Physician-Owned Hospitals File Lawsuit to Overturn Restrictions

Elyas Bakhtiari, June 4, 2010

An association of physician-owned hospitals filed a lawsuit against the federal government yesterday in a long-shot attempt to overturn restrictions included in the recent healthcare reform bill that limit the growth and new construction of the controversial facilities.

The suit was filed jointly by Physician Hospitals of America and Texas Spine & Joint Hospital, a 20-bed private hospital in Tyler, TX, and alleges that the new law violates due process and equal protection rights granted under the U.S. Constitution.

At issue is Section 6001 of the Patient Protection and Affordable Health Care Act, which limits the development of new physician-owned hospitals or the expansion of existing ones. Although standing hospitals were grandfathered in, the law prevents them from expanding unless they meet a series of new requirements.

There are more than 300 physician-owned hospitals across the country, and 39 were under development but cannot continue because of the new law, according to PHA.

After the legislation passed, Texas Spine & Joint Hospital halted a planned expansion that had been in the works for years, says Michael E. Russell, II, MD, an orthopedic spine surgeon at the facility. The hospital had purchased nearby property and spent several million dollars preparing for the 20-bed expansion, which had already won local zoning approval.

Although the hospital will be able to remain open in the near future, hospital leaders are now unsure about its long term prospects because of the restrictions, says Russell. "How do we continue to evolve? How do we continue to take care of the patients that come in? We are going to have a huge increase in patients because of reform, and we need more access to care not less. Why would the government seek to keep a wonderful high quality, efficient, way to perform hospital services from expanding and growing?"

Accompanying the lawsuit was an injunction that would allow Texas Spine & Joint Hospital to proceed with its planned expansion.

The battle over physician ownership of hospitals has been ongoing, and similar provisions that would have restricted their development were included in previous legislation but stripped before passage. Congress also previously placed moratoriums on the construction of physician-owned hospitals.

The effort to ban physician ownership has often been spearheaded by other hospital organizations, including the American Hospital Association. While the AHA has raised questions about financial conflicts of interests and the safety of physician-owned hospitals, PHA claims that the restrictions are about eliminating competition.

“[Physician-owned hospitals] undermine the ability of full-service hospitals to continue to provide essential services as the community’s healthcare safety net," says AHA spokesperson Elizabeth Lietz.

After losing the lobbying battle, the courts may be physician-owned hospitals' last chance. The plaintiffs will try to convince the court that the law "treats physicians different than any other class of citizen," says Molly Sandvig, executive director of PHA. "Anyone else can own a hospital except a doctor. It's outrageous and not based on what this country's founded on."

But that legal argument is unlikely to work, according to Neil Caesar, president of the Health Law Center in Greenville, SC: "At first glance, it seems like they face an uphill battle. Physicians are not a protected class for constitutional purposes. They would have to show that there was no legitimate justification for the carve-out."

Elyas Bakhtiari Elyas Bakhtiari is a freelance editor for HealthLeaders Media.
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