CMS Releases Proposed Rule on Physician-Owned Hospitals Alert - July 27, 2010
CMS Releases Proposed Rule on Physician-Owned Hospitals
July 27, 2010
Randolph B. "Randy" Fenninger- Washington
The Centers for Medicare and Medicaid Services (CMS) has released the proposed rule implementing sections 6001 and 10601 of the Patient Protection and Affordable Care Act (PPACA) of 2010 and section 1106 of the Health Care and Education Reconciliation Act of 2010, relating to physician-owned hospitals. The proposed rule is part of the larger proposal for 2011 payment rates for hospital outpatient departments and ambulatory surgical centers (ASCs). Comments on the proposed rule are due by August 31, 2010.
The entire rule can be accessed online at http://www.ofr.gov/OFRUpload/OFRData/2010-16448_PI.pdf. The discussion of physician-owned hospitals is found on pages 784-801, 806-810, 885-891, 895-899 and 924-926. It is scheduled to be published in the Federal Register on August 3, but please note that the pagination will be different in the Federal Register.
Summary of the Statute
After a lengthy debate which began in 2001, Congress finally imposed strict legislative limits on the use of the whole hospital exception in the Stark laws. This exception allowed physician ownership of hospitals and was the legal pathway that physician owned hospitals followed when they were organized.
Although the debate and early analysis focused on specialty hospitals (cardiac and orthopedic, in particular), the new law affects all hospitals with any degree of physician ownership. There are no exceptions to this overall limitation.
On enactment, March 23, 2010, physician-owned hospitals with a Medicare provider agreement as of that date cannot expand by adding new procedure rooms, beds or operating rooms, unless permitted by the Secretary of Health and Human Services. They also cannot increase the percentage of physician (MD) ownership, so a hospital with 40 percent MD ownership is capped at that level.
No expansion of physical plant would be permitted until after CMS establishes a process for application and review of expansion plans. This process will not be in place until February 1, 2012.
Hospitals that did not have a Medicare provider agreement on the date of enactment would have until December 31, 2010, to obtain one in order to be covered by the whole hospital exception. The whole hospital exception would not be available to new hospitals after that date.
Physician-owned hospitals would also have to meet a variety of ownership disclosure requirements and financial standards.
Physician owners not meeting the requirements of the new whole hospital exception and the implementing rules will be prohibited by the Stark law from referring patients to the hospital. In addition, the hospital will not be permitted to bill for services it rendered to the patient. Physicians who are not investors would still be able to bill Medicare and Medicaid for services they perform at the hospital.
After the President signed the health reform law, Texas Joint and Spine Hospital in Tyler, along with Physician Hospitals of America, the national trade association of physician-owned hospitals, filed a lawsuit in federal district court in Tyler seeking to stop implementation of the provisions affecting physician ownership of hospitals. The case is now in the discovery phase and the judge expects to rule by December 2010. (Physician Hospitals of America and Texas Spine & Joint Hospital, Ltd v. Kathleen Sebelius, (Civil Action No. 6:10-00277-MHS))
Summary of the Proposed Rule on Physician-Owned Hospitals
The proposed rule addresses only provisions affecting physician ownership that have immediate effective dates. Other provisions that are not as time sensitive will be handled in separate rulemakings.
Pages 784-801 of the proposed rule include the discussion of the law and requirements, including proposed rule changes. Pages 885-891 and 895-899 contain CMS’s estimate of the impact of the proposed rules on physician-owned hospitals. Pages 924-926 include the text of regulatory changes that are proposed.
In the material in pages 784-801, CMS addresses two key points related to the dates when hospitals must comply with the requirements of section 6001. The agency proposes that physician-owned hospitals must meet all requirements by September 23, 2011 (18 months after enactment), unless the requirement has another explicit deadline, including deadlines that occur before September 23, 2011. For example, projects under development have until December 31, 2010, to obtain a provider agreement. If this deadline is missed, the hospital will not be eligible for the whole hospital exception, as amended by the health reform law. The consequence of this is that physician owners will not be able to refer Medicare and Medicaid patients to the hospital and submit claims for them, nor will the hospital be able to do so. (This is not the case if the physician ownership qualifies for another exception under the Stark laws.) However, other requirements, such as disclosure of ownership to patients, will not have to be met until September 23, 2011.
