Margaret Atkinson Martin
Director of Client Services
225.376.3640
margaret.martin@bswllp.com

Traci S. Thompson
traci.thompson@bswllp.com

Industry Alerts

President Obama signed into law the Patient Protection and Affordable Care Act (PPACA or the Act) on March 23, 2010, which was immediately amended seven days later by the Health Care and Education Reconciliation Act of 2010. After almost a year of intense debate, many are viewing this move toward major health reform as an all-around success. But, after the dust has begun to settle, physician-owned hospitals are realizing that some of the new provisions will have an immediate and potentially negative impact.

Section 6001 of the Act includes significant changes to the federal law that prohibits physician “self-referrals,” otherwise known as the Stark law, 42 U.S.C. § 1395nn. The Stark law prohibits physicians from referring patients for “designated health services” to entities with which the referring physician (or an immediate family member) has a financial relationship, unless an exception is met. One such exception is the “whole hospital” exception that currently allows physicians to refer patients to hospitals in which they have an ownership or investment interest as long as certain conditions are satisfied. Another exception under the Stark law is the “rural providers” exception that allows physicians to own and refer to certain rural hospitals under specific conditions.

As of March 23, 2010, PPACA’s amendment to the Stark law’s whole hospital and rural provider exceptions creates major barriers to new and expanded physician investment and ownership in all hospitals including long-term acute care hospitals and specialty hospitals. PPACA immediately places a cap on existing physician investment in hospitals by prohibiting any increases in the percentage of the total value of the ownership interests physicians hold in a hospital. This limitation would prohibit new physician joint ventures of existing hospitals, although it might still be possible to create a joint venture using a new entity and a new provider agreement. Also, the Act has a grandfathering provision for licensed physician-owned hospitals that have Medicare provider agreements in place as of December 31, 2010 and that meet additional requirements within eighteen months of March 23, 2010. These include detailed disclosure provisions and expanded requirements to ensure “bona fide” physician investment in a hospital.

Physician-owned hospitals that are currently under development or that are in the planning stages should be aware that the Act precludes new facilities unless they are Medicare-certified by December 31, 2010. For hospitals currently under development and able to obtain a Medicare provider agreement by December 31, the effective date of the provider agreement will be used to gauge the baseline number of licensed procedure rooms, operating rooms and beds. For existing physician-owned hospitals, PPACA places immediate limits on expanding the number of licensed operating rooms, beds and procedure rooms. The term “procedure rooms” is broadly defined to include rooms in which catheterizations, angiographies, angiograms, and endoscopies are performed, but the term does not include emergency rooms or departments. Hospitals may apply for an expansion exception once every two years, but must satisfy detailed and rigorous criteria to qualify for the exception.

Although many questions remain about the new law of the land, one thing is certain. When President Obama signed the Act into law on the morning of March 23, 2010, physician-owned hospitals became subject to PPACA’s terms, including significant limitations on expansion and on increases in a physician’s percentage of ownership.