On October 30, 2015, the Centers for Medicare & Medicaid Services (“CMS”) released the CY 2016 final rule for revisions to Payment Policies under the Physician Fee Schedule (“Final Rule”) following the proposed rule published in July 2015 (“Proposed Rule”).1  Among other Stark Law revisions, the Final Rule updates the Stark Law regulations for physician-owned hospitals (“POHs”) regarding website and advertising requirements and modifying the methodology used to calculate physician investment levels.

The Final Rule

The Final Rule, while addressing many other significant modifications to the Stark Law, finalized clarifications and modifications to the regulations governing POHs. The Affordable Care Act (“ACA”) imposed additional requirements for POHs, including for purposes pertinent to the Final Rule: (1) a POH’s obligation to disclose the fact that the hospital is owned in whole or in part by physicians on any public websites and advertising for the POH; and (2) the aggregate physician ownership or investment interests held in a POH cannot exceed the percentage of ownership or investment in the hospital as of March 23, 2010.

Public Advertising Disclosure Requirement Changes

Public Websites. Since 2011, POHs have been required to disclose that the hospital has physician owners or investors on any public websites and/or public advertising. In the Proposed Rule, CMS indicated that CMS received many inquiries from industry stakeholders regarding what types of media were included in “public websites for the hospital” and “public advertising.” This question most commonly arose in regard to social media pages created by the POH or other third parties.

In the Final Rule, CMS clarified that CMS generally does not consider social media websites to be “public websites for the hospital” for purposes of the POH advertising and disclosure requirements. According to CMS, this distinction is due to the fact that the information contained on most social media pages differs significantly from information that is typically found on a POH website. For example, social media websites generally do not provide information regarding the POH’s history, leadership and governance structures, and mission statement or provide a list of physician staff. Additionally, CMS indicated that social media platforms are operated and maintained by a social networking service and a multitude of users can become members of such services. However, CMS declined to provide names of specific social media sites that are not considered “public websites for the hospital” in the Final Rule, recognizing the fast pace at which technology develops and changes.

CMS also finalized its proposal that sites such as electronic patient payment portals, electronic patient care portals and electronic health information exchanges are not considered “public websites for the hospital” as they are not available to the general public and are only available to those patients who have already been treated at the POH and to whom the POH’s physician ownership likely would have already been disclosed.

Public Advertising. In the Final Rule, CMS adopted its proposed definition of “public advertising for the hospital.”  “Public advertising for the hospital” is defined as any public communication paid for by the POH that is primarily intended to persuade individuals to seek care at the POH. CMS commentary to the Final Rule indicates that this definition does not include communications made for the purpose of recruiting hospital staff, public service announcements and community outreach. CMS noted that certain communications may need to be evaluated based upon their individual facts and circumstances in order to determine if the communication indeed meets the definition of “public advertising for the hospital” because it is the communication, not the medium that determines whether the communication constitutes an advertisement.

The Final Rule also clarified the types of statements that would suffice as notice of physician ownership or investment by including examples of statements that CMS believes would constitute sufficient notice, such as:

  • “This hospital is owned or invested in by physicians”;
  • “This hospital is partially owned or invested in by physicians”;
  • “Founded by physicians”;
  • “Managed by physicians”;
  • “Operated by physicians”; or
  • “Part of a health network that includes physician-owned hospitals.”

CMS also believes that the name of the hospital itself may constitute notice of physician ownership. For example, Doctors’ Hospital at Main Street would put a reasonable person on notice that the hospital is physician-owned.

Pursuant to the Final Rule, the disclosure of physician ownership must be located in a conspicuous place on the POH’s website and on a page that is commonly visited by current or potential patients, such as the home page or the “About Us” section. The disclosure must be displayed in a clear and legible manner and in a font size that is consistent with other text on the website.

Periods of Noncompliance. In the Final Rule, CMS also finalized its proposal that, for purposes of public advertising, the period of noncompliance is the duration of the advertisement’s predetermined initial circulation, unless the advertisement is amended to satisfy the requirements at an earlier date. CMS provided the following example: if a POH advertises in a monthly magazine and fails to disclose its ownership or investment interests, the period of noncompliance would likely be the applicable month of circulation of the magazine (even if copies of the magazine were available after the month of circulation.)

September 23, 2011 is the date by which a POH had to be in compliance with the public website and advertising disclosure requirements. Therefore, this is the earliest possible beginning date for noncompliance.

Determining Investment Levels

In the Proposed Rule, CMS proposed to evaluate the methodology for calculating the percentage of ownership or investment interests held by physicians in a hospital (“Bona Fide Investment Level”), as well as how to calculate the ownership or investment interest held as of March 23, 2010 (“Baseline Bona Fide Investment Level”).  CMS noted that in the 2011 OPPS Final Rule, CMS determined that the ownership or investment interests of non-referring physicians, including physicians who no longer practiced medicine, did not need to be considered when calculating the Baseline Bona Fide Investment Level.  In response to comments from industry stakeholders, CMS proposed to reevaluate that position.

In the Final Rule, CMS revised the policy set forth in the 2011 OPPS Final Rule such that the Baseline Bona Fide Investment Level and Bona Fide Investment Level now include direct and indirect ownership and investment interests, regardless of whether the physician refers to the hospital. Additionally, ownership or investment interests held by physicians who no longer practice medicine are now counted if the individual satisfies the Stark Law definition of “physician.”

CMS also adopted its proposal to define “ownership or investment interest” as a direct or indirect ownership or investment interest in a hospital. Under the Final Rule, a direct ownership or investment interest in a hospital exists if the ownership or investment interest in the hospital is held without any intervening persons or entities between the hospital and the owners or investors. CMS indicated indirect ownership or investment interests in a hospital exist if: (1) between the owner or investor and the hospital there exists an unbroken chain of any number but no fewer than one persons or entities having ownership or investment interests; and (2) the hospital has actual knowledge of or acts in reckless disregard or deliberate ignorance of the fact that the owner or investor has some ownership or investment interest through any number of intermediary ownership or investment interests in the hospital. CMS believes that the revisions will make the prohibition on expansion consistent with the statutory definition of “physician owner or investor.”

In the Proposed Rule, CMS acknowledged that some POHs may have relied on CMS’s prior position regarding non-referring physicians and the methods used to calculate the Bona Fide Investment Level.  As such, some POHs may have revised Bona Fide Investment Levels in excess of their Baseline Bona Fide Investment Levels. In an effort to alleviate some of the potential compliance concerns that this may cause, in the Final Rule CMS delayed the effective date of these new physician ownership calculation requirements until January 1, 2017 so that POHs have enough time to come into compliance with the new rule.

Practical Takeaways

All POHs should review their hospital websites and advertisements to ensure that the new requirements of the Final Rule are satisfied. If a POH determines that it may have fallen out of compliance with any advertising notification requirements, CMS has instituted a separate self-referral disclosure protocol process for this type of potential noncompliance. The new disclosure protocol requires significantly less information than does the standard disclosure protocol. For more information about this process, please see Hall Render’s previous alert on this topic.

POHs with non-referring physician owners or investors may need to recalculate their percentage of physician ownership. That said, some hospitals may find that their Baseline Bona Fide Investment Level actually exceeds their current level of physician ownership and investment, which may allow the POH an opportunity to bring in new physician owners or investors.