Stark Law

CMS Proposes to Peel Back Restrictions on Physician Owned Hospital Expansions

From the onset, the Administration has assigned a high priority to loosening Stark Law and Anti-Kickback Statute (AKS) restrictions. And now CMS has floated two new proposals allowing for greater expansion of physician-owned hospitals (POHs). Here’s a quick briefing.

POHs & the ‘Whole Hospital’ Exceptions

The Stark Law bans physicians from referring Medicare patients to entities in which they or a family member hold a financial interest. However, the “whole hospital” exception allows physicians to make referrals to such hospitals under two conditions:

  • They’re authorized to perform services at that hospital; and
  • Their financial interest is in the whole hospital, as opposed to a specific department or subdivision like the lab.

Section 6001 Restrictions

Savvy physicians took advantage of the rules by investing in POHs providing specialized services, basically freestanding versions of hospital divisions established to meet the whole hospital exception. The ironic effect was to promote growth of an industry fueled by the self-referrals that the Stark was designed to prevent. Sure enough, Congress investigated and while deciding to leave the whole hospital exception intact, adopted new restrictions in 2010, i.e., Section 6001 of the Affordable Care Act (ACA), to prevent further abuses.

Other Section 6001 Restrictions on POHs

In addition to limiting expansion of existing POHs, the Section 6001 changes to “whole hospital” exception rules:

  • Prohibit the establishment of new POHs;
  • Require POHs to report to HHS, disclose to their patients and post on their websites and public ads who their investors are and what terms of investment they have; and
  • Cap the aggregate value of investments owned by physicians (as opposed to nonphysicians) at 2010 levels.

Relaxation of Limits on POH Expansions

The new proposal, which is part of the 2021 Outpatient Prospective Payment System (OPPS) Rule, seeks to peel back some of the Section 6001 restrictions, specifically the rules banning existing POHs from increasing the number of operating rooms, procedure rooms and beds without first getting an exception from CMS. The agency is proposing two changes:

  1. Exempt “High-Medicaid” Facilities from 2-Year Request Window

Current Rule: Facilities are allowed to request a CMS exception to expand only once every two years.

Proposed Change: CMS would allow “high-Medicaid” facilities to request expansions at any time without being subject to the two-year limit, provided that the facility hasn’t already submitted another request for exception that’s pending with the agency.

  1. Include Beds in POH Baseline

Current Rule: The limit on a particular POH’s expansion is based on its “baseline,” i.e., number of operating rooms, procedure rooms and beds for which it was licensed. State laws determine which beds count as being licensed.

Proposed Change: CMS proposes to revise the definition of “baseline number of operating rooms and beds” to clarify that “a bed is included if the bed is considered licensed for purposes of State licensure, regardless of the specific number of beds identified on the physical license issued to the hospital by the State.” Translation: CMS will consider a bed to be “licensed” as long as it’s within the hospital’s State-approved “bed complement.”


Compared to the value-based care package (see the item below), the “whole hospital” issue is just an hors d’oeuvre. Even so, the current limitations on POH expansion has been a bone of contention with physicians for nearly a decade. The newly proposed Stark changes, which are likely to be adopted, will offer a measure of relief give physicians greater leeway to expand POHs.

Healthcare Organizations Urge Fast Action on Value-Based Care Kickback Relief

Last October, after years of study and investigation, HHS, CMS and the OIG finally unveiled a package of regulatory changes designed to relax current Stark Law and Anti-kickback Statue rules and facilitate value-based care arrangements. (See NIR, Nov. 15, 2019). But the final rules are bogged down in the White House Office of Management and Budget (OMB) and it’s unclear when they’ll be released. On Aug. 5, a group of 120 healthcare organizations, trade groups, suppliers and vendors issued a letter asking the President to take fast action and approve the proposed changes. “With the completion of this important work so close at hand, a single word from you would lift your team across the finish line,” the letter urges.





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