• Healthcare Reform Bill Prevents New Physician Ownership in Hospitals
  • April 7, 2010
  • Law Firm: Waller Lansden Dortch & Davis, LLP - Nashville Office
  • One aspect of the recently enacted healthcare reform law that has received little attention in the popular media is the impact on physician-owned hospitals.  The Patient Protection and Affordable Care Act (the Act), signed into law by President Obama on March 23, 2010, in effect immediately prohibits future physician investment and caps existing physician investment in hospitals, as of the date of the Act’s signing.  As explained below, the Act contains a grandfathering date, but another provision of the Act has the effect of establishing an immediate cap on physician ownership as of March 23, 2010.  The Act restricts the current Stark law exception that allows physicians to have ownership interests in the whole hospital (the “Whole Hospital Exception”).  As of its enactment, the Act now prohibits hospitals from increasing the percentage of the total value of the ownership interests held in a hospital by physicians.  The Act also bolsters disclosure requirements, expands requirements to ensure “bona fide” physician investment in a hospital, and places severe restrictions on the ability of a hospital subject to the Whole Hospital Exception to add operating rooms, procedure rooms and beds.
    Although the Act’s enactment immediately prohibits increases to the percentage of physician investment, existing physician-owned hospitals that had physician investment and a Medicare provider agreement in place as of a qualifying date set forth in the Act are grandfathered, and the existing physician ownership is allowed to continue.  The Act addresses hospitals that are under development by establishing a qualifying date by which a hospital was required to have had physician ownership to qualify for the Whole Hospital Exception.  This qualifying date has presented a moving target and has caused concern and confusion for physician-owned hospitals under development.  Early versions of reform legislation had established a retroactive qualifying date of Jan. 1, 2009.  Additionally, in the case of a hospital that is currently under development and did not have a provider agreement in effect as of March 23, 2010, but does a have a provider agreement in effect by Dec. 31, 2010, HR 4872 clarifies that the bar on expansion of the hospital is to be determined as of the effective date of such provider agreement.
    However, regardless whether a physician-owned hospital has been long established or is under development and hopes to satisfy the revised Whole Hospital Exception’s criteria by between now and Dec. 31, 2010, the cap on physician investment was set in place with President Obama’s signature on the morning of March 23, 2010.  Existing hospitals with physician ownership are now subject to the Act’s terms, including the limit on any increase in the percentage of ownership by physicians and on expansion of physician-owned hospitals.