Lawsuit Challenges Ban on Physician-Owned Hospitals in Health Reform Law

A federal lawsuit is being filed against the health reform law's ban on new physician-owned hospitals and expansions of existing facilities, according to a release by Physician Hospitals of America, a co-plaintiff.

In addition, Texas Spine & Joint Hospital of Tyler, Texas, the other plaintiff, filed for a preliminary injunction to allow it to go ahead with plans to add 20 beds to its facility. Both actions were filed in U.S. Federal Court for the Eastern District of Texas.

The health reform law prohibits physician-owned hospitals from expanding after March 23, 2010 and bans any new ones not certified as Medicare providers after Dec. 31, 2010.

Because the law applies only to physician-owned hospitals and not other types of hospitals, the lawsuit alleges it is "exclusionary and unconstitutional, eliminates competition for non-physician owned hospitals, and will ultimately have a negative impact on patient choice and medical care affordability."

"It is truly illogical and unfortunate that, at a time the government is supposedly attempting to increase access to care, it has chosen to stop the growth of many of the best hospitals in the country," said Molly Sandvig, the executive director of PHA.

The release stated the ban is "retroactive, arbitrary, vague, contradictory and fails to provide due process and equal protection."

"Congress passed hasty legislation that cut off only one type of hospital from Medicare facility expansion — those owned by physicians," said Scott Oostdyk, an attorney for PHA at McGuire Woods. "Physician-owned hospitals were targeted as a means of currying support from hospitals not owned by physicians. This unconstitutional purpose hurt the competitive capability of hospitals providing some of the best patient care in America."

According to the Dallas Morning News, the lawsuit alleges that "two large hospital associations" made a deal with Congress and the Obama administration to cut Medicare reimbursements to hospitals in exchange for the ban.

PHA reports 29 physician-owned hospitals under development are expected to meet the Dec. 31 deadline but 45 others are not expected to do so. In addition, 39 hospitals have abandoned their plans due to the reform law.

Read the Physician Hospitals of America's release on the physician-owned hospital lawsuit.

Read the Dallas Morning News' report on the lawsuit.

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