Last month the Physician Hospitals of America (PHA) and Texas Spine and Joint Hospital (TSJH) took the latest legal step in their joint effort to repeal a provision in the Patient Protection and Affordable Care Act (PPACA) that effectively limits the construction or expansion of Medicare-covered physician owned hospitals. On May 27, the two organizations formally filed a notice of appeal with the U.S. District Court for the Eastern District of Texas, which had issued an adverse court ruling (pdf) on their claim that Section 6001 of the PPACA – Limitation On Medicare Exception To The Prohibition On Certain Physician Referrals For Hospitals – is unconstitutional.

Prior to the enactment of Section 6001, hospitals wholly owned by physicians were exempt from the Medicare Act’s prohibition on reimbursement for claims when there is a financial relationship between the referring physician and the hospital receiving payment. This exception has been subject to various temporary limitations and moratoriums over the last few years, but Section 6001 of the PPACA prohibited Medicare reimbursements for existing physician-owned hospitals that expanded after March 23, 2010 (the date of the PPACA enactment) or were not constructed and Medicare certified before December 31, 2010.

In their jointly-filed lawsuit, the PHA and TSJH claimed that Section 6001 is exclusionary, eliminates competition for non-physician owned hospitals, will ultimately have a negative impact on patient choice and medical care affordability, violates the constitutional guarantee of due process and equal protection, is unconstitutionally and retroactively confiscatory, and should be held void for vagueness. The federal district court rejected these claims and granted summary judgment in favor of the Secretary of the United States Department of Health and Human Services.

On May 27, PHA and TSJH filed a notice of intent to appeal the lower court's decision to the 5th Circuit. In a joint press release (pdf) announcing their intent to appeal the two entities said they will challenge the District Court’s “refusal to apply the Constitution's substantive due process standard or to evaluate fully appellants' equal protection arguments,” and will ask the appellate court to review the lower court’s “refusal to hold a trial to determine the contested facts of this case, and the lower court’s determination that Congress’ law was not retroactive in its effect on settled hospital expansion transactions.”

On the legislative front, Reps. Sam Johnson (R-TX) and Doc Hastings (R-WV) have each introduced legislation (H.R. 1186, 1159) to repeal Section 6001. Neither bill has yet to advance.

According to PHA, there are currently 275 physician owned hospitals serving patients in 33 states. Such hospitals include general acute care, long term acute care, emergency medicine, multi-specialty, women’s, children’s, rehabilitation and psychiatric.

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