Physician-Owned Hospitals: Back in Legislative Saddle Again or “I’m just a bill, I am only a bill.”
On February 16, 2017, Representative Sam Johnson (R-Texas) introduced a bill to the House of Representatives that brings to the forefront an ongoing and contentious debate regarding the propriety of physician-owned hospitals. If adopted as proposed, the Patient Access to Higher Quality Health Care Act of 2017 would repeal sections of the Affordable Care Act (“ACA”) that, since 2011, have effectively prevented new physician-owned hospitals from participating in the Medicare program.
Prior to the ACA, the “whole hospital” exception to the federal physician self-referral law known as the “Stark Law” permitted, under certain conditions, a physician to have an ownership or investment interest in a hospital to which the physician refers “designated health services” that are covered by the Medicare program. Specifically, physicians could refer patients to hospitals in which they had an ownership interest so long as the ownership interest related to the entire hospital facility as opposed to a hospital department. Section 6001 of the ACA (“Section 6001”) amended the whole hospital exception to prohibit the exception’s applicability to new physician-owned hospitals – in general terms, physician-owned hospitals that did not have Medicare provider agreements in effect as of December 31, 2010. Section 6001 also imposed additional requirements on eligible hospitals (physician-owned hospitals that had Medicare provider agreements in effect as of December 31, 2010), including limitations on new construction and facility expansion, limitations relating to conflicts of interest, and limitations on new bona fide investments.
Those who support the limitations on physician-owned hospitals (i.e., Section 6001 proponents) view Section 6001 as closing a glaring loophole in the Stark Law. For example, a recent factsheet published by the American Hospital Association, a Section 6001 proponent, highlights several common criticisms based upon studies that show: (i) physician-owned hospitals experience greater utilization and greater costs than non-physician-owned hospitals; (ii) physician-owned hospitals commonly provide limited or no emergency services; and (iii) physician-owned hospitals are more selective as to the patients they are willing to treat (e.g., physician-owned hospitals treat healthier patients and fewer Medicaid patients than their non-physician-owned counterparts).
Opponents of Section 6001 argue that physician-owned hospitals provide higher quality care in a more cost-effective way than non-physician-owned hospitals. The foregoing is usually attributed to the impact of increased physician participation in hospital governance and decision-making at physician-owned hospitals. Moreover, it is argued that the increased quality and cost effectiveness experienced by physician-owned hospitals are the reasons that physician-owned hospitals have better patient care outcomes than non-physician owned hospitals – in other words, the argument offered by Section 6001 proponents that better patient outcomes are driven by the admission of only healthy and affluent patients is false.
The campaign against Section 6001 has been played out in various forums: (i) court cases have challenged Section 6001 on multiple grounds; (ii) both Section 6001 proponents and opponents have engaged in significant lobbying activities; and (3) previous legislative action has been proposed by Section 6001 opponents (e.g., an earlier version of the Patient Access to Higher Quality Health Care Act was introduced in 2015).
Is the Patient Access to Higher Quality Health Care Act of 2017 more likely than its predecessor to succeed considering changes in the makeup of the federal government and the ongoing ACA “repeal and replace” movement? Time will tell.
Whether this latest initiative to free physician-owned hospitals from their current statutory leash is successful, the debate for and against physician-owned hospitals will likely rage on. Nonetheless, any possibility for a repeal of Section 6001 and the new wave of physician-owned hospitals that would undoubtedly ensue is a possibility worth contemplating…and watching.
 American Hospital Association, Factsheet: Physician Self-referral to Physician-owned Hospitals (Feb. 22, 2017).
 Physician Hospitals of America v. Sebelius, No. 6:10-cv-277 (E.D. Tex. Mar. 31, 2011).