Restrictions on physician ownership of hospitals contained in the healthcare reform law are being implemented by the CMS, and although doctors who wish to invest in new facilities have an uphill battle, those with ownership stakes in existing facilities were given a little room to breathe.
A little slack for doc-owned hospitals
In addition to the main implementation story line, there are two side dramas in the ongoing saga over physician ownership of hospitals. There is a push by Sen. Dianne Feinstein (D-Calif.) to allow a nearly completed $211 million facility in Murrieta, Calif., to go forward as a joint venture between physicians and the Loma Linda (Calif.) University Medical Center when construction finishes next March, and in a federal lawsuit being heard in Tyler, Texas, plaintiffs seek to have the new restrictions declared unconstitutional.
The implementation road map of the new regulations for these facilities is contained in a 69-page chapter of the 2,452-page 2011 hospital outpatient prospective payment system final rule posted online by the CMS on Nov. 2. It repeats how physician-owned hospitals must have a Medicare provider agreement in place by Dec. 31 and cannot expand beyond the capacity licensed for as of March 23, when the reform bill was approved.
The rule does, however, allow for some flexibility in that “capacity” is capped at the aggregate number of operating rooms, procedure rooms and beds it was licensed for on March 23. So more operating rooms can be added if the same number of procedure rooms or beds are eliminated, for example.
“That's not flexibility that was obvious in the statute,” says attorney Michael Lampert, a Boston-based associate in the healthcare group of law firm Ropes & Gray. He adds that if there was one surprise, it was that the CMS could have issued more restrictions but didn't.
“CMS hasn't gone beyond the limits that the statute has set forth,” Lampert says. He notes, however, that the prohibition on increasing the number of physician-owned hospitals or expanding their capacity “is essentially implemented,” and “the real losers are the hospitals that were in development and had deals under way in 2010.”
The final implementation piece, Lampert says, will come in 2012, when the CMS is required to develop a waiver process allowing an existing facility to expand under certain circumstances. “They'll have to demonstrate that they're in an area that is underserved in some manner,” Lampert says.
The new rule could have been more restrictive if the CMS had applied a broader definition of “procedure room,” but Lampert says the term applies strictly to places where catheterizations, angiographies, angiograms and endoscopies are performed, so facilities may increase the number of rooms where nonoperative procedures are done. “CMS had not gone an iota past the (standard) definition of procedure room—although it could have done so,” he says.
The rule also allows for relocation to a new facility as long as the new facility has fewer or the same aggregate number of operating rooms, procedure rooms and beds than the old facility had on March 23.
Physician are also free to sell their ownership stakes, though the percentage of physician ownership in a hospital or “in an entity whose assets include the hospital” is not allowed to go higher than it was on March 23.
There is a provision that may upset a standard business agreement between physician investors. Often, physicians will be required to sell their ownership stake if they retire or move and no longer practice in the community where the hospital is located. According to the rule, hospitals are prohibited “from conditioning any physician ownership or investment interest either directly or indirectly on the physician's ability to make or influence referrals to the hospital.”
Physician Hospitals of America, the trade group representing physician-owned hospitals, issued a statement that reads in part: “PHA appreciates the effort by CMS to clarify a few issues, such as the calculation of the baseline of beds, procedure rooms and operating rooms. However, the rules perpetuate the confusion in effective dates resulting from poorly drafted legislation. This will make compliance for our members more difficult.”
Since the rule followed basic expectations, it didn't generate a strong reaction from the American Hospital Association. "The rule adheres to statutory provisions in the ACA and to congressional intent with regard to clarifying the effective dates for different aspects of the statutory changes, which the AHA recommended in our comment letter on the proposed rule," AHA spokeswoman Elizabeth Lietz says.
Of course, it could all be moot point if the reform law is declared unconstitutional as a result of the lawsuit brought by the PHA and the Texas Spine & Joint Hospital, Tyler, Texas, whose $27 million expansion was stopped when the Patient Protection and Affordable Care Act was signed into law.
The trial is set to start Dec. 9, though it could be over before it begins if U.S. District Judge Michael Schneider agrees with the Justice Department's motion for a judgment on whether the suit should even be brought to trial.
According to Molly Sandvig, executive director of the PHA, there are at least 269 Medicare-certified, physician-owned hospitals, and there are about 15 that have opened and applied for certification plus five more that plan to open before Dec. 31.
Then there's Loma Linda University Medical Center-Murietta, which plans to open in March as a joint venture between Loma Linda and a group of physicians who would have 45% ownership in the facility. Feinstein has been pushing to let the hospital, which began construction in 2008, open under the current ownership structure.
"On March 23, we were about 80% complete, and I think we're about 93% now, but we won't be completed in time to get a Medicare provider number by Dec. 31," Loma Linda University Medical Center-Murrieta President and CEO Bruce Christian says. "If we're unable to get relief, then we will buy the physicians out. We will fully comply with the law."
Christian adds, however, that acquiring the physicians' ownership share will take away resources that could be better spent elsewhere.
Although they would no longer be owners, the physician investors would remain on the medical staff if they are bought out, he says.
Sandvig says that although physician-owned hospitals have bipartisan congressional support, they are often portrayed as having mostly Republican sponsors. She says that is a product of most physician-owned hospitals being located in states with GOP representation. But she adds that Feinstein has been very helpful with and supporting of the Loma Linda project and others in California. —with Jessica Zigmond
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.