Hospitals and Physicians Required to Disclose Ownership in Physician-Owned Hospitals

March 17, 2009

On March 6, 2009, the Centers for Medicare and Medicaid Services (CMS) released a transmittal implementing a final rule from the hospital inpatient prospective payment system (IPPS) for fiscal year 2008 requiring disclosure of physician ownership or investment in physician-owned hospitals.

Beginning June 8, 2009, Medicare-participating hospitals will be required to disclose certain physician ownership or investment information to patients when a referring physician (or his or her immediate family members) has an ownership interest in a hospital. Physicians also will be required to disclose their (or their immediate family members) ownership or investment interests in all hospitals to which a physician refers patients. For purposes of the disclosure requirements, a physician’s ownership or investment interest may be through equity, debt, or other means, and includes an interest in any indirect entity that holds an ownership or investment interest in a hospital.

The final rule’s disclosure requirements are intentionally broad and apply to all hospitals with physician ownership, including critical access hospitals, long term acute care hospitals, and specialty hospitals alike. These particular disclosure rules do not apply to physician-owned ambulatory surgery centers. CMS stated that these changes are being made for the purpose of allowing individuals “to make an informed decision regarding their treatment and to decide if the existence of a financial relationship suggests a conflict of interest that may not be in the best interest of the patient.”

The final rule specifically requires physician-owned hospitals to:

  1. furnish written notice reasonably designed to be understood by all patients to each patient at the beginning of the patient’s hospital stay or outpatient visit that the hospital is a physician-owned hospital. The notice must disclose the fact that the hospital meets the Federal definition of a physician-owned hospital and that the list of physician owners or immediate family members of physicians is available upon request and must be provided to the patient at the time of the request; and
  2. require each physician who is a member of the hospital’s medical staff to agree, as a condition of continued medical staff membership or admitting privileges, to disclose, in writing, to all patients the physician refers to the hospital any ownership or investment interest in the hospital held by the physician (or held by an immediate family member of the physician). Disclosure must be made at the time of the referral.

The requirement that the notice must be “reasonably designed to be understood by all patients” suggests that hospitals should have written disclosure statements in languages used most often by their patient population. Physician-owned hospitals may also consider amending their (i) medical staff bylaws, (ii) conflict of interest policies, and (iii) medical staff membership and credentialing applications and renewal forms to require each physician who is a member of the medical staff, or who is applying for medical staff membership or admitting privileges, to give referred patients written disclosure of the ownership or investment interest in the hospital held by the physician or the physician’s immediate family member.

Hospitals that fail to comply may face having their provider agreements with CMS terminated, and physicians who fail to disclose ownership interests could lose hospital medical staff membership.

A copy of the accompanying Medicare Learning Network article released by CMS is available online.

Please contact the authors for more information about this disclosure requirement or for additional compliance guidance. For more information, visit our Health Care Industry Group.