Liberty Place, Suite 700
325 Seventh Street, NW
Washington, DC 20004-2802
(202) 638-1100 Phone

Monday, September 8th 2003

Dear Member of Congress:

The American Surgical Hospital Association (ASHA) recently sent a letter to legislators regarding Section 453 of S.1 that is misleading and inaccurate.  The Federation of American Hospitals (FAH) and the American Hospital Association (AHA) feel compelled to set the record straight.

The Senate-passed Medicare bill (S.1) contains a bipartisan amendment by Senators Breaux (D-LA), Nickles (R-OK) and Lincoln (D-AR) that would address the issue of physicians referring patients to specialty hospitals in which they have an ownership interest.  Let us be clear, this amendment would not eliminate specialty hospitals from operating in your communities.  This is a scare tactic.  The amendment would simply reduce conflicts of interest in the practice of medicine by prohibiting physicians from referring patients to specialty hospitals in which they have an ownership interest.  It is intended to close a gaping loophole in current law forbidding physician self-referrals that these specialty hospitals are exploiting.  This amendment was offered and accepted unanimously by the Senate on the basis of a General Accounting Office (GAO) report to Congress.

The GAO report found that:

  • Boutique hospitals are not full service acute care hospitals; rather they focus on profitable surgical and cardiac care. According to GAO, "...we considered a hospital to be a specialty hospital if the diagnosis-related group (DRG) classification for two-thirds of its Medicare patients... fell into no more than two major diagnosis categories, such as diseases of the circulatory system (cardiac), or if at least two-thirds of its patients were classified in surgical DRGs."
  • Boutique hospitals have found a profitable niche as they exploit the self-referral loophole and have been expanding rapidly. According to GAO, "Number of facilities has grown rapidly in recent years-as of March 2003, the number of specialty hospitals had tripled from the 29 that existed in 1990."
  • Boutique hospitals are currently based on an investment model that relies upon physicians referring patients to facilities in which they have ownership. According to GAO, "...70 percent of specialty hospitals had some physician owners.  Of the specialty hospitals with any degree of physician ownership, physicians' combined ownership shares averaged slightly more than 50 percent of the hospital."
  • Boutique hospitals "cherry pick" healthier patients for high reimbursement procedures, leaving sicker patients to go to community hospitals.  According to GAO, "We found that patients at specialty hospitals tended to be less sick than patients with the same diagnoses at general hospitals."

FAH and AHA firmly believe in competition in the health care marketplace, and nothing that the Congress is considering with regard to specialty hospitals would limit fair competition.  To quote a recent Dear Colleague sent by Representatives Wamp (R-TN) and Isakson (R-GA), "[Section 453] would simply reduce conflicts of interest inherent when physicians own boutique hospitals.  Efforts that the Congress may undertake would not prevent physicians from referring patients to a facility in which they have no ownership, and patients could still seek care at specialty hospitals in which their physician has no ownership stake.  It would not impact patient care, close facilities or impact jobs.  One of the leading proposals would be to simply close an unfortunate loophole in the law that some have exploited to the detriment of general community hospitals that strive to serve all of the health care needs in a community."

Based on GAO's findings and from what we are hearing from your community hospitals, Section 453 is the appropriate and measured next step to reduce the conflicts of interest in the practice of medicine.  We urge you to consider the facts as provided by the nonpartisan, independent GAO, and support the Breaux-Nickles-Lincoln amendment (Section 453).


Charles N. Kahn, III
Federation of American Hospitals

Rick Pollack
Executive Vice President
American Hospital Association

This letter was sent to all House/Senate members

About AHA


Member Constituency Sections

Key Relationships

News Center

Performance Improvement

Advocacy Issues

Products & Services


Research & Trends


155 N. Wacker Dr.
Chicago, Illinois 60606

800 10th Street, N.W.
Two CityCenter, Suite 400
Washington, DC 20001-4956