Focus on ACA Compliance for Physician-Owned Hospitals

Five Key Questions Related to the Expansion Prohibition

October 9, 2012

Section 6001 of the Patient Protection and Affordable Care Act (ACA) creates additional requirements to and limitations on the whole hospital exception to the Stark Law prohibition on physician referrals to physician-owned hospitals. The ACA includes an expansion prohibition that prohibits a physician-owned hospital from increasing the aggregate number of operating rooms, procedure rooms and beds above the number for which the hospital was licensed as of March 23, 2010.

Following are five key questions related to the ACA expansion prohibition:

1. How does a hospital determine the number of operating rooms, procedure rooms and beds for which it is licensed?

The Centers for Medicare & Medicaid Services (CMS) clarified that it interprets the phrase “for which the hospital is licensed” as applying only to beds, whereas the measurement for operating rooms and procedure rooms is those “in existence” and that were operational as of March 23, 2010. Specifically, CMS has clarified, “we believe the [ACA] limits a hospital’s ability to increase the number of beds for which it was licensed and the number of operating and procedure rooms that existed at the hospital and were operational on March 23, 2010 ….” With regard to “licensed beds,” neither the ACA nor its regulations differentiate between the various categories of licensed beds, only whether such beds were licensed on March 23, 2010.

2. What constitutes a procedure room?

The ACA defines a “procedure room” as a room in which catheterizations, angiographies, angiograms and endoscopies are performed, except that the term does not include an emergency room or department (exclusive of rooms in which such procedures are performed). CMS declined to expand the definition of “procedure room” in its regulations to the ACA. As such, rooms where solely other services are performed, such as lithotripsy and CT or PET scans, are not considered procedure rooms.

3. May a hospital reallocate its existing beds, operating rooms and procedure rooms?

Yes. CMS is only concerned with the physician-owned hospital’s aggregate number of beds, operating rooms and procedure rooms. Thus, a hospital can reallocate any of the beds for which it was licensed, or the procedure rooms or operating rooms that existed and were operational as of March 23, 2010. For example, a hospital may convert two of its licensed beds into two procedure rooms without violating the expansion prohibition.

4. What is the applicable “baseline” number of beds, procedure rooms and operating rooms in the event of a merger between two hospitals?

If two hospitals merge into one legal entity, and following the merger operate under a single license, the applicable baseline is that attributable to the license under which the merged hospitals are operating postmerger. For example, if Hospital A and Hospital B merge, and following the merger both hospitals will operate under the state-issued license of Hospital A, the applicable baseline is the number of beds, operating rooms and procedure rooms for which Hospital A was licensed as of March 23, 2010.

5. Are there any exceptions to the expansion prohibition?

Yes. A hospital may apply for an exception, which could allow for up to a 200 percent expansion on such hospital’s main campus. However, to be granted an exception, a hospital must meet certain stringent requirements, including meeting benchmarks related to population growth in the hospital’s county, Medicaid inpatient admissions, bed capacity and bed occupancy, and not discriminating against federal healthcare program beneficiaries.