Physicians with an ownership interest in a hospital or physicians interested in investing in or opening a hospital should take heed of the proposed health reform bill. While no final bill exists yet, the versions passed by the House and Senate each contain language that will effectively make new physician-owned hospitals ineligible for Medicare reimbursement. The language would eliminate a Stark law exception -- allowing a physician to refer patients to a hospital he or she has an ownership interest in if the physician is authorized to perform services at the hospital -- for any hospital in which the physician invests after August 1, 2010. This prohibition would apply to all physician-owned hospitals that do not obtain Medicare reimbursement certification by the deadline.

The bills originally applied the prohibitions to hospitals in which physicians had not invested prior to February 1, 2010, but the Senate Manager's Amendment to the bill delayed the prohibition date to August 1, 2010. Even with this extension, the Physician Hospitals of America (PHA) has projected that at least 75 planned physician-owned hospital projects would be killed by the possible legislation.

Some hospitals and hospital systems are already anticipating repercussions if this provision is included in a final enactment. The Dallas Morning News has reported that as many as 32 projects to build physician-owned hospitals in Texas alone would not meet the August 1, 2010, deadline. According to the newspaper, north Texas has a higher concentration of physician-owned hospitals than any place else in the country, and yet at least one executive of a physician-owned rehabilitative hospital company believes that there is still demand. Another newspaper reported that a physician-owned heart hospital in Oklahoma is hopeful that it will receive its certification in time, but that obtaining a Medicare certificate could take "two weeks, nine months or two years."

The bills present other challenges for physician-owned hospitals. Immediately upon enactment of the pertinent section, these hospitals will be prohibited from increasing their aggregate percentage of physician ownership or expanding their facilities with new operating rooms, procedure rooms or beds. The only way for physician-owned hospitals to update or expand their facilities while preserving their Medicare participation would be to meet five or more criteria (depending on which version of the bill) is passed and whether the Department of Health and Human Services promulgates further criteria. These criteria are largely out of the hands of the hospital, such as the population growth of the county where the hospital is located and average bed capacity of the hospital's resident State compared to the national average.

PHA has posted a study estimating that none of existing physician-owned hospitals, and only 2 percent of existing non-physician-owned hospitals, would meet four of the required criteria. The narrow exceptions in effect will freeze physician investment in physician-owned hospitals at their current levels and prohibit growth of existing physician-owned hospitals.

Hospitals in the construction phase that will not make the August 1 deadline may be forced to decide between re-funding projects without physician investment or continuing to build physician-owned hospitals to cover only non-Medicare populations. Existing physician-owned hospitals may face the most difficult decisions, however, when they cannot expand their businesses to meet demand. More information can be found here and here