The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, was signed into law on March 23, 2010. Acknowledging our long fight, with the help of many of our physician partners, in opposition to this prospective ban on physician-owned hospitals, I wanted to take this opportunity now, in light of this law’s passage, to outline for you our understanding about how this new law affects our hospital partnerships.

First, based on our review, our hospital partnerships are still fully compliant under federal law and our hospitals are grandfathered under this new law so that they may continue to operate as physician-owned hospitals into the future. This is an important result because IASIS Healthcare and our hospitals continue to strongly support physician ownership of hospitals and the positive results achieved through such ownership with respect to facility improvement, quality of care, patient satisfaction, medical staff satisfaction and operational outcomes.

Our hospital partnerships have been successful in many respects, not only in terms realizing capital projects that have added medical technology and valuable hospital services to your local community but also in terms of potential returns on investment for all investors, especially when you factor in many of the challenges faced within the healthcare industry and broader economic climate.

While our hospital partnerships will be grandfathered and largely permitted to continue in their current forms, unfortunately the new law does impose a number of limitations. As currently written the new law states that, to continue to comply with the applicable Stark exception under federal law, the physician-owned hospital must meet the following requirements by September 23, 2011:

• Provider Agreement/Physician Investment Deadline: The hospital must have a provider agreement and physician ownership or investment as of December 31, 2010 and cannot have converted from an ambulatory surgery center to a hospital after March 23, 2010. Note, your hospital partnership meets this new requirement.
  
  
• Limitation on Increase in Physician Ownership: The percentage of physician ownership in the hospital cannot increase relative to that in effect on March 23, 2010.
  
  
• Limitations on Expansion: The hospital cannot expand its licensed operating rooms, procedure rooms or beds at any time on or after March 23, 2010 unless it is granted an exception under a process to be developed by the Secretary of HHS on February 1, 2012. The term “procedure rooms” does not include emergency rooms (exclusive of rooms in which catheterizations, angiographies, angiograms, and endoscopies are performed). Accordingly, a hospital could expand its emergency rooms on or after March 23, 2010 without requesting an exception (so long as the emergency rooms do not include rooms in which catheterizations, angiographies, angiograms and endoscopies are performed).
  
  
• Future Process for Requesting an Expansion Exception: The regulations governing the process for requesting exceptions (which shall provide an opportunity for community input) must be promulgated by the federal government by January 1, 2012. Importantly, as written, expansion exceptions may be applied for only by “Applicable Hospitals” (a defined term, see below) and “High Medicaid Facilities” (a defined term, see below) once every two years. Under an exception, a hospital cannot more than double its capacity. Also, approved expansions are limited to facilities on the hospital’s main campus.
  • “Applicable Hospital” means a hospital: (i) located in a county in which the percentage population increase during the most recent 5-year period is at least 150 percent of the percentage population increase for the state where the hospital is located (the “State”); (ii) whose total Medicaid inpatient admissions percentage is equal to or greater than the average Medicaid inpatient admissions percentage for all hospitals located in the same county; (iii) that does not discriminate (or permit physicians practicing at the hospital to discriminate) against beneficiaries of Federal health care programs; (iv) that is located in a state in which the average bed capacity is less than the national average bed capacity; and (v) that has an average bed occupancy rate that is greater than the average bed occupancy rate for the State.
  • “High Medicaid Facilities” are hospitals whose Medicaid inpatient admissions percentage for the 3 most recent years exceeds the percentage of any other hospital located in the same county. To qualify for the exemption, the facility must not be the sole hospital in the county and must not discriminate (or permit physicians practicing at the hospital to discriminate) against beneficiaries of Federal health care programs.
    
    
• Public Disclosures: The new law also imposes additional public reporting obligations. The hospital will be required to submit to CMS an annual report identifying hospital investors and their ownership interests (which data will be made publicly available), will require referring physician owners to make certain patient disclosures, and will require the hospital to publicly disclose on its website and in any public advertisement that it is partially owned by physicians.
  
  
• Bona Fide Investment: The new law incorporates other requirements, which the structure of your hospital partnership already satisfies, similar to the pre-existing Anti-Kickback Statute small entity investment safe harbor: the hospital cannot offer an investment on more favorable terms to physicians; the hospital cannot make loans/financing to, or guarantee loans/financing for, physicians to purchase investment interests; returns must be proportional to investment. In addition, physician owners/investors must not receive, directly or indirectly, any guaranteed right to purchase other business interests related to the hospital (including those under control of other hospital investors), or be offered the right to purchase/lease property owned by the hospital or other hospital investors on favorable terms.
  
  
• Patient Safety Requirements: The hospital must make certain disclosures to patients if it will not have a physician available on the premises for certain periods of the patient’s stay and must have the capacity to provide initial assessment and treatment to patients and to refer patients to other hospitals as appropriate. This requirement should not be an issue for our hospitals.
  
  
• Finally, HHS will conduct audits by May 1, 2012 to determine if hospitals are complying with these new requirements.

We will share more information on this topic as it becomes available. While we are unable to answer every question that this new law may raise, please don’t hesitate to ask if you have any questions.

Thank you for your continued support in improving the care and service delivered by our hospitals.