Law affects hospitals with doctor-held debt

December 8, 2010

Health care reform put strict limits on physician-owned hospitals, but it seems the law also restricts hospitals that have physician-owned debt.

According to Hall Render Killian Heath & Lyman, an Indianapolis-based health care law firm, the federal Stark law defines a physician’s “ownership or investment interest” as including not only equity investments, but also “loans, bonds or other financial instruments that are secured with an entity's property or revenue or a portion of that property or revenue."

Oops. That would include not only hospitals where physicians hold equity stakes—such as Clarian North, Clarian West and the Indiana Orthopaedic Hospital—but also ones like St. Elizabeth in Lafayette, which offered bonds to physicians in 2007.

The new health law says such hospitals cannot increase the amount of physician ownership, nor can they increase the size of their facility—or else they will be ineligible to receive payments from the federal Medicare program.

Since Medicare, the government-run insurance program for seniors, is the largest insurance plan in the country, the restriction is effectively a cap on expansion for any hospital with physician ownership or physician-held debt. The only debt that appears to be OK, according to Hall Render, is publicly traded bonds bought by a physician without the hospital's knowledge.

Not surprisingly, Hall Render suggests hospitals talk to an attorney.

“Any hospital with outstanding debt which it knows to be held by admitting physicians should work with counsel as soon as possible to determine (a) if such ownership will subject the hospital to the 'physician-owned hospital' restrictions and if so, (b) how best to restructure the physician-held debt to avoid these restrictions,” a team of its attorneys wrote in an e-mail Tuesday.


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