Health Care Legislation Update: The Impact on Post-Acute Care Providers and Physician-Owned Hospitals

July 17, 2009

President Obama’s looming deadline to hold congressional pre-conferences and floor votes on comprehensive health care reform legislation before Congress’ August recess has prompted a flurry of legislative activity this week.

On Tuesday, July 14, 2009, the House released the Tri-Committee health care reform bill, officially titled H.R. 3200, America’s Affordable Health Choices Act of 2009 (Tri-Committee Bill), and with its party-line vote on Wednesday, July 15, 2009, the Senate Health, Education, Labor, and Pensions (HELP) Committee became the first congressional committee to approve a health care reform bill. The Senate Finance Committee’s health reform bill may be released as early as next week.

House Tri-Committee Bill Released

After delaying the originally planned release of the Tri-Committee Bill last Friday, House leadership and leaders of the “Blue Dog Coalition” of fiscally conservative Democrats were in talks last weekend to find a compromise on which all parties could agree. Democrats still lack an official cost estimate for the Tri-Committee Bill, which the Congressional Budget Office (CBO) has not yet scored. A preliminary CBO estimate of the insurance expansion provisions of the Tri-Committee Bill, however, put the total spending at just over $1 trillion over 10 years, and said it would cover all but 17 million of the nation’s estimated 46 million uninsured (half of the remaining uninsured would be illegal immigrants).

The Tri-Committee Bill pays for health insurance coverage expansion for the poorest 10 percent of Americans by proposing the implementation of an incremental surcharge tax that would tax the 1 percent of Americans in the highest income bracket. The surcharge would start at 1 percent and ramp up to 5.4 percent at the top of the income scale, and would apply only to individuals making more than $280,000, or married couples making more than $350,000. The Tri-Committee Bill also includes a tax on health benefits. Democrats said the tax would affect 1.2 percent of households and up to 4.1 percent of small businesses.

Senate HELP Committee Completes Markup

The Senate HELP Committee’s approval of their bill ends a nearly month-long markup that was conducted mostly along party lines. This partisan divide was present in the hundreds of amendments considered by the committee, and in the final vote — a 13-10 party line split. The final legislation contained few surprises. It would require individuals to obtain health insurance and require employers to help cover the costs for their workers. It would create a new, government-run insurance option to compete with private insurance plans. It also would make major changes to how health care is delivered by focusing on the provision of preventive care and wellness programs.

The HELP Committee Bill will next be combined with and reconciled against the forthcoming Senate Finance Committee bill, which could be released and marked up as early as next week. Sen. Christopher Dodd (D-CT), speaking July 15, 2009, dismissed any possibility of bringing the HELP Committee Bill to the Senate floor without the Senate Finance Committee’s product, saying “[w]e will bring our two bills together.”

Impact for Post-Acute Care Providers and Physician-Owned Hospitals

1. Post-Acute Care Payment Bundling Study. Section 1152 of the Tri-Committee Bill requires the Secretary of Health and Human Services to “develop a detailed plan” to reform post-acute care payment services provided by long-term care hospitals (LTACHs), skilled nursing facilities, inpatient rehabilitation facilities, hospital-based outpatient rehabilitation facilities and home health agencies. The plan is required to include detailed specifications for developing a post-acute care bundled payment model that takes into consideration the following factors, among others:

  1. Type of post-acute care provider.
  2. Whether payments for physicians should be included in the bundle.
  3. Period covered by the bundle.
  4. Whether bundled payments should be paid to acute-care hospitals or post-acute care providers.
  5. Extent to which payment rates could be established to achieve efficiency offsets expected to be achieved through bundling.
  6. Nature of protections needed to ensure that individuals receive appropriate, quality care.
  7. Application of gainsharing, anti-referral, anti-kickback and antitrust laws.
  8. How bundling rules would impact various provider-based rules (i.e. the LTACH 25 percent Rule).

It is interesting to note that the Tri-Committee Bill does not require the Department of Health and Human Services (HHS) to implement a payment bundling demonstration project, but instead only requires a detailed plan analyzing the feasibility of post-acute payment bundling to be developed. As currently drafted, post-acute bundled payments could still be a number of years away, since the establishment of a demonstration project would likely be the next step. It should be noted, however, that Congressmen Rangel and Waxman are contemplating introducing amendments to the Tri-Committee Bill to hasten the speed at which a bundled payment pilot program would be implemented.

2. Physician-Owned Hospitals. Section 1156 of the Tri-Committee Bill contains a provision that would prevent construction of new physician-owned hospitals and restrict the expansion of current physician-owned hospitals. The provision is almost identical to one contained in the House’s version of the State Children’s Health Insurance Program (SCHIP) bill introduced earlier this year. The provision would significantly impact current physician ownership and investment interests in physician-owned hospitals, including LTACHs, and would altogether ban future physician investment and ownership. If passed in its current form, the legislation would:

  1. Grandfather physician-owned hospitals with a Medicare provider agreement that are in operation as of Jan. 1, 2009. Hospitals under development as of Jan. 1, 2009, would not be grandfathered under the proposed House bill.
  2. Prohibit physicians from increasing their ownership or investment interest in physician-owned hospitals above the percentage held by such physicians on Jan. 1, 2009.
  3. Prohibit the addition of beds, operating rooms, and procedure rooms in physician-owned hospital going forward from the date of enactment of the legislation.
  4. Require physician-owned hospitals to submit an annual report identifying each physician owner and investor, and the nature and extent of all ownership and investment interests.
  5. Require physician-owned hospitals to have procedures in place to require that any physician owner or investor disclose his or her ownership or investment interest to a patient at the time the patient is referred to the hospital in which he or she has an ownership or investment interest.
  6. Require physician-owned hospitals to disclose any physician ownership or investment interest on the hospital’s website and in any public advertisement.
  7. Ensure that ownership in hospitals by physician owners or investors is bona fide and satisfies the Stark Act’s Whole Hospital Exception.

A similar ownership restriction and development prohibition is expected to be included in the Senate Finance Committee’s bill, although experts believe that the effective date of the physician ownership restriction contained in that bill will likely be July 1, 2009.

3. Medicare Long-Term Care Hospital Improvement Act of 2009 Regulatory Relief. Earlier this spring, legislation known as the Medicare Long-Term Care Hospital Improvement Act of 2009 (LTCHIA) was introduced with strong bipartisan support in both the House and Senate (H.R. 2124; S. 935). The Act was introduced for the purpose of extending certain payment and regulatory relief (i.e., a reprieve from the “25 percent Rule,” which generally reduces payment for a certain percentage of patients transferred from short-term acute-care hospitals to LTACHs) gained by LTACHs under the Medicare, Medicaid, and SCHIP Extension Act of 2007. The provisions of LTCHIA were not included in the Tri-Committee Bill, but industry insiders have expressed optimism that the relief sought under LTCHIA will appear in the Senate Finance Committee Bill and that the final conference reconciliation package will contain the LTCHIA provisions.

Congress is moving with unprecedented speed to formulate complex, sweeping health care reform legislation that will impact all health care providers. Please contact Mona G. Mohib, Jason S. Greis, Scott P. Downing or a member of McGuireWoods’ Health Care Department or McGuireWoods Consulting to learn more about the status of the various congressional health care bills.