2005 Legislative Compendium: Physician Ownership

Disclosure of Specialty Hospital Ownership  |   Prohibition of Referrals to Physician-Owned Facilities  |   Restrictions on Referrals to Rural Facilities  |   Ownership-Related Bills Stopped in Their Tracks 

Prior to the start of the 2005 legislation session, the Texas Hospital Association (THA) announced it would aggressively advocate restrictions on physicians' ability to own health care facilities, including specialty hospitals, ambulatory surgical centers, and imaging facilities. THA argued that physician ownership of health-related facilities provides unfair competition to community hospitals. The Texas Association of Business (TAB) joined THA in its efforts. Together, the groups promoted six bills. Several of the bills asked for an outright prohibition on referrals to facilities in which a physician or family member had an ownership interest, and penalized physicians. Others limited physician referrals to those facilities.

TMA argued that competition in the health care market - not monopolies - promotes lower costs, timely access to services, and health care innovation. Studies conducted by Medicare Payment Advisory Commission (MedPac) and the Centers for Medicare and Medicaid Services (CMS) documented that specialty hospitals perform comparably to community hospitals on quality. Numerous surveys also have shown that patients enjoy the convenience of specialty hospitals.

Many large hospital systems joined TMA in the fight restricting physician ownership, noting that partnering with physicians creates new opportunities for both parties to improve patient care and lower costs. Moreover, specialty hospital issues are largely being addressed at the federal level, where they are reformulating reimbursement policies relating to specialty and community hospitals to better account for the health care costs of high-risk patients.

Sen. Jane Nelson (R-Lewisville) led the fight to promote health care competition, filing SB 872. The TMA-backed bill requires physicians to disclose their ownership interests in specialty facilities and directs the Texas Department of State Health Services (DSHS) to conduct a study regarding specialty hospitals. Of the half-dozen bills billed filed, it was the only bill to pass.

Disclosure of Specialty Hospital Ownership

SB 872 by Senator Nelson and Rep. Dianne Delisi (R-Temple) amends the occupations code to expand the definition of "unprofessional conduct" to include directing a patient to a facility in which a physician or an immediate family member has an ownership interest unless the physician has disclosed in writing the ownership interest and informs the patient that he or she may choose to have services provided at an alternate facility. The bill also requires physicians with ownership interests to notify DSHS, which must adopt rules relating to notification. A financial interest in a specialty facility does not include ownership in publicly traded shares, including mutual funds, or securities.

SB 872 also directs DSHS to conduct a study on the impact of specialty hospitals on community hospitals, the referral patterns of physicians with ownership interests in specialty hospitals, and the range of services provided within such facilities, particularly focusing on emergency services and charity care. DSHS must issue its findings to the legislature by Dec. 1, 2006.

Lastly, SB 872 establishes an Advisory Panel on Health Care Associated Infections, comprising physicians, nurses, and hospital representatives, to study and recommend definitions and methodologies for collecting and reporting data relating to hospital infection rates, and process measures or infection rates. The panel must present its recommendation to the legislature by Nov. 1, 2006.

Prohibition of Referrals to Physician-Owned Facilities

HB 3316 by Rep. Betty Brown (R-Terrell) and SB 1622 by Sen. Jon Lindsey (R-Houston) would have prohibited referrals to a facility where there is ownership interest. The bill also provided for a study relating to services that are provided in a hospital, ambulatory surgical center, or imaging center and that are provided by a physician with an ownership interest in the facility. A facility would have been required to disclose the name of each physician who has any ownership interest. The disclosure would have been required to be: 1) posted prominently at the facility; 2) provided to each patient before the patient receives services at the facility; 3) stated in advertising, brochures, and similar materials that publicize the facility; and 4) stated on any Internet site maintained by the facility.

Restrictions on Referrals to Rural Facilities

HB 3317 by Representative Brown and SB 1241 by Sen. Frank Madla (D-San Antonio) related to self-referrals made in rural areas or in counties with 50,000 people or less. Had the bill passed, health care providers would not have been able to refer patients for designated health services to an entity:

Ownership-Related Bills Stopped in Their Tracks

Self-Referral Ban
House Bill 3281 by Rep. Senfronia Thompson (D-Houston) would have banned physician self-referral to clinical labs, physical therapy services, rehabilitation, diagnostic imaging services, and radiation therapy services. The prohibition would have been in effect for all services regardless of the payer. Any referrals to facilities in which the physician had a financial interest would have automatically been assumed to be fraudulent. TMA strongly opposed the bill.

Prohibition of Referrals to Physician-Owned Facilities
HB 3316 by Rep. Betty Brown (R-Terrell) and SB 1622 by Sen. Jon Lindsey (R-Houston) would have prohibited referrals to a facility where there is ownership interest. The bill also provided for a study relating to services that are provided in a hospital, ambulatory surgical center, or imaging center and that are provided by a physician with an ownership interest in the facility. A facility would have been required to disclose the name of each physician who has any ownership interest. The disclosure would have been required to be: 1) posted prominently at the facility; 2) provided to each patient before the patient receives services at the facility; 3) stated in advertising, brochures, and similar materials that publicize the facility; and 4) stated on any Internet site maintained by the facility.

Restrictions on Referrals to Rural Facilities
HB 3317 by Representative Brown and SB 1241 by Sen. Frank Madla (D-San Antonio) related to self-referrals made in rural areas or in counties with 50,000 people or less. Had the bill passed, health care providers would not have been able to refer patients for designated health services to an entity:

  1. In which the health care provider or the health care provider's immediate family member is directly or indirectly an investor or has an investment interest; and
  2. Which is located within a 30-mile radius of a hospital that is:
    a) Located in a county with a population of 50,000 or less,
    b)Designated as a critical access hospital, or
    c)Designated as a sole community hospital.

Physician Ownership TMA Staff Contacts:  

  • Yvonne Barton, Legislative Affairs, (512) 370-1359
  • Helen Kent Davis, Governmental Affairs, (512) 370-1401
  • Michael Reed, Health Care Delivery, (512) 370-1409
  • Lee Spangler, JD, Office of the General Counsel, (512) 370-1337 

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