Executive Summary

On July 8, 2015, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule addressing many potential modifications to the Stark Law (“Proposed Rule”),1 as well as separate guidance for physician-owned hospitals relating to the required Annual Ownership/Investment Report (“Reporting Guidance”).2  The Proposed Rule, if implemented as currently proposed, would update the Stark Law regulations for physician-owned hospitals regarding advertising requirements and the methodology used to calculate investment levels.

The Proposed Rule

The Proposed Rule, while also addressing many other significant modifications to the Stark Law, also proposes clarifications and modifications to the regulations governing physician-owned hospitals.  The Affordable Care Act imposed additional requirements for physician-owned hospitals, including but not limited to (1) a hospital’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 hospital; and (2) the aggregate physician ownership or investment interests held in a hospital cannot exceed the percentage of ownership/investment in the hospital as of March 23, 2010.

Public Advertising Disclosure Requirement

Public Websites.  Since 2011, physician-owned hospitals have been required to disclose that the hospital has physician owners or investors on any public websites or public advertising.  CMS indicated that CMS has received many inquiries from industry stakeholders regarding what types of media were included in “public websites” and “public advertising.”  This question often arises in regard to social media pages that may be created by the hospital or other third parties.

In the Proposed Rule, CMS proposed to clarify that CMS generally does not consider social media websites to be “public websites” for purposes of the physician-owned hospital advertising disclosure requirements.  CMS proposed to make this distinction due to the fact that the information contained on most social media pages differs significantly from information that is typically found on a hospital website.  For example, these types of sites generally do not provide information regarding the hospital’s history, leadership and governance structures, mission statement or a list of physician staff.  That is not to say that CMS meant to imply that all of this information is required in order to be considered a public website.  The Proposed Rule also proposed that sites such as electronic patient payment portals, electronic patient care portals and electronic health information exchanges would ordinarily not be considered public websites, as they are not available to the general public.  Note that CMS has indicated in the Proposed Rule that a site that does not meet the requirements to be a “public website” may still be considered “public advertising for the hospital” depending upon the facts and circumstances of the scenario and information provided.

CMS is specifically seeking public comment as to whether the proposed examples of sites that do not constitute public websites are appropriate and if additional examples should be included.  Furthermore, CMS is considering if an inclusive definition of “public website” should be created and is in search of public input on whether such a definition is needed and, if so, what it should include.

Public Advertising.  CMS has proposed to define “public advertising for the hospital” as any public communication paid for by the hospital that is primarily intended to persuade individuals to seek care at the hospital.  This definition would not include communications made for the purpose of recruiting hospital staff, public service announcements and community outreach.  In the Proposed Rule, CMS noted that certain communications may need to be evaluated based upon the facts and circumstances in order to determine if the communication is indeed public advertising for the hospital.

CMS has also proposed to clarify the types of statements that would suffice as notice of physician ownership or investment.  The Proposed Rule included 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.  CMS specifically seeks public comment regarding these proposed examples of language and welcomes additional examples submitted via the comment process.

Periods of Noncompliance.  In the Proposed Rule, CMS has also addressed potential calculations of periods of noncompliance for purposes of any necessary disclosures that may need to be made. For purposes of public advertising, CMS proposed to clarify that the period of noncompliance would be 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 hospital 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).  CMS seeks comments relating to additional guidance that may be necessary regarding periods of noncompliance for disclosure requirements.

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 has proposed to reevaluate that position.

CMS has proposed to revise the policy set forth in the 2011 OPPS Final Rule such that the Baseline Bona Fide Investment Level and Bona Fide Investment Level will 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 would be counted if the individual satisfies the Stark Law definition of “physician.”  CMS is specifically seeking comments regarding its proposed revisions to Bona Fide Investment Level calculations and whether this proposal would alleviate the burden some physician-owned hospitals experience when trying to determine whether a physician is referring or non-referring.

CMS has proposed to define “ownership or investment interest” as a direct or indirect ownership or investment interest in a hospital.  Additionally, an indirect ownership or investment interest may exist even if the hospital does not know (or acts in reckless disregard or deliberate ignorance of the fact) that an unbroken chain of persons or entities resulting in physician ownership of the hospital exists.  CMS believes that the proposed revisions will make the prohibition on expansion consistent with the statutory definition of “physician owner or investor.”  In the alternative, CMS is also seeking comments on whether CMS should revise the regulations in an even more comprehensive manner in order to remove the references to “referring physician” in certain Stark Law regulations.

In the Proposed Rule, CMS acknowledged that some physician-owned hospitals 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 physician-owned hospitals 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, CMS has proposed to delay the effective date of the new regulation so that physician-owned hospitals have enough time to come into compliance with the new rule.  CMS is soliciting comments on how long the effective date should be delayed and how this would impact the measures or actions that physician-owned hospitals would need to take in order to come into compliance if the Proposed Rule is implemented as written.

Reporting Guidance

In addition to the Proposed Rule, CMS also released Reporting Guidance for physician-owned hospitals.  Physician-owned hospitals now have a separate 855 Form to complete (“CMS-855POH”).3  Previously, physician-owned hospitals were required to complete Attachment 1 of the CMS-855A in order to disclose physician ownership and investment information.  Note that CMS has instructed that neither form should be submitted by physician-owned hospitals until it provides additional instruction and guidance on its website.

Practical Takeaways

Physician-owned hospitals should review the CMS-855POH in order to become familiar with the information requested.  Hospitals are not required to submit the new form at this time, and currently, no guidance exists with respect to potential deadlines for submitting the new form.  Therefore, it is recommended that hospitals prepare the information requested so that the CMS-855POH can be submitted quickly once the additional information regarding submission is made public by CMS.  Note that prior guidance with respect to the annual disclosure requirement has been modified several times in the last 18 months, resulting in a lack of clarity with respect to the annual filing requirement.  Until CMS provides instructions for filing the new form, physician-owned hospitals are advised to continue filing the old CMS-855A on at least an annual basis or when new physicians become owners and current physicians withdraw from ownership.

Physician-owned hospitals with non-referring physician owners or investors should strongly consider submitting comments to CMS with thoughts and concerns regarding the Proposed Rule’s impact on calculating the Bona Fide Investment Level.  If the Proposed Rule is implemented as written, physician-owned hospitals may have 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 hospital an opportunity to bring in new physician owners or investors.

If a hospital 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.

Comments on the Proposed Rule must be received by CMS no later than 5:00 PM on September 8, 2015.  Comments may be submitted electronically, via mail or by hand delivery.