The Facts

Among the many changes that would be wrought by the health system reform bill introduced today by Senator Baucus is a proposal having little to do with health system reform, but nonetheless drawing significant attention from hospitals and physicians alike. Under the Senate bill, a physician would be prohibited from referring Medicare beneficiaries to a hospital in which he or she has an ownership interest. Hospitals that have physician ownership and a Medicare provider agreement by November 1, 2009, would be grandfathered, subject to significant restrictions that would prohibit most qualifying hospitals from expanding operating room and bed capacity.

The Senate restriction differs from its House counterpart in at least two key respects. First, to qualify for grandfather protection, a hospital must have physician ownership and a Medicare provider agreement in place by November 1, 2009, rather than January 1, 2009, as is the case in the House bill. Second, there may be some additional latitude on the growth restrictions. While the proposal would severely limit a hospital’s ability to expand its bed inventory, the limit on bed capacity for the first time references “licensed” beds, rather than simply beds. In the absence of this clarification, prior iterations of this restriction have generally been understood to mean beds as defined by Medicare under 42 C.F.R. § 412.105(b), which is often different from and less than a hospital’s licensed bed count.

What’s at Stake

Hundreds of physician-owned hospitals and planned physician-hospital ventures would be affected by these provisions. Existing physician-owned hospitals that have complained about restrictions on growth may see some opportunity in this revised language.

Steps to Consider

Physician-owned hospitals should examine the language carefully to gauge the impact of the proposed changes, and those that would struggle under growth restrictions should examine whether a threshold based on licensed beds provides any relief. Physician-owned hospitals might explore increasing licensed bed capacity before the legislation is enacted.