Closure of Stark Whole Hospital Exception Survives Court Challenge

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On August 16, 2012, the United States Court of Appeals for the Fifth Circuit dismissed a challenge to the constitutionality of the Affordable Care Act ("ACA") provision that effectively eliminates the "whole hospital" exception in the Stark Law. Coupled with the U.S. Supreme Court's decision upholding the overall constitutionality of the ACA earlier this summer, the Fifth Circuit ruling (at least within the Fifth Circuit) may practically put the final nail in the coffin for new physician-owned hospitals participating in the Medicare program.

The Stark Law prohibits physicians from referring Medicare or Medicaid patients for certain "designated health services" to entities with which they have a financial relationship, unless an exception applies. The whole-hospital exception historically permitted physicians to have an ownership interest in a hospital and still refer Medicare and Medicaid patients to that hospital, if they complied with the provisions of the exception. The ACA effectively closed that door, however, for any hospitals not operational by March 23, 2010, and with Medicare provider agreements in place by December 31, 2010. Thus, new physician-owned hospitals could not participate in the Medicare/Medicaid programs, or -- more properly stated -- could not accept Medicare or Medicaid referrals from their physician owners.

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