On July 23, 2007, Representative Pete Stark co-sponsored legislation that included a proposed amendment to the Ethics in Patient Self-Referral Statute (the "Stark law"). The proposed amendment is part of the Children's Health and Medicare Protection Act of 2007 (the "CHAMP Act") and significantly limits an important existing exception to the Stark law prohibition on certain physician referrals to hospitals. The CHAMP Act was passed by the House Ways and Means Committee and forwarded to the full House of Representatives for consideration on July 25, 2007.
Although the new Stark law amendment, if passed in its current form, would apply to all hospitals, its major impact will be on certain physician-owned hospitals. The new amendment effectively prohibits physician ownership of hospitals. The proposed statute would "grandfather" all physician-owned hospitals that have provider agreements with CMS as of July 24, 2007, subject to the condition that a grandfathered hospital would have eighteen (18) months to meet various additional requirements of the statute which could require significant revamping of those hospitals' ownership structure.
In order to qualify for the "whole hospital" exception under the Stark law if the amendment is passed, physicianowned hospitals will be required to do the following:
- No Expansion: Physician-owned hospitals would be prohibited from expanding the number of operating rooms and beds.
- Prevent Conflicts: Physician-owned hospitals would be required to implement procedures that require any referring physician owner to disclose to patients the referring physician’s ownership interest in the hospital as well as the ownership interest of the treating physician if applicable. The hospital would be required to make annual reports to the government regarding the identity of each physician owner and the nature and extent of all ownership interests in the hospital.
- Ensure Investment is Bona fide: Hospitals would be required to ensure that the aggregate physician ownership in the hospital is no more than forty percent (40%) of the total investment interests in the hospital (or in an entity whose assets include the hospital) and that no individual physician owner hold more than two percent (2%) of the investment interests in the hospital. In addition to this requirement, physician-owned hospitals would be prohibited from: 1) offering a physician owner a more favorable ownership or investment interest than terms offered to a non-physician owner; 2) providing loans or financing to any physician owner; 3) guaranteeing, making, or subsidizing a loan, either directly or indirectly, that is related to acquiring ownership interest in the hospital for any individual physician or group of physicians; and 4) offering physician owners the opportunity to purchase or lease any property under the control of the hospital or any other investor in the hospital on more favorable terms than offered to non-physician owners.
- Ensure Patient Safety: Hospitals would be required to disclose to patients and receive a signed acknowledgement if the hospital does not have 24-hour physician coverage.
Eighteen (18) months following the enactment of the CHAMP Act (if passed as currently written), the Department of Health and Human Services will be expected to conduct audits and unannounced site reviews of hospitals to determine if hospitals are in violation of these requirements. Accordingly, hospitals should begin reviewing existing arrangements in which physicians have an ownership interest in the hospital or an entity whose assets include a hospital. If the proposed amendment is passed, any arrangement in which physicians own more than forty percent (40%) in the aggregate or any individual physician owns more than two percent (2%) should be terminated. If the hospital finds it feasible to continue an ownership or investment relationship with physicians after terminating the previous arrangement, the hospital must ensure that it meets all of the requirements of the exception. Hospitals should note that any ownership or investment arrangement with physicians would prohibit the hospital from making any further expansion of its facility’s capacity.
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