House SCHIP Bill Contains Ban on Physician Ownership and Investment in Hospitals (including LTACHs)

Posted by Jason Greis on January 27, 2009 under Articles | Be the First to Comment |  Print

On January 14, 2009 the House of Representatives voted to reauthorize the State Children’s Health Insurance Program (“SCHIP”).  The House version of the SCHIP bill (HR 2) includes a provision contained in Section 623 proposed by House Ways and Means Health Subcommittee Chairman Fortney Pete Stark that would prevent construction of new physician-owned hospitals and restrict the expansion of current physician-owned hospitals by amending certain provisions of the Federal physician self-referral law (commonly known as the “Stark Act”).  Congressman Stark has said that the provision banning future physician ownership in hospitals would prevent the “unethical kickbacks that physicians receive from ownership in hospitals, most of which are of questionable safety and quality.”  This legislation, if passed, would significantly impact current physician ownership and investment interests in LTACHs (e.g., investment by physician joint venture partners) and specialty hospitals and would altogether ban future physician investment and ownership in LTACHs and specialty hospitals.

The current Senate version of the SCHIP bill (S 275) does not contain a ban on physician-owned hospitals, but the final version of the legislation could include the measure.  The Senate began debate on its version of the SCHIP legislation on Monday, January 26.  Debate is expected to continue through Thursday, January 29, with final Senate passage expected that day.  At that point, the Senate bill will go back to the House for further consideration and inconsistent provisions would be reconciled in congressional compromise negotiations.  It is unclear at this point (1) whether Senate members plan to introduce an amendment to the Senate bill proposing a similar ban on physician-owned hospitals, and (2) what the outcome might be of congressional negotiations if the Senate bill passes in its current form.

In the meantime, however, the Physician Hospitals of America (PHA) has been closely monitoring the rapid pace of legislative developments and has been actively lobbying to prevent inclusion of such a provision in both the Senate bill and in any final bill to be sent to President Obama.  The PHA is asking affected organizations and physicians to contact “all Democratic House members who have physician-owned hospitals in their districts or projects underway and ask them to contact Speaker Nancy Pelosi, Majority Leader Steny Hoyer and Ways and Means Committee Chairman Charles Rangel to object to the damaging impact the House passed language (HR 2) would have on their districts.”

The relevant portion of the House SCHIP bill would generally:

• Grandfathering. Grandfather physician-owned hospitals with a Medicare provider agreement that are in operation as of January 1, 2009. Hospitals under development as of January 1, 2009 would not be grandfathered under the proposed House bill.
• Prohibit Increases in Physician Ownership and Investment. Prohibit physicians from increasing their ownership or investment interest in physician-owned hospitals above the percentage held by such physicians on January 1, 2009. For example, physicians owning 10% of an LTACH on January 1, 2009 could not increase their ownership or investment interest above 10%.
• Prohibit Expansion. Prohibit the addition of beds, operating rooms, and procedure rooms in physician-owned hospital going forward from the date of enactment of the legislation.
• Annual Reporting of Physician Ownership and Investment. Require physician-owned hospital to submit an annual report to the Department of Health of Human Services identifying each physician owner and  investor and the nature and extent of all ownership and investment interests. This information would be publicly available on CMS’s website.
• Patient Disclosure. Require physician-owned hospitals to have procedures in place to require that any physician owner or investor disclose his or her ownership or investment interest to a patient at the time the patient is referred to the hospital in which he or she has an ownership or investment interest.
• Disclosure via the Internet and in Advertising. Require physician-owned hospitals to disclose any physician ownership or investment interest on the hospital’s website and in any public advertisement.
• Bona Fide Ownership. Ensure that ownership in hospitals by physician owners or investors is bona fide and satisfies the Stark Act’s Whole Hospital Exception.
• Assessment and Initial Treatment. Require physician-owned hospitals to have the capacity to provide assessments and initial treatment of patients and refer and transfer patients to hospitals with the capacity to treat the needs of patients. It is presently unclear whether some LTACHs may be required to expand the limited scope of their Emergency Department services.

I encourage you to contact your congressional representative, the Physician Hospitals of America, NALTH and/or ALTHA if you may be impacted by this proposed legislation.  Time is quickly running out to make your voice heard.  Please also feel free to contact me if you have any questions about this legislation or its potential impact.

Jason S. Greis
312.849.8217
jgreis@mcguirewoods.com