The Health Care Investor : Healthcare Lawyers & Attorneys for Life Science Companies & Investors

On Monday, a  federal judge sitting in Florida, Judge Robert Vinson,  declared unconstitutional the portion of the healthcare reform law (aka PPACA, or the Affordable Care Act)  requiring most Americans to buy health insurance by 2014 or face penalties.  Judge Vinson also declared unconstitutional the section of the act that withholds Medicare funds from states that refuse to participate.  This ruling is similar in part to the decision out of Virginia in mid December we'd previously discussed.   However, the Florida ruling is different in one key way - - - Judge Vinson ruled that, because the law contains no savings clause permitting certain provisions to be voided while retaining the remainder of the law, the unconstitutionality of those provisions voids the entire law.

Florida is one of 26 states that has challenged the law to date, while other states have indicated  that they are considering challenging as well.   In contrast to the decisions out of Florida and the Eastern District of Virginia,  federal judges in the Eastern District of Michigan and the Western District of Virginia and have ruled to uphold the "individual mandate" to carry health insurance.

On a related note, the Physician Hospitals of America (PHA) and Texas Spine & Joint Hospital (TSJH) lawsuit challenging Section 6001 regarding physician-owned hospitals may be impacted by the ruling in Florida.   PHA and TSJH have been awaiting an opinion in their case in the Eastern District of Texas from Judge Michael H. Schneider, and they have already filed a motion asking Judge Schneider to adopt the decision and invalidate the ban on physician-owned hospitals.

As the Senate debates whether to vote on the healthcare reform repeal and modification bills introduced over the past several days and other federal courts tackle similar healthcare reform challenges, developments on the healthcare reform front are occurring seemingly daily.  

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With the mid-term elections now behind us and the Republicans faring as successfully as generally predicted, all segments of the healthcare industry are looking closely at what the new Congressional power balance will mean for them. With several seats still in question as states finalize vote counts, the House membership will include at least 241 Republicans (largest since 1946) and at least 184 Democrats, while the Democrats will retain the majority with a slimmer margin.   This shift is the largest seat gain by either party since 1948.   Since then, the biggest change had been the 1994 Clinton-term Republican gain.   

High on the Republican agenda will be tackling the Obama-backed sweeping healthcare reform law passed this spring. Although a full scale repeal of the Patient Protection and Accountable Care Act (PPACA) is highly unlikely, Republicans will likely be looking at every available opportunity to slow down or roll back the healthcare legislation.  Many in the new Congress will be sure to stage strong opposition to new rulemakings and appropriations that are necessary to implement the key components of PPACA in an effort to minimize or delay the practical impact of the law. 

The healthcare sectors most immediately effected by PPACA are already reaching out to their seated and newly elected legislators to gain their ear on key issues. It has been well publicized, and we’ve discussed in prior blog posts, that the physician-owned hospital industry was a particular target in PPACA through Section 6001, which contained massive changes to the Stark law exception under which physician-owned hospitals have historically operated and been permitted to bill Medicare/Medicaid for referrals by their physician owners. Physician Hospitals of America (PHA) and its member hospitals will be working hard to educate newly elected legislators on the issues surrounding Section 6001 in an effort to obtain legislative relief through an amendment of Section 6001 or through the rulemaking process. These efforts of PHA are in addition to the ongoing litigation it has waged in conjunction with Texas Spine & Joint Hospital challenging the constitutionality of Section 6001. Even with the new shift in Congressional power, the industry will very likely continue to face powerful opposition, including from the American Hospital Association (AHA), which has the 5^th largest PAC in the country. The AHA and Federation of American Hospitals (FAH) together have spent $6,344,522 since 2007 on their advocacy efforts, a large component of which is tighter restrictions on physician ownership in hospitals.

Other sectors have also already started making moves to ensure their voice is heard. As the new Congressmen and Senators take office and Congressional leadership and committee leadership take shape, we will very likely see the divergent party healthcare agendas again at the forefront of Congressional activity and should soon see which sectors are most heavily impacted.

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One of the less publicized aspects of recent Congressional healthcare reform efforts is the continued efforts of some legislators to severely limit physician ownership in specialty hospitals, this time through the current U.S. House of Representatives and Senate bills.

There are nearly 200 specialty hospitals in the United States, as well as many in various stages of development. These specialty hospitals most commonly concentrate on surgical procedures, although there is a subset of the specialty hospital market that focuses on cardiovascular services, and there is a growing trend toward specialization in other nonsurgical areas such as special cancer treatment hospitals, children’s specialty hospitals and renal hospitals.

These hospitals are often physician-owned and operate pursuant to a specific exception to the federal Stark Law known as the “whole hospital exception” which permits physician to refer to the hospitals in which they own equity. The U.S. House of Representatives and Senate have both passed bills containing language that seriously alter the so-called "whole hospital exception" to the Stark Law on which these specialty hospitals rely, including by limiting the ability of existing hospitals to expand, limiting the level of physician ownership in such hospitals and prohibiting the development of new physician-owned hospitals which have not yet achieved certain developmental milestones (such as Medicare certification) by a set date.  

The House and Senate are working to consolidate their reform bills but it is yet unknown whether Congress will be able to pass any health care reform bill, particularly given the recent shifts in the power with the election of new Massachusetts Senator-elect Brown. Even if a consolidated bill is adopted, the details of such limitations on physician-owned hospitals are unclear; however, most industry leaders believe any consolidated bill would include some additional restrictions on physician-owned hospitals.

One thing is certain. The political future of physician-owned specialty hospitals is hazy, and if the current healthcare reform efforts do not produce a bill with restrictions on physician-owned hospitals, industry opponents are unlikely to lay down their swords. 

Physician Hospitals of America (PHA) is the industry trade association for physician owned hospitals.

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