Mount Carmel Health System

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 being considered to extend state law on physician self-referral to inpatient hospitals.

I am Joe Calvaruso, President and CEO of the Mount Carmel Health System. Mount Carmel offers a broad range of healthcare services in the Central Ohio region and treats more than a half-million patients each year. The healthcare system includes three hospitals – Mount Carmel East, Mount Carmel West, and Mount Carmel St. Ann’s; numerous outpatient services; home care; palliative and hospice care; home medical equipment services; an ambulance and mobile intensive care service; a community outreach program for the poor and under-served; a college of nursing; and a Medicare HMO.

I am here today as a leader of a not-for profit, full-service health system and as an Ohio Hospital Association board member, because I am profoundly concerned about the impact that a proliferation of physician-owned specialty hospitals could have on the ability of our community hospitals to deliver the full range of care and services that our communities expect and deserve.

Over the last year, the OHA leadership has carefully explored a number of possible remedies to close the legal loophole that allows self-referral by physicians to limited-service hospitals in which they have an ownership interest. We know that the unfettered growth of this fast-moving national trend could financially cripple the community institutions that I represent here today. We are convinced that House Bill 71 is the right remedy and we urge its passage.

There are certain facts about how physician-owned boutique hospitals operate that must be acknowledged.

First, these facilities are operating in only the generally profitable lines of service – predominantly cardiac care and orthopedic surgery – given the current levels of reimbursement. They treat the least complicated and therefore least expensive patients. Boutiques, by design, simply cannot provide services to the most complicated patients because the facilities lack the full range of services that is required to do so. More complicated and therefore more expensive patients must be cared for in a full-service hospital.

Second, there is a financial incentive for physicians to steer more lucrative patients to the limited-service facility they own and the more expensive patients to the full-service hospital. A recent report from the General Accounting Office confirms that this is what happens.

Third, patients rely on their physician’s recommendation of facilities for health care services. Community hospitals cannot and should not have a role in the referral process. However, allowing the “cherry-picking” of the most lucrative patients from the full-service hospitals to guarantee the profitability of a doctor-owned boutique hospital is an unfair and anti-competitive practice.

The economic impact of these self-referral practices, if they flourish here in Ohio, will devastate full-service hospitals and the communities we serve.

Our full-service hospitals cannot address this inequity without your assistance. We simply have no way of offsetting the effects of this trend. We cannot legally and should not morally financially reward doctors for referrals. And neither should limited-service facilities.

Last spring and summer, the OHA Board carefully considered a wide range of potential solutions to the fast-moving trend of physician-owned boutique hospitals. House Bill 71 is the appropriate solution for several reasons:

o It is the least intrusive and least administratively burdensome remedy for state government.

o It simply closes a loophole in existing law that was not apparent prior to the advent of physician-owned specialty hospitals.

o It does not prevent specialty hospitals from opening.

o It does not limit fair competition that helps keeps quality high and prices low, as was envisioned when Certificate of Need was eliminated.

o It does, however, eliminate the unfair competition of physician-owners referring their most lucrative patients to a boutique hospital that they own.

We know there has been discussion among legislators about requiring a certain amount of charity care from each hospital. According to data collected by the Ohio Department of Job and Family Services, Ohio’s full-service community hospitals provide an average of more than 9 percent uncompensated care, more than the proposal under discussion, and they are only able to provide that care because some of the services they provide are profitable. Even if specialty hospitals provide 5 percent charity care in their limited service area, it would not make-up for the full-range of charitable services that community hospitals would no longer have the means to provide. Most importantly, requiring a certain amount of charity care does not address the fundamental issue at hand – taking the less complicated, least expensive patients from the full-service hospitals and treating them in boutique facilities, crippling the ability of our community hospitals to compete fairly.

In OHA’s deliberations, the leaders of Ohio’s full-service, community hospitals considered requesting a legal requirement that physician-investors disclose their ownership interest in a boutique hospital to patients in the referral process. This process would not provide patients with enough objective information and may, in fact, give the physician an additional marketing opportunity for the facility they own, enhancing rather than limiting their ability to steer lucrative patients to their facility.

Other states have considered requiring inpatient facilities to provide 24-hour emergency services. We, too, considered that option. Unfortunately, it does not address the basic issue that services for more lucrative, healthier patients will be skimmed from the community hospital mix of business. It also would be a step back towards the government deciding what healthcare facilities should go where, like the CON model this legislature moved away from several years ago.

Required licensure of all hospitals, including community service obligations to care for Medicare, Medicaid and uninsured patients and attainment of certain quality and patient safety standards was also considered by the OHA Board. This approach would simply fail to address the physician-ownership issue; there is no type of mandate that could be imposed to require limited-service facilities to provide care for which they are not adequately staffed or equipped.

We even considered, albeit briefly, whether CON should be re-enacted. However, we recognize that it didn’t work well when in effect in Ohio and there is little, if any, real support for bringing it back.

After careful consideration and much deliberation, we support the solution that House Bill 71 offers.

The purveyors of physician-owned specialty hospitals are simply taking advantage of a loophole in the current law that allows them to capitalize on the existing reimbursement rates for cardiac and orthopedic care. It may be a good business model for those few physicians who can take advantage of it, but it’s not a good model for healthcare or our community. It is certainly not an example of the fair competition envisioned when this state moved away from CON several years ago.

Throughout this process, we have been forthright in our intention to be reasonable about accommodating the very few existing physician owned facilities in Ohio. But unchecked proliferation of these facilities would simply devastate full-service hospitals and the communities we serve.

Please close the loophole now, before the survival of our existing full-service hospitals is threatened due to the insurmountable competitive disadvantage that will exist when certain patients are referred by their physicians to facilities in which they have an ownership position.

Mr. Chairman, members of the Committee, thank you again for the opportunity to speak in support of House Bill 71. I would be happy to answer any questions you may have.