solve one of the most critical concerns of our community hospitals about
the entrance of specialty hospitals in Ohio. While narrow in scope, House Bill
71 addresses a serious and threatening competitive advantage that a
physician-owned hospital has over our community hospitals – self-referral. When
the physician-investors refer the least complicated, most lucrative patients to
the facilities they own and send the resource-intensive, more complicated cases
to the full-service hospitals where the most comprehensive care is available,
they will drain vital resources from the full-service community hospitals.
We’ve
been here before. The 119th General Assembly recognized the problems
associated with physician self-referral in 1992 and acted to bar physicians
from referring patients to clinical labs in which they had an ownership
interest. Subsequently, the law has been modified to also recognize the
conflict created when physicians refer patients to other facilities they own.
Ohio law now includes prohibitions against referring patients to clinical labs,
outpatient pharmacies and home health care facilities.
The bill that we
are now considering extends the intent of the law now in place to remove
certain self-referral conflicts of interest from consideration. It’s a narrow
way to proactively address a situation that has the potential to cause great
harm.
I believe we could
be on the threshold of a major health care crisis. In recent years, the number
of boutique hospitals has increased dramatically nationwide and more are being
built each day. These facilities focus only on high-cost, high-profit
procedures – almost exclusively orthopedics and coronary services – and there
is growing concern that full-service hospitals will be left to perform only the
least profitable services, forcing increases in rates, the elimination of
essential services or even closures.
We
are beginning to see the impact of these facilities on community hospitals all
over the country. Contrary to what you may have heard from those who oppose
this bill, this is not an issue isolated to Central Ohio.
In
Louisiana, for example, hospital officials said more than 38 percent of the
state’s community and non-profit hospitals have already lost scarce revenue to
specialty and boutique hospitals. For years, Lincoln General Hospital in
Ruston, Louisiana, was the small town’s only community hospital. But last year,
a group of 35 physicians announced plans to construct a for-profit surgical
hospital only a few miles from Lincoln General. Local hospital officials say
the small community hospital, which ended last year with a $1.3 million margin,
stands to lose $1.6 million in surgical and imaging revenue this year.
In Santa Fe, N.M.,
the city’s St. Vincent Hospital is threatened by the emergence of a specialty
group because St. Vincent’s would have forfeited its “sole community provider”
status under federal regulations. The entry of the specialty hospital threatened
the loss of $13 million in sole-provider funds, half of which came from the
county and half from the federal government. To qualify for the federal funds,
a hospital must be the only provider within a 30-mile radius.
In Utah, Logan
Regional Medical Center, a non-profit hospital, suffered a 10 percent loss of
revenue almost as soon as the Cache Valley Specialty Hospital opened.
Right here, the
very existence of what is now the OSU East Hospital is threatened by the
planned New Albany Surgical Hospital.
When OSU purchased that facility several years ago, it was unprofitable
and going under. It is now a full-service in-patient facility, providing acute
care to an underserved area of this community. Last year, for the first time,
OSU East broke even financially. A portion of the revenue there comes from the
orthopedic services. If even part of
that revenue is lost, comprehensive health care services will likely no longer
be available at that facility.
While there is plenty of
healthy competition between the existing hospitals, it is not really a free
market, however deregulated it is. The main reason for this is the way health
care is financed. Many people are unaware that, statewide, more than 55 percent
of hospital revenues are reimbursed by Medicaid and Medicare. These government
programs pay a set rate, offering hospitals no ability to charge higher fees.
For most procedures, government health programs don't come close to reimbursing
hospitals their actual costs. An exception is that government programs do pay
better for cardiac and orthopedic services. Private insurance companies often
begin negotiating their rates with hospitals based on what the government pays.
It’s no coincident that the services boutique hospitals have chosen to provide
are those that are sure moneymakers. It’s also easy to understand why, if those
services are “cherry picked” from the full-service community hospitals, that
some additional revenue will be required to allow the hospitals to continue to
provide unprofitable, but necessary services. If additional revenue is not
provided, we risk losing those services. Every Ohioan counts on having access
to trauma care, emergency room care, burn centers, health screenings and other
preventive health care programs. Full-service hospitals provide these
money-losing services because they can pay for them using revenues from their
more profitable services.
Another financing
consideration is how health care for the uninsured is provided. For years Ohio
hospitals have provided care to the uninsured as part of their charitable
missions, and in 1992, the state legislature required hospitals to provide
medically necessary care to every person who needs it. In the year 2000, Ohio
hospitals provided $550 million in care to the uninsured. Ohio was able to pull
down $330 million in federal funds to help hospitals cover their costs. This
year, that program is expected to take a $45 million hit, with $285 million in
federal funds being made available to our state. That's a $45 million cut at a
time when hospitals are experiencing an increase in the number of uninsured
patients.
The principles of
health care finance are in direct conflict with the principles of free market.
For 55 percent of the patients they serve, hospitals are paid below cost and have
no ability to charge higher rates. And for another large portion of their
patient mix, hospitals are required to provide services knowing that they will
receive no reimbursement in return.
The
Health Care Advisory Board, a research organization serving the executives of
more than 2,000 leading health systems and medical centers, has estimated that
35 percent to 45 percent of hospital revenues could be jeopardized by specialty
for-profit hospitals. This potential loss would be devastating to the full-service
hospitals that so many of our communities depend on for vital medical care.
Mr.
Chairman, members of the Committee, thank you again for the opportunity to
speak in support of House Bill 71. I am asking for your support of this
legislation before Ohio sees the proliferation of physician-owned facilities
which has occurred elsewhere in the country and which, I believe, will
ultimately threaten the viability of community hospitals in this state.
I
would be happy to answer any questions you may have.