The regulatory debate over Specialty Hospitals continues as the moratorium on referrals of Medicare patients by physician-investors expired on June 8, 2005. The moratorium was an 18-month period in which Congress provided that physician ownership and investment in “specialty hospitals” would not qualify for the “whole hospital” and “rural provider” exceptions in the Stark Law.

Thus, during this period, a physician-investor in a “specialty hospital” was prohibited by the Stark Law from referring Medicare patients to a specialty hospital in which the physician had an ownership interest unless the specialty hospital was under development on the date the moratorium began.

The road ahead still may be uneasy for many specialty hospitals. CMS has instructed state survey and certification agencies to stop processing new provider enrollment applications for specialty hospitals until CMS completes a review of its procedures for examining specialty hospitals. CMS has also announced that it will pursue the following four initiatives related to specialty hospitals: (1) reform payment rates for inpatient hospital services through changes to the DRG; (2) reform payment rates for ASCs; (3) scrutinize whether specialty hospitals meet the definition of a hospital; and (4) review criteria for approving and paying new specialty hospitals. CMS commented that it hopes to complete this process by January 2006.