The Patient Protection and Affordable Care Act (PPACA) revised the Stark Law exceptions for physician ownership in hospitals and ancillary services furnished in physicians' offices. Proposed regulations relating to these two provisions were published in August of this year. CMS now has published these regulations in final form.

Physician Ownership of Hospitals

PPACA eliminated the Stark Law exception permitting physician ownership in hospitals, grandfathering physician-owned hospitals with a Medicare provider agreement in effect as of December 31, 2010. Substantial restrictions were placed on grandfathered hospitals, which are prohibited from increasing their total physician ownership percentages and increasing the number of beds, operating rooms or procedure rooms after the PPACA enactment date -- March 23, 2010. PPACA also established a process for grandfathered hospitals to seek an exception to the facility growth restrictions, although availability of an exception is limited to hospitals in high-growth areas and those serving a high Medicaid patient population. Finally, grandfathered hospitals will have to file annual reports identifying physician owners and disclose to referred patients and on the hospital's website and advertising materials that the hospital is physician-owned.

PPACA changes to the Stark Law whole hospital and rural provider exceptions are addressed in the final OPPS update and ambulatory surgical center payment rule for calendar year 2011, slated for publication in the November 24, 2010, Federal Register. The regulations generally mirror the statutory provisions, confirming that grandfathered hospitals must have a provider agreement in effect on or before December 31, 2010, and that a hospital with no physician ownership before March 23, 2010, cannot qualify for the exceptions. The final regulations do clarify that a physician-owned hospital would qualify for the exception if its provider agreement is issued after December 31, 2010, as long as the effective date is on or before December 31, 2010.

With respect to the restrictions on increase in the percentage of physician investors, the regulations clarify that a physician-owned hospital may add or increase the number of physician owners or replace physician investors, as long as the aggregate percentage does not increase after March 23, 2010. Regarding facility expansion, CMS declined to expand the definition of procedure room from that found in the statute (a room in which catheterizations, angiographies, angiograms and endoscopies are performed). Facilities under construction are advised to use the advisory opinion process to determine whether operating rooms, beds or procedure rooms were in existence as of March 23, 2010.

Disclosure of ownership interests is required for grandfathered hospitals, and the regulations require hospitals to include such disclosure as a condition to medical staff membership and privileges. The disclosure requirements also are incorporated in the Medicare Conditions of Participation for physician-owned hospitals.

In-Office Ancillary Services Exception

PPACA imposes a disclosure requirement when MRI, PET or CT scanning is furnished to patients by physicians under the in-office ancillary services exception to the Stark Law. The new disclosure requirement is addressed in the final regulations implementing the Medicare physician fee schedule update for calendar year 2011, slated to be published in the Federal Register on November 29, 2010. Although CMS solicited comments in the proposed regulations on whether to expand the disclosure requirement to services other than MRI, PET and CT scans, the agency declined to do so.

The final regulations require that written disclosure in a manner sufficient to be reasonably understood be given to patients at the time of referral. The written notice must include a list of five suppliers (reduced from the ten suppliers required in the proposed regulations) located within a 25-mile radius of the physician's office. The list must include the name, address and phone number of each supplier.

The final regulations remove several requirements set forth in the proposed rules, including the requirement that the supplier's distance from the physician's office be noted on the list and that the physician obtain the patient's signature on the notice and retain a copy of the disclosure in the patient's medical record. Noting PPACA's use of the term "supplier" rather than "provider," the proposed regulations would have prohibited a listing of providers (including hospitals) on the written disclosure. The final regulations permit listing of providers in the area as long as the requisite number of suppliers is listed.

The disclosure requirement is effective January 1, 2011. Physicians utilizing the in-office ancillary services exception to protect MRI, PET and CT referrals should initiate development of a disclosure notice to assure compliance by the deadline.