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Prohibition on New Physician Hospital Ownership

The Patient Protection and Affordable Care Act ("Reform Law"), signed into law by President Obama on March 23, 2010, had an immediate impact on the future of physician ownership and investment in hospitals. The Reform Law dismantled the physician self-referral (Stark) Law's "whole hospital exception" that previously allowed physician ownership and investment in hospitals, effectively ending new physician ownership and severely limiting those grandfathered-in under the law.

Summary of Major Provisions

• As of March 23, 2010, aggregate value of physician hospital ownership cannot change.
• Except for a limited exception process (see below), the number of operating rooms, procedure rooms, and licensed beds cannot increase over the number as of March 23, 2010.
• For hospitals currently under construction and without a provider number as of March 23, 2010, but having a provider number by December 31, 2010, the limitation on expansion will be governed as of the date of the hospital's provider agreement.
• As of and after March 23, 2010, the Stark Law's Whole Hospital Exception does not extend to hospitals converted from ambulatory surgery centers.

Expansion Exception

Under the Reform Law a hospital is permitted to apply once every two years for an exception on the prohibition of expansion. Only those hospitals meeting the requirement to be defined as either (1) an "applicable hospital" or (2) a "high Medicaid facility" may apply for the exception. The requirements vary slightly between the two designations, but in general require:

• That the hospital be located in a county that had a population increase of at least 150 percent of that of the state in which the hospital is located over the most recent five year period,
• That the hospital had a total Medicare inpatient admission equal to or greater than the average of all other hospitals in the hospital's county,
• That the hospital or its physicians do not discriminate against beneficiaries of federal health care programs,
• That the hospital be located in a state which has an average bed capacity below the national average, and
• That the hospital's bed occupancy be greater than the state's average bed occupancy rate.

New Disclosure Requirements

The Reform law will also require increased transparency related to physician hospital ownership. New requirements include:

• Submitting annual reports to HHS providing a list of each physician owner, including the physician's ownership/investment interest,
• Implementing a policy whereby physician ownership/investment is disclosed to patients referred by the physician to the hospital, and
• Posting physician ownership information on its public website and in any public advertising.

HHS will also publish physician ownership information on the CMS website.

Conclusion

Various attempts have been made in the past to limit or prohibit physician hospital ownership on the basis that self-referrals lead to anti-competitive outcomes and that physician-owners directed only the most lucrative patients and procedures to their hospitals. The industry countered that physician owned hospitals had high quality outcomes and efficient operations and were a better consumer option. With the Reform Law, lawmakers have ultimately been successful in all but eliminating physician hospital ownership.

For more information regarding prohibition on new physician hospital ownership contact HORNE Senior Manager Rud Blumentritt at rud.blumentritt@horne-llp.com or 601.268.1040.