On April 14, 2017, the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule addressing several potential changes to the health care delivery system, including physician-owned hospitals (“Proposed Rule”). As a part of this Proposed Rule, CMS is also seeking comment regarding the current restrictions on physician-owned hospitals and how these restrictions affect the delivery of health care.

Existing Legal Framework

The Affordable Care Act amended the Stark Law to prohibit the formation of new physician-owned hospitals and to prevent existing physician-owned hospitals from expanding the total number of operating rooms, procedure rooms or licensed beds beyond the number of such rooms and beds for which the hospital was licensed as of March 23, 2010. As a part of this prohibition, CMS does permit physician-owned hospitals that meet certain criteria as an “applicable hospital” or “high Medicaid facility” to apply for expansion. However, only five expansion requests have been granted by CMS to date.

This solicitation of comments may signal a desire from CMS to ease some or all of the burden that physician-owned hospitals currently face, particularly in regard to expansion. However, because no physician-owned hospital regulatory modifications were proposed in conjunction with the Proposed Rule, it is difficult to predict the direction that CMS is heading on this issue.

Practical Takeaways

Industry stakeholders, such as larger physician groups, existing physician-owned hospitals and non-physician-owned hospitals, may want to evaluate the desire to submit comments for CMS’s consideration. CMS is specifically seeking comments regarding how the current physician-owned hospital regulations affect Medicare beneficiaries.