In our bulletin " Healthcare Reform Bill Prevents New Physician Ownership in Hospitals," published in March, we commented that the Patient Protection and Affordable Care Act and the Health Care Education and Reconciliation Act of 2010 (together, the "Act") prohibit future physician investment and cap existing physician investment in hospitals. On July 2, 2010, CMS, through its proposed rule and accompanying comments regarding, among other matters, hospital outpatient prospective payment system and ambulatory surgical center payment system, reiterated that the Act prohibits future physician investment and caps existing physician investment in hospitals, as of March 23, 2010.
CMS confirmed that "the percentage of the total value of physician ownership or investment interests held in a hospital, in the aggregate, must not exceed such percentage as of March 23, 2010. Therefore, if a hospital has no physician ownership or investment as of March 23, 2010, and later adds physician owners or investors, the hospital will not satisfy the whole hospital and rural provider exceptions."
Prior to release of this proposed rule by CMS, some believed that the references to various dates in the Act created an ambiguity (e.g., when read together, the Act requires that a hospital have physician owners by December 31, 2010, but those owners cannot hold a percentage in excess of what was held by physicians on March 23, 2010). CMS states in this release that "the Act provides that the hospital must have had physician ownership or investment on December 31, 2010, while ... the Act assumes the existence of physician ownership or investment on March 23, 2010 and further provides that the percentage of the total value of physician ownership or investment interests held in the hospital, in the aggregate, on that date must not increase."
With this release, however, CMS clarified its reading of the Act with the following statement:
"Reading these provisions together, we conclude the following: (i) if a hospital had no physician ownership or investment as of March 23, 2010, it will not qualify for the whole hospital or rural provider exceptions if it adds any physician owners or investors after that date; and (ii) if a hospital had physician ownership or investment as of March 23, 2010, it may reduce the number of physician owners or investors, provided that the percentage of the total value of physician ownership or investment interests, in the aggregate, remains the same or decreases."
While CMS acknowledges the permissibility of a reduction of physician ownership interests, we interpret the Act and CMS' proposed rule also to permit further sales of interests to physicians as long as, thereafter, the percentage of the total value of physician ownership or interest does not exceed such percentage as of March 23, 2010.
Another clarification provided by CMS in this proposed rule relates to the limitation on a hospital to expand the number of operating rooms, procedure rooms and beds it had on March 23, 2010 (or if the hospital did not have a provider agreement in effect then, but does by December 31, 2010, the date of the provider agreement). CMS commented that "the limitation on expansion applies to operating rooms and procedure rooms regardless of whether a State licenses these rooms." Although CMS declined to define "procedure rooms" more broadly, as permitted by the Act, it encouraged "public comments on whether 'procedure rooms' should include rooms where additional services, such as CT or PET scans, or other services, are performed."
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