Down on the Farm The Attack on Physician Ownership

Attack on Physician Ownership

In the face of these reimbursement challenges, there have been incessant legislative and regulatory efforts undertaken at the federal and state levels, in large part due to massive lobbying initiatives by oligopoly hospitals and their trade associations to reverse the trend of, and restrict physician ownership in, investment in ASTC revenue stream enterprises—e.g., ambulatory surgery centers (ASCs); independent diagnostic testing facilities (IDTFs), surgical hospitals, physical therapy, etc. These measures have served to relegate independent physicians in private practice to receiving only professional fee component revenues or to acquiesce by accepting employee status under the substantial control of hospital systems or large corporate players.

The central catalyst driving the increasingly volatile regulatory environment surrounding physician owners is the competition over who should benefit from ASTC revenues. The federal government appears to promote that physician profit in healthcare, by its very nature, is bad, (e.g., former administrator of CMS, Thomas Scully’s recent statement, “...but I can tell you when I drive around the country and see where ASCs are popping up, I can tell who we’re overpaying. You go back and check the rates and, hmm, there you go. That’s why we’ve got more ambulatory surgery centers for orthopedics.”). And when Rep. Pete Stark (D-Calif.) said at a 2004 conference, referring to physician invested enterprises and the specialty hospital moratorium, “And when you got, as I said, the shysters of the medical care providers, the MedCaths and others who want to make money on it without regard to quality, they’ll find a way to give kickbacks and bribes,” the bias seems apparent.

In attempting to protect what they perceive as their “turf,” hospital lobbyists, together with Sens. Charles Grassley (R-Iowa) and Max Baucus (D-Mont.) as well as Rep. Stark (known as the “Three Amigos”), have united in their battle against physician owners, and are expected to continue their attack utilizing a range of regulatory tactics. A review of some of the most significant skirmishes in the offensive against physician ownership seems to indicate a common theme.

CHAMP Section 651 Provisions

Currently, the whole hospital exception to the Stark law allows physicians to have an ownership interest in a hospital to which those physicians refer patients, provided the physician is invested in the whole hospital and not a subdivision of the hospital, with no limitations as to the amount or extent of physician ownership, on either an aggregate or individual basis. Provisions contained in Section 651 of the July 24, 2007, U.S. House of Representatives Bill 3162, the Children’s Health and Medicare Protection Act of 2007 (CHAMP), effectively proposed a change to the whole hospital exception, which would have prohibited physicians from having an ownership interest in a hospital to which those physicians refer patients, thereby eliminating the whole hospital exception. The proposed act was not limited to specialty hospitals, and it grandfathered hospitals that were operating with Medicare provider agreements as of the date of introduction of the act. However, it required those grandfathered hospitals to meet certain standards within 18 months of the enactment of the bill, including, “preventing growth, requiring disclosure of ownership, limiting physician ownership to an aggregate of no more than 40 percent of the facility and no more than 2 percent individually, and disclosing to patients if they fail to have 24 hour physician coverage.” While the CHAMP Section 651 provisions were not passed in 2007, similar provisions are expected to be included in Medicare legislation through 2008, which, if enacted, would result in the subsequent remaining physician investors’ holdings being placed in a minority position, a loss of control, and value.