CMS Announces Physician-Owned Hospital Expansion Waiver to Fight COVID-19

April 1, 2020

On March 30, 2020, the Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma announced multiple temporary regulatory waivers and new rules to provide flexibility in responding to the 2019 novel coronavirus (COVID-19) pandemic. The regulatory relief includes temporarily lifting facility expansion restrictions on physician-owned hospitals (POHs) under the physician self-referral law (the Stark Law), which otherwise prohibits a POH from increasing the aggregate number of operating rooms, procedure rooms and beds beyond that for which the POH was licensed on March 23, 2010.

CMS stated as follows regarding its waiver of the Stark Law restrictions that prohibit POH facility expansion:

Physician-owned hospitals can temporarily increase the number of their licensed beds, operating rooms, and procedure rooms, even though such expansion would otherwise be prohibited under the Stark Law. For example, a physician-owned hospital may temporarily convert observation beds to inpatient beds to accommodate patient surge during the COVID-19 pandemic in the United States.

CMS’ announcement did not provide additional details regarding the circumstances in which expansion would be permitted, but based upon similar CMS action in recent days and weeks, and other regulatory waivers and rules outlined in the March 30 announcement, it is likely that any expansion project that is reasonably related to combating the COVID-19 pandemic will be protected under the waiver. Further, CMS stated that the POH expansion waiver would “apply immediately across the entire U.S. healthcare system for the duration of the emergency declaration,” but it did not specify what action POHs are expected to take immediately after the emergency declaration to unwind facility expansion projects. Accordingly, POHs should carefully consider expansion projects that may have a significant cost or result in excess unused space following the COVID-19 crisis.

The POH expansion waiver represents CMS’ recognition that POHs can play an important role in supporting their communities during the crisis. It further demonstrates POHs’ contributions to the healthcare system and desire to offer their services to those in need despite significant interruptions to normal operations.

Importantly, the POH expansion waiver is limited to the portion of the Stark Law that addresses the number of operating rooms, procedure rooms and beds operated by a POH. It does not address any other restrictions under the Stark Law applicable to POHs, including without limitation physician ownership disclosure requirements and limits on the aggregate level of physician ownership of a POH.

Please contact the authors for additional guidance on how the POH facility expansion waiver and other COVID-19 considerations will affect providers and the delivery of patient care. McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial coronavirus-related business and legal issues.

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