HEALTH INDUSTRY ONLINE - Physician-Hospital Relationships under Scrutiny - SCHIP - HR 3162

State Children’s Health Insurance Program

Bills reauthorizing the State Children’s Health Insurance Program (SCHIP) have passed in both the U.S. House and U.S. Senate. The bills are different and will require Conference Committee negotiations in September to reconcile their differences. These negotiations will focus on issues such as how much to spend on SCHIP and how to pay for it, whether to include Medicare reform provisions that are part of the House bill, and whether to craft legislation to avoid a possible veto threat by President Bush (or to provoke one). Absent enactment of new legislation, the SCHIP will expire on September 30. The Senate approved its SCHIP bill (HR 976) on August 2 by a vote of 68 to 31. It includes $35 billion in spending for SCHIP over the next five years, but no Medicare payment policy changes. The House bill (HR 3162), on the other hand, contains $50 billion in spending for SCHIP over the next five years as well as numerous changes to Medicare. These changes include increasing physician reimbursements in 2008 and 2009 and reducing Medicare managed care plans by about $50 billion. The House approved HR 3162 on August 1 by a vote of 225 to 204.

The Whole Hospital Exception Amendment

Of particular note is an amendment to HR 3162 that emerged from the House Ways and Means Committee on July 27, and that was passed as part of the House bill. This amendment would revise the “whole hospital” exception under the Stark Law, significantly restricting physician ownership of hospitals and likely requiring the restructuring of many existing entities. The proposed statutory Stark Law changes are in Section 651 of the House SCHIP bill. The amendment would eliminate the whole hospital exception, thereby prohibiting physicians from referring patients to hospitals in which they have an ownership interest. This change would apply to all hospitals, not just specialty hospitals. With respect to existing arrangements, the proposed Stark Law amendment grandfathers physician-hospital ownership relationships for hospitals that were in operation and had a Medicare provider agreement as of July 24, 2007.

While this grandfathering provision allows physicians to retain their ownership interests, it implements several requirements for the grandfathered hospitals to satisfy in order to qualify for the whole hospital exception. These requirements include:

Preventing hospital growth by restricting the number of operating rooms and hospital beds to those that exist as of the date the bill is enacted;

Submitting of an annual report to the Secretary of Health & Human Services (HHS) that identifies each physician owner as well as the nature and extent of all ownership interests in the hospital;

Adoption of policies by the hospital to ensure physician disclosure of his or her ownership interest in the hospital to patients who are referred to the hospital;

Implementation of investment requirements that are similar to anti-kickback safe harbor requirements, including: (i) no more than 40% of ownership interests being held by physicians; (ii) the investment interest of any individual physician does not exceed 2% of the total investment interests; (iii) investment interests are offered to physician owners on the same terms as non-physician owners; (iv) the hospital makes no loans or financing available for physician investment in the hospital; (v) distributions are made in direct proportion to each owner’s percentage ownership interests; (vi) physician owners receive no guaranteed right to purchase other business interests related to the hospital; and (vii) the hospital does not offer physician owners the opportunity to purchase or lease any property under hospital control on more favorable terms than those offered to non-physician owners;

Disclosure to patients if the hospital does not have 24-hour physician coverage on the hospital premises.

Initial collection of the reporting information will include physician ownership information as of the date the bill is enacted. Annual updates will then be required pursuant to rules adopted by the Secretary of HHS. Within 18 months from enactment of this statutory change, the Secretary of HHS will begin audits to ensure hospital compliance with the noted requirements.

Again, this Stark Law change is only included in the House version of the SCHIP reauthorization bills, not the Senate version. President Bush has threatened to veto any bill that emerges from the Conference Committee if it mirrors either version of the current bills. The White House claims both bills cost too much, would increase taxes and would increase federal involvement in health care. President Bush wants to spend around $5 billion to reauthorize SCHIP.

Decisions in the Conference Committee must be made on a tight timeframe in light of the September 30 expiration date for current SCHIP benefits. Congress has already started its August recess, and negotiations will not begin until Congress reconvenes in September. Any final SCHIP package will have to be crafted in a way to garner sufficient support in the House and particularly the Senate, where it will likely need 60 votes to ensure passages. Bipartisan support will also be needed in light of President Bush’s veto threats.

Mandatory Disclosure of Physician-Hospital Financial Relationships

The Centers for Medicare and Medicaid Services (CMS) has announced its intention to conduct a review of financial relationships between hospitals and physicians in an effort to audit compliance with the Stark Law and its regulations. This review will focus on physician investment in hospitals, but more importantly, will be asking hospitals to disclose hospital-physician compensation arrangements under the Stark Law. Compensation arrangements include such relationships as medical directorships, lease arrangements, risk-sharing arrangements and health information technology subsidies.

CMS will seek this information from 500 hospitals nationwide. Last year, CMS conducted a similar voluntary survey pursuant to the Deficit Reduction Act of 2006 (DRA), but only 210 hospitals responded to the DRA survey. See Health Industry Online, March 14, 2007. Because CMS is unable to determine why the other 290 hospitals did not respond, those hospitals will be among the 500 that are subject to the mandatory report. CMS is in the process of finalizing its list of the other 210 hospitals that will be subject to the mandatory report.

The report will be submitted to the 500 hospitals by CMS via an electronic spreadsheet. The hospitals must complete the report in hard copy and return it to CMS within 45 days of receipt. Hospitals that do not respond within the prescribed time period will be subject to civil monetary penalties of up to $10,000 for each day beyond the 45-day disclosure deadline.