On March 31, 2011, a Federal district court rejected a suit brought by individual physician owned hospitals (POHs) and a trade association representing more than one hundred POHs, challenging the constitutionality of Section 6001 of the Patient Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148, 124 Stat. 119, 684–89 (2010). That provision prohibits new or expanded POHs from filing claims for health services covered by Medicare if there is a financial relationship between the referring physician and the hospital receiving payment. In other words, it limits the whole-hospital exception to the Stark law to POHs as they existed on March 23, 2010, the effective date of PPACA. In the suit, the POHs contended that “Section 6001 violates their due process and equal protections rights under the Fifth Amendment because it is not rationally related to a legitimate purpose and improperly singles out POHs.” In addition, the POHs claimed that Section 6001 effects an unconstitutional and retroactive taking of their "property because dozens of POHs around the country had to halt and abandon their expansion and construction projects, regardless of previous investments, because the plans were not economically viable without the ability to bill Medicare for self-referrals." The court ruled against the POHs on all counts.
On the Plaintiffs' first contention that their due process rights were violated because the law was not rationally related to a legitimate interest, the court held that “although Plaintiffs present considerable evidence that questions the wisdom and judgment of the legislature, all of the evidence, even when viewed in favor of Plaintiffs, cannot support a finding that Congress acted arbitrarily when passing Section 6001.” The court responded to the Plaintiffs’ argument that “the Secretary’s proposed justifications are pretextual and that Section 6001 was instead the product of a backroom deal brokered for the benefit of the American Hospital Association” by stating that unless there was “no other conceivable rational basis for the law besides the allegedly illegitimate protectionist purpose, the law must be upheld.”
Responding to the Plaintiffs’ regulatory takings claim, the court recounted the contentious history of the whole-hospital exception to the physician referral prohibition and held that “under existing law, Plaintiffs could have no reasonable expectation that the Medicare program would remain unchanged.” In particular, the court recounted that “in 2007 and 2008, Congress considered and almost enacted previous versions of Section 6001 that also did not include the broad grandfathering provisions that Plaintiffs claim they expected.” Since there was no “reasonable expectation that the Medicare program would remain unchanged,” the change in the law did not arise to a “taking.” In addition, the court held that “Section 6001 does not proscribe, limit, or otherwise interfere with Plaintiffs’ use of their real property” because “Plaintiffs could lawfully complete their projects and continue to bill Medicare for health services as long as those services were not the result of a physician-owner’s referral.” That is, “the only value Plaintiffs have lost, under the law, is the ability to bill Medicare for self-referred patients.” Therefore, according to the court, Section 6001 does not result in a regulatory taking of Plaintiffs’ real property.
The court's decision is available here.