Another, more important example relates to the percentage of physician ownership. The statute does not allow a hospital to increase the percentage of physician ownership after March 23, 2010 (the date of enactment). Therefore, if a hospital has no physician ownership on March 23, 2010, and later adds physician ownership, it does not qualify for the whole hospital exception. Likewise, a project cannot increase the percentage of physician ownership that it had on March 23, 2010. This interpretation may be problematic for certain hospitals under development because their final ownership arrangement may not have been in place on the date of enactment. According to CMS, a hospital project that has no physician investment in place would not be able to add physician investors and be under the whole hospital exception. This provision does not address many situations, such as when the physicians own a corporation that is developing the hospital, but have not acquired the hospital at the time of enactment. CMS might have allowed projects to change the percentage of physician ownership up until the date they received their provider agreement. This would have been consistent with the date for determining the baseline number of beds, operating rooms and procedure rooms for hospitals that did not have their provider agreement on the date of enactment (March 23, 2010). Congress made this latter change in the reconciliation bill, recognizing that there would be problems for projects under development, but did not address the same timing issue for the ownership situation.
The limitation on expansion of facility capacity applies to operating rooms, procedure rooms and beds for which the hospital is licensed. CMS interprets that limitation to apply whether or not a state licenses operating and procedure rooms.
In the proposal, CMS defines “procedure rooms” to include only rooms in which catheterizations, angiographies, angiograms and endoscopies are performed. CMS invites comment on whether a broader definition should be adopted. For example, should a procedure room be defined to include rooms where CAT scans are performed?
This proposal does not include any draft regulations on the process for a hospital to apply for an exception since those rules do not need to be completed until February 1, 2012. A separate rulemaking will address this issue. Similarly, the agency is deferring rulemaking on procedures for hospitals to report annually a detailed description of the identity of each physician owner or investor and any other owners or investors of the hospital, and the nature and extent of all ownership and investment interests in the hospital.
The statute requires hospitals to: (1) require investing physicians to disclose ownership to patients (this may also include the treating physician if this physician has an investment); (2) notify condition ownership interests on referrals or generation of business for the hospital; and (3) disclose on any public hospital website or public advertising that the hospital has physician owners.
To implement these statutory mandates, CMS proposes that hospitals require physician investors, as a condition of privileges, to provide written disclosure of ownership to patients. There is also proposed language on the other two requirements above. Regarding physician disclosure, CMS suggests that patients could be provided a written form notice that discloses the physician’s ownership, the ownership of the treating physician (if different from the referring physician owner) and lists the other physician investors. CMS specifically seeks comment on all aspects of the disclosure requirements, including how the hospital should provide ownership information on its website and in public advertising.
CMS does not define “treating physician,” but assumes that the disclosure requirement affects any physician with an ownership interest that may play a role in the patient’s care.
The law sets out seven requirements for determining if an investment is bona fide. The first limits the aggregate physician interest to that in place as of March 23, 2010. Hospitals will not have to comply with the other six requirements until September 23, 2011. If CMS determines that further guidance is needed, it will provide clarification in a separate rulemaking. In addition, a hospital may request an advisory opinion on any existing or proposed investment arrangement.
Hospitals that do not have a physician on the premises 24/7 must disclose this fact to patients. CMS will apply these disclosure requirements to inpatients and outpatients.
CMS does not include any language related to the enforcement requirements, such as audits. A subsequent rulemaking will address these issues.
In previous rulemakings affecting physician-owned hospitals issued in 2007 and 2008, CMS had amended the rules related to provider agreements. CMS is proposing to modify those rules to make them consistent with the new statutory language and to incorporate the additional requirements of the Affordable Care Act. The agency seeks comment on whether these changes are necessary or whether the amendments proposed to the whole hospital exception rules are sufficient to provide guidance to physician-owned hospitals.
Burden of the Proposed Rules
Federal agencies are required to quantify the impact and burden of proposed rules on the parties that will be affected by the rulemaking. In this instance, CMS discusses these burdens on pages 805-810 and 885-890, concluding that the burdens are small.
Specific Regulatory Language
Pages 924-926 contain the draft regulation language that CMS is proposing to add to the existing Stark regulations.
Submitting Comments to CMS
Comments can be submitted to CMS in several ways but must be received by August 31. In commenting, refer to file code CMS-1504-P. CMS will not accept comments by fax.
Comments may be submitted in the following ways (no duplicates, please):
1. Electronically
Electronic comments on this regulation can be filed on http://www.regulations.gov. Follow the instructions under the “More Search Options” tab.
2. By regular U.S. mail
Written comments can be mailed to the following address ONLY:
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-1504-P
P.O. Box 8013
Baltimore, MD 21244-1850
Please allow sufficient time for mailed comments to be received before the close of the comment period.
3. By express or overnight mail
Written comments can be sent to the following address ONLY:
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-1504-P
Mail Stop C4-26-05
7500 Security Boulevard
Baltimore, MD 21244-1850
Related Practices