PPACA Eliminates Stark Exception to Physician-Owned Hospitals
The Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 (collectively, the “PPACA”) signed by President Obama on March 23, 2010, and March 30, 2010, respectively, placed a limitation on physician-owned hospitals. The PPACA eliminates the exception to the Stark statute, which permits physician ownership of hospitals, although existing physician-owned hospitals will be grandfathered.
The Stark statute generally prohibits physicians from making certain referrals to entities with which they (or their immediate family members) have a financial relationship. One historical exception to the Stark statute allowed a physician to refer patients to a hospital in which such physician or his or her family members held an ownership or investment interest in the whole hospital. For years, CMS and Congress have sought to narrow this exception, enacting a statutory moratorium and even an informal administrative suspension. The PPACA has now finally eliminated this exception.
However, PPACA does permit, with significant restrictions, any licensed hospital which had physician investors and a Medicare provider agreement in effect no later than the date of enactment to continue to qualify for the Stark whole-hospital exception. The PPACA provides that the percent of physician ownership or investment in a hospital may not be increased at any time after March 23, 2010, and the number of operating rooms, procedure rooms and beds for which a hospital is licensed may not be increased at any time after March 23, 2010.
A hospital will be granted an exception to the prohibition on physical growth only if it meets five very narrow requirements related to its location and the population served. In addition, exceptions may be granted only once every two years. Finally, even if a hospital can qualify for such a narrow exception, no hospital will be permitted to expand to a number of operating rooms, procedure rooms or beds which is greater than 200 percent of its “baseline number” of such beds or rooms, calculated on the later of March 23, 2010, or the effective date of its Medicare provider agreement.
The law does address the status of hospitals that are currently under development. However, the language regarding how a hospital can qualify for the exception is vague and subject to interpretation.