We reported, in early 2017, on what was then the latest legislative effort to repeal the Affordable Care Act’s amendment to the Stark Law’s whole hospital exception, which amendment has effectively prevented new physician-owned hospitals from participating in the Medicare program. (You can visit—or revisit—that post, which explores arguments in favor of and in opposition to the restriction, here.)

While the Patient Access to Higher Quality Health Care Act of 2017, introduced in the House in February 2017 and, in May 2017, the Senate, did not pass, recent rumblings suggest that repeal efforts are far from exhausted; rather, proponents of physician hospital ownership may be targeting a new tactic: regulation.

Most recently, newly-appointed Secretary of the Department of Health and Human Services (“HHS”), Alex Azar, indicated his openness to relaxing the restrictions in the interests of fostering effective competition. Last year, the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule for inpatient hospitals that expressly invited stakeholder comments on the “appropriate role of physician-owned hospitals in the delivery system” and “how the current scope of and restrictions on physician-owned hospitals affects healthcare delivery.”[1]

What would regulatory (as opposed to legislative) action look like? How far could it go? Our initial, overarching observations are as follows:

  • Administrative agencies can relax but not eliminate the ban: Congressional action would be required to repeal the law and lift the prohibition in its entirety.
  • CMS, as a regulatory agency, has limited avenues available to it: Under the Stark Law, CMS has broad discretion to permit financial relationships that it determines, and specifies in regulations, do not pose a risk of Medicare program or patient abuse.[2] The rulemaking process, however, can be slow and would likely only carve out from the prohibition some small number of specific scenarios. We may also see CMS explore a new demonstration project with waivers. However, we consider such a demonstration project to be unlikely given that CMS already has significant experience with physician-owned hospitals.
  • Inter-agency support would be key: Due to the fact that enforcement lies with the HHS Office of Inspector General and the Department of Justice, CMS would likely have to work closely with these agencies to further any proposals. Significantly, during a January 2018 American Hospital Association Town Hall webcast with CMS Administrator Seema Verma, Ms. Verma indicated that the Stark Law, generally, was a top concern of providers in response to CMS’ New Direction Request for Information.[3] In connection therewith, Ms. Verma revealed that CMS will be part of a yet-to-be formed inter-agency group to review barriers to “modernization” imposed by the Stark Law (and Anti-Kickback Statute) regulations. Mr. Azar’s vocalized support for repealing the restrictions on physician-owned hospitals is, therefore, all the more critical to the cause.

The holding pattern continues; the scope and extent of any ensuing regulatory action remains highly speculative. However, it seems reasonable for stakeholders—proponents and opponents alike—to poise themselves for public comment. The holding pattern continues, yes, but there are signals of further movement in this contentious and significant debate.

[1] https://www.gpo.gov/fdsys/pkg/FR-2017-04-28/pdf/2017-07800.pdf.

[2] 1395nn(b)(4).

[3] https://www.youtube.com/watch?v=vrtey7QPAYg&feature=youtu.be.