On July 26, 2022, the Centers for Medicaid and Medicare (“CMS”) published the 2023 Hospital Outpatient Prospective Payment System (OOPS) and Ambulatory Surgery Center Payment System Proposed Rule. The proposed rule includes a new exception to the prohibition on physician self-referral (“Stark Law”) and would allow for physicians to have ownership or investment interests in Rural Emergency Hospitals (“REH”). Specifically, CMS is proposing the following: (1) a new exception for an REH under Stark Law; and (2) revisions to certain existing exceptions to make them applicable to compensation arrangements to which REH is a party.
Background
The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, created a new Medicare provider type called an REH. An REH is defined as an entity that operates for the purpose of providing emergency department services, observation care and other outpatient medical and health services in which the annual per patient average length does not exceed 24 hours. The law allows critical access hospitals and rural hospitals with 50 beds or fewer the ability to transition to REH status with Medicare starting January 1, 2023. Once a facility converts to an REH, it cannot provide inpatient services. Services that qualify as “REH services” will be paid at 105% of the OPPS payment rate for equivalent services, and REHs will also receive a monthly facility payment. Please click here and here for Hall Render’s prior publications on REHs.
New Stark Exception
Despite the use of the word “hospital” in the name, CMS will not consider an REH a “hospital” for purposes of the Stark Law. Therefore, CMS proposed a new exception to protect referrals by physician owners to an REH for designated health services, namely, radiology and certain imaging services, clinical laboratory services and outpatient prescription drugs. With respect to the REH ownership exception, it has similar requirements to the “whole hospital“ exception, including its program integrity requirements. One notable difference, however, is that the entity must enroll in Medicare as an REH.
Similar to the whole hospital exception, CMS wants to ensure an REH will have bona fide ownership and investment by proposing the following:
- The REH would not condition any ownership or investment interest on a physician generating business for the REH.
- The REH would not offer any ownership or investment interests more favorable to physicians than to those who are not physicians.
- The REH and its owners or investors would not provide loans or financing for any investment in the REH by a physician.
- The REH and its owners or investors cannot guarantee a loan, make a payment toward a loan or subsidize a loan on behalf of a physician wishing to acquire an ownership or investment interest in the REH.
- The capital returns would be distributed to each owner or investor in an amount that is directly proportional to their ownership or investment interest in the REH.
- A physician with an ownership or investment interest in an REH would not receive any right to purchase other business interests related to the REH.
- A physician would not be offered the opportunity to purchase or lease any property under the control of the REH on more favorable terms than what is offered to someone who is not a physician.
While many of these requirements borrow from the prior “whole hospital” exception analysis, CMS provided detailed guidance and examples related to “patient contracts requirements” in its discussion on what it means to condition ownership on a physician making or influencing referrals or otherwise generating business, including direct and indirect conditioning. This commentary is of note both for parties considering an REH but also physician-owned hospitals.
CMS is not proposing any new exceptions for compensation arrangements between an REH and a physician. Currently, some of the compensation arrangement exceptions are applicable only to compensation agreements between a hospital and a physician. Because an REH is not considered a hospital under Stark Law and is not one of the other specific types of entities for which the exceptions currently apply, CMS is proposing to permit an REH to use these exceptions so long as doing so will not be a risk of program or patient abuse. This amendment would permit REHs to enter into a compensation arrangement with a physician if each requirement of any of the following exceptions under § 411.357 are satisfied: (1) physician recruitment; (2) obstetrical malpractice insurance subsidies; (3) retention payments in underscored areas; (4) electronic prescribing items and services; (5) assistance to compensate a nonphysician practitioner or timeshare arrangements.
CMS is currently seeking public comments to the proposed changes with comments due on September 13, 2022.
Practical Takeaways
Physician investment in REHs could open up new lines of capital for critical access hospitals and rural health centers to increase capacity, increase physician collaboration and improve patient care. Additionally, rural hospitals, which have historically struggled with physician recruitment, may also see an opportunity to entice physicians to relocate or practice in these areas.
If you have questions, would like assistance submitting a comment or would like additional information about this topic, please contact Erin Drummy at (317) 977-1414 or edrummy@wp.hallrender.com or your primary Hall Render contact.
A special thanks to Julian Caruso, Summer Associate, for her assistance with this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
