Are changes to the landscape of physician hospital ownership ahead?

The Affordable Care Act amended the federal Stark Law to eliminate the “whole hospital exception” that permitted self-referrals provided the referring physician was authorized to practice at the hospital and the ownership or investment interest was in the hospital itself (as opposed to a subdivision). An exception, albeit a limited one, was created for existing hospitals. Such physician-owned hospitals are restricted, absent waiver authority from CMS, from expanding capacity in terms of the number of operating rooms, procedure rooms, and beds for which the facility was licensed as of March 23, 2010. In order to obtain a waiver of this rule, a hospital must qualify as an “applicable hospital” or a “high Medicaid facility.”

The first application for a waiver, submitted by Texas-based Lake Pointe Medical Center in November 2013 on the premise that it is a high Medicaid facility, was approved by CMS late last month.[1] The request was granted based on the following three criteria:

  • The hospital is not the sole hospital in its county;
  • Medicaid patients comprised a greater percentage of total admissions, for each of the three most recent fiscal years for which data were available, than such percentage for any other hospital located in the county;[2] and
  • The hospital certified that it does not discriminate against beneficiaries of federal health care programs.

Additionally, the scope of the request—to add 36 beds—did not violate a statutory ceiling prohibiting expansion greater than 200 percent of the hospital’s baseline capacity.

Lake Pointe Medical Center makes for an interesting test case. There is only one other hospital in the county, and while Lake Pointe Medical Center had a higher percentage of admissions attributable to Medicaid patients, the difference between the facilities seems fairly minimal: 1.01%, 2.35%, and .96% in 2011, 2010, and 2009, respectively. Notably, CMS received a comment urging it to consider data from 2012 and alleging that Lake Pointe Medical Center did not have the higher Medicaid percentage that year, but declined to do so because the source contained information from 5,941 hospitals as opposed to the 6,100-hospital minimum required by regulation.

For entities that have been waiting to see how the waiver process rolls out, this instance seems to suggest that consideration of the criteria is straightforward—strictly limited to a binary analysis provided for by regulation. So, what now? Will this stimulate or discourage more requests? Moreover, for how long will Lake Pointe Medical Center’s experience remain relevant? Back in July, CMS issued a proposed rule to permit consideration of supplemental and internal data to verify waiver requirements—a modification that could conceivably muddy the analysis and allow for (or even necessitate) greater discretion.[3]


[1] Lake Pointe Medical Center’s exception request is available here. CMS’ final notice of approval is available here.

[2] Regulations require that applicants use CMS Healthcare Cost Report Information System. See 42 C.F.R. § 411.362.

[3] The proposed rule is available here.