Disclosing Physician Financial Interests in Physician-Owned Hospitals

September 8, 2008

Part 4 of 5: Key CMS Amendments to Physician Self-Referral Rules Contained in the 2009 IPPS

(see part 1, 2, and 3)

The Centers for Medicare and Medicaid Services (“CMS”) published the 2009 Inpatient Prospective Payment Systems final rule (“Final Rule”) in the Federal Register on August 19, 2008. The Final Rule includes several important changes that will likely impact many health care providers. One such change has expanded and clarified the situations in which physician-owned hospitals and their referring physicians who have a financial interest in such hospitals are required to disclose their financial interests.

In the 2008 Inpatient Prospective Payment Systems final rule CMS added a definition of “physician-owned hospital” and required physician-owned hospitals to disclose the names of physician owners to patients. CMS did not require physician-owned hospitals to disclose to patients whether an immediate family member of a referring physician held an ownership or investment interests in such a hospital. It was CMS’s intent, however, to insure consistency between this disclosure requirement and the Stark Act, which generally prohibits, subject to certain limited exceptions, a physician from referring Medicare beneficiaries for designated health services to entities in which a physician (or a physician’s immediate family member) has a financial interest. Therefore, CMS corrected this oversight by revising the definition of a ‘‘physician-owned hospital” in the Final Rule such that, beginning October 1, 2008, physician-owned hospitals will be required to disclose to all patients, upon request, the names of their physician owners and the immediate family members of physician owners who have a financial interest in the hospital. CMS may terminate the Medicare provider agreement of a physician-owned hospital that fails to comply with this disclosure requirement.

CMS created an exception to this disclosure requirements for physician-owned hospitals that do not have physician owners who refer patients (e.g., all of the physician owners are retired), and that have no referring physicians who have an immediate family member with an ownership or investment interest in the hospital. The hospital must annually attest to this and maintain such attestation for review by government officials.

The Final Rule also requires all physicians who are members of the medical staff of a physician-owned hospital to agree, as a condition of continued medical staff membership or admitting privileges, to disclose in writing to all patients whom they refer to the hospital (at the time they refer patients) any ownership or investment interest in the hospital held by themselves or by an immediate family member.

CMS believes that requiring physicians to notify their patients if they have an ownership or investment interest in a physician-owned hospital (or the ownership or investment interest of an immediate family member) prior to referral benefits patient decision-making and improves treatment options. Such notification requirements are intended to give patients an opportunity to discuss the physician’s financial interest in the hospital and make alternative treatment plans, if desired.

It is important to note that these disclosure requirements only apply to physician-owned hospitals and physicians who refer patients to physician-owned hospitals in which they, or their immediate family members, have a financial interest. A number of states, however, are increasingly requiring physicians with financial interests in certain types or common healthcare facilities (e.g., ambulatory surgery centers, diagnostic imaging facilities and acute care hospitals) to disclose their financial interests to patients.