Facility Expansion Options for a Physician-Owned Hospital

The Affordable Healthcare Act of 2010 (“the Act” or “ACA”) prohibits doctor-owned hospitals from expanding, and prevents new doctor-owned hospitals at all, if they are going to serve Medicare or Medicaid patients. The law, passed in 2010, blocked building any new physician owned hospitals and prevented existing ones from adding beds or operating/procedure rooms in order to qualify for Medicare payments.

Hospitals with physician ownership as of March 23, 2010, are grandfathered for the same percentage of physician ownership they had on that day. For example, if a hospital had 20% physician ownership on March 23, 2010, the ACA allows it to keep 20% physician ownership without violating the law, but the percentage of physician ownership cannot increase beyond 20 percent. If the hospital was not yet enrolled in Medicare as of March 23, 2010, it had until December 31, 2010, to enroll and whatever percentage of physician ownership it had at that time was the maximum amount it could have in the future. The ACA bars any new physician ownership in hospitals after December 31, 2010.

The restrictions on expansion also include limits on the number of operating rooms, inpatient beds and procedure rooms at physician-owned hospitals. The ACA capped these rooms and beds at their March 23, 2010 amount, or their December 31, 2010 amount, if the hospital was not yet enrolled in Medicare as of March 23, 2010. The result is that there will be no new Medicare enrolled physician owned hospitals in the United States and those that exist have restrictions on expansion.

The country has between 240 – 270 doctor-owned hospitals, which are subject to the above restrictions as stated in section 6001 of the ACA, which puts severe restrictions on opening new physician-owned hospitals or expanding existing ones.

The Stark Law, which places limitations on certain physician referrals, addresses physician ownership more broadly to include immediate family members of physicians as well. Federal regulations previously provided for the “whole hospital” exception to the Stark Laws. This particular safe harbor required that the referring physician/owner: (1) have a financial interest in the whole hospital, and not just a specific part; (2) be authorized to perform services at the hospital; and (3) be expected to actually perform the agreed upon services. The requirements of Section 6001 substantially modified this exception.