On April 13, 2007, the Centers for Medicare and Medicaid Services (CMS) posted its annual proposed update to the hospital inpatient prospective payment system (IPPS) for fiscal year 2008. Included among the many proposed changes are new patient notification obligations concerning physician ownership and emergency response capabilities that could potentially apply to all hospitals.

In recent years, Congress and CMS have been keenly focused on specialty hospital development. In early 2006, Congress approved legislation that directed the Secretary of the U.S. Department of Health and Human Services (HHS) to prepare a plan for dealing with physician investment in specialty hospitals. HHS submitted the final required report to Congress on August 8, 2006, and in it detailed a variety of steps that CMS had already taken, and those they would be taking to address specialty hospital development.

Physician Ownership Notification

Among the steps that HHS said CMS would take was implementation of a requirement that hospitals report information on a periodic basis about investment and compensation relationships with physicians. The proposed rule that was unveiled last week elaborates on this requirement for the first time.

CMS is now proposing that all hospitals, not just specialty hospitals, that are "physician-owned" be required to notify patients of this fact and that a list of physician owners is available upon request. Interestingly, CMS is not requiring that physician-owned hospitals provide any related disclosure or report to CMS or other federal enforcement authorities, despite suggestions in the initial report to the contrary.

CMS is also proposing that physician-owned hospitals require that all physician owners who are also members of the hospital’s medical staff disclose in writing their ownership interest in the hospital to all patients they refer to the hospital, as a condition of continued medical staff membership. Patient disclosure would be required at the time a physician makes a referral. Notably, this would be an affirmative obligation upon the hospital, as well as the physician, and the hospital would be required to monitor and enforce.

CMS is proposing to define a "physician-owned hospital" as any participating hospital in which a physician or physicians have an ownership or investment interest. The ownership or investment interest may be through equity, debt or other means, and would include an interest in an entity that holds an ownership or investment interest in the hospital, such as a parent holding company or health system. As proposed, this definition would encompass instances where the hospital is part of a larger for-profit chain that is publicly traded, and its physicians own securities, directly or through mutual funds, in that company. This definition would also include instances where physicians own hospital-secured bonds or other related debt. However, CMS is soliciting comments on whether, for purposes of the physician ownership disclosure requirements, certain exceptions from the definition of "physician-owned hospital" should be made, such as the exception found in the Stark law for ownership or investment in a publicly traded company or mutual funds.

In order to enforce these proposed requirements, CMS is proposing to deny or terminate a provider agreement, as the case may be, of a hospital that does not have procedures in place to provide these various notifications. As proposed, hospitals that fail to adequately police disclosures by their physicians to patients referred to the hospital could be threatened with loss of their provider agreement.

The 2006 HHS report to Congress indicated that CMS would also consider requiring hospitals to disclose certain physician compensation arrangements with physicians who refer to the hospital. CMS is not making a proposal along these lines at this time.

Emergency Response Capability Notification

Physician-owned specialty hospitals also have come under fire for not having adequate emergency response capabilities. Recently, this perceived deficiency has been the subject of considerable congressional scrutiny following several patient deaths, most recently in Texas, in physician-owned specialty hospitals that in part were due to the hospitals’ inability to adequately respond to deteriorating situations. The 2006 report to Congress indicated that CMS would issue guidance on what is expected of hospitals without emergency departments. CMS has not issued related guidance to date, but is now proposing to require that all hospitals furnish all patients notice at the beginning of a hospital stay or outpatient service if a doctor of medicine or osteopathy is not present in the hospital 24 hours per day, seven days a week. Hospitals that would be required to make such notice under this proposal would also be required to describe how the hospital would meet the medical needs of any patient who develops an emergency medical condition at a time when no physician is present in the hospital.

Recognizing that even hospitals with emergency departments and physicians on-site around the clock may encounter medical emergencies that are beyond the scope of practice of the clinical personnel onsite, CMS signaled that it is considering further changes to strengthen current requirements for emergency response capability in hospitals with or without emergency departments. CMS is contemplating requirements concerning:

  • the type of clinical personnel that must be present at all times in hospitals with and without emergency departments;
  • the competencies that such personnel must demonstrate, such as training in Advanced Cardiac Life Support, or successful completion of specified professional training programs;
  • the type of emergency response equipment that must be available and the manner in which it must be available, such as in each emergency department, or inpatient unit, among others; and
  • whether emergency departments must be operated 24 hours per day, seven days per week.

Implications for Specialty Hospital Development

These proposed changes, although potentially burdensome to affected hospitals, are indicative of the agency’s measured and, arguably, mild response to perceived concerns regarding specialty hospital development. These proposed changes also illustrate CMS’s resistance to differentiating between general acute care hospitals and specialty hospitals when making policy. Recent reimbursement changes implemented by CMS, like these changes, apply to general community hospitals and specialty hospitals alike.

Although the legal and reimbursement landscape for physician-owned specialty hospitals is still shifting, and state and local politics and legislative initiatives can also impede development, would be specialty hospital developers should be encouraged by CMS’s reserved approach to regulating such hospitals. However, that enthusiasm should be tempered somewhat by the rise of long-time specialty hospital opponents, such as Representative Pete Stark (D-CA), in the new Democratically controlled Congress. Congress may still take more dramatic steps to curtail physician-owned specialty hospital development, although, to date, no such bills have been introduced.

The proposal rule includes many proposed changes in addition to those discussed above that would, if finalized, affect payments to hospitals beginning October 1, 2007. The proposed update is available on the CMS website and is expected to be published in the Federal Register on May 3, 2007.