Tucked amid the myriad provisions of the 2,409-page Patient Protection and Affordable Care Act is one that imposes sweeping restrictions on physician-owned hospitals.

Title VI, Section 6001 of the recently enacted health care reform law prohibits existing hospitals from expanding after March 23, 2010, bans new construction after the end of the year, restricts business investments and requires physicians to disclose ownership interests to their patients. Physicians who fail to comply face fines of up to $1 million.

As a result, physicians have scuttled plans to develop 39 new hospitals nationwide, according to Physician Hospitals of America (PHA), a trade group. Of the 74 additional hospitals now under development, 45 are not expected to meet the law’s Dec. 31, 2010, deadline to be opened or be Medicare-certified, leaving owners and investors in a quandary.

“There is no justifiable reason for physician-owned hospitals to be singled out in this federal legislation,” said Michael E. Russell II, MD, an orthopedic surgeon and partner/owner of the Texas Spine & Joint Hospital in Tyler, a 20-bed, acute care facility founded in 2002. “If we are prevented from expanding, patients will have fewer choices and costs will ultimately go up,” Dr. Russell said in a statement regarding the lawsuit.

In June, Texas Spine and Physician Hospitals of America (PHA), a trade association, jointly filed a lawsuit against the federal government, charging that Section 6001 of the health care reform law is unconstitutional because it is “retroactive, arbitrary, vague and fails to provide due process and equal protection.”

The plaintiffs also are seeking a preliminary injunction to allow Texas Spine to proceed with plans to expand the facility by an additional 20 Medicare beds.

‘Illogical and Unfortunate’

Approximately 265 of the nation’s 5,800 hospitals are owned by physicians, with the rest owned by non-profit and for-profit corporations, universities and other institutions. The restrictions on physician-owned hospitals derive from long-standing criticism of conflicts of interest when physicians refer patients to their own hospitals and allegations that these facilities “cherry-pick” the best-paying patients, leaving other institutions to care for the poor and indigent. Doctors deny both charges.

“It is truly illogical and unfortunate that at a time the government is supposedly attempting to increase access to care, it has chosen to stop the growth of many of the best hospitals in the country,” said PHA Executive Director Molly Sandvig, JD, in a statement. “We need high-quality, efficient, patient-centered care, not more of the same high-cost, inefficient, bureaucratic-minded care.”

Anesthesiologists and pain management specialists are frequently among the owners of these hospitals. “All of these facilities offer anesthesia services and many also have large pain management practices incorporated into them,” Ms. Sandvig said. “In many cases, the medical directors or CEOs of these hospitals are anesthesiologists,” she told Anesthesiology News.

Anesthesiologist Richard Toussaint, MD, president and one of the founders of Forest Park Medical Center, in Dallas, said his 24-inpatient bed surgical specialty hospital has stopped accepting Medicare and Medicaid patients to avoid violating the health care law.

In April, Forest Park embarked on a $104-million expansion project to add 60 inpatient beds, 12 intensive-care beds, 14 operating suites and procedure rooms, plus a 135,000-square-foot medical office building. Construction was not scheduled to be finished until August 2011—well past the Dec. 31, 2010, deadline. So Dr. Toussaint and his 44 physician-partners decided to forgo receiving federal government payments, essentially exempting them from the new legislation.

“We would prefer to serve all the patients in our community, but the legislation has forced us into a business model that we would prefer not to do—it is forcing us to discriminate,” Dr. Toussaint said. “What the critics have accused physician-owned hospitals of doing has now become reality, due to the law.”

Being ‘Transparent’

Section 6001 prohibits existing physician-owned Medicare hospitals from expanding after March 23, 2010, and bans construction of new physician-owned Medicare hospitals that have not been certified as Medicare providers prior to Dec. 31, 2010. As part of efforts toward “transparency,” the legislation also requires hospitals to submit annual reports to the federal government identifying each physician-owner as well as other owners and investors by name and ownership/investment interest. This information will be published on the Web site of the Centers for Medicare & Medicaid Services.

In addition, when a physician refers a patient to a hospital in which he or she has an ownership interest, that information must be disclosed in sufficient time for the patient to make a meaningful decision about receiving care there.

The new law allows a few exceptions, mainly to rural hospitals and only under strict conditions. These include limiting the percentage of physician ownership to existing levels and requiring the county’s population to have grown at least 50% more than the state’s during the previous five years. The state’s average bed capacity must be lower than the national average, and the hospital’s average bed occupancy rate must be greater than the average bed occupancy rate in the state.

Curbing physician-owned hospitals comes at a time when the nation desperately needs to upgrade and build new health care facilities, said John Cook, MD, an anesthesiologist and part owner of Siouxland Surgery Center, a 40-bed, multi-subspecialty hospital in Dakota Dunes, S.D.

“Over the next 10 to 20 years, there will be a need to build a lot more facilities equipped with modern technology rather than trying to retrofit large, old buildings that have huge boilers that are always breaking down,” Dr. Cook said. “There will be a tremendous need to revamp the hospital institutions along with the revamping of the medical and insurance systems to provide for the future medical care of the expanding aging population.”