East Texas physician-owned hospital challenges constitutionality of new law

By Michelle Massey, East Texas Bureau | Jun 15, 2010

Sebelius TYLER-A physician-owned hospital in East Texas has filed a lawsuit against the Department of Health and Human Services to prevent the enforcement of the newly enacted law.


TYLER-A physician-owned hospital in East Texas has filed a lawsuit against the Department of Health and Human Services to prevent the enforcement of the newly enacted law.

Physician Hospitals of America and Texas Spine & Joint Hospital filed suit against Kathleen Sebelius, in her official capacity as secretary of HHS, arguing that the Physicians Hospital Act act is unconstitutional and singles out physicians and their families from owning a hospital, which is a legal and necessary business.

Signed by President Obama as part of the National Health Care Reform on March 23, the act prevents any physician-owned hospital from becoming Medicare-certified after this year.

According to the suit filed June 3, in the Tyler division of the Eastern District of Texas, the new law blocks any increase in the physician ownership in existing Medicare-certified hospitals and tries to limit expansion of existing Medicare-certified physician owned hospitals.

The Physicians Hospitals of America has more than 166 member hospitals in 34 different states. Medicaid programs make up to 70 percent of their case mix and the physician owners of the member hospitals are also providers under the Medicare and Medicaid programs.

Texas Spine & Joint is a licensed hospital with 20 beds located in Tyler. The hospital was rated No. 1 in Texas in 2009 for spine surgery and Five-Star rated for joint replacement, spine surgery, total knee replacement and back and neck surgery.

The Physician Hospital Law will cause the plaintiff Texas Spine & Joint Hospital to stop expansion although the hospital has already invested nearly $3 million, the complaint states.

According to court records, critics of physician-owned hospitals argue that if the law limited the number of physician-owned hospitals and stopped further expansion of existing physician-owned facilities, it would decrease costs to the Medicare program.

However, the plaintiffs state that the act singles out hospitals owned by physicians for retroactive regulation and restriction, "for arbitrary and irrational reasons."

The plaintiffs argue that the act imposes these restrictions only to physician-owned hospitals, not hospitals of similar designed owned by individuals or other entities.

The plaintiffs cite a report by Consumer Reports that surveyed the quality of care and which hospitals patients prefer. In part, the results show that the top two hospitals in Arkansas are physician-owned, with four of the top seven Arkansas hospitals being physician owned. In Louisiana the top nine hospitals are all physician-owned and in Texas the top three are physician-owned and 16 of the top 26 are physician-owned hospitals, the complaint states.

Causes of action filed against the defendant include violation of due process, violation of due equal protection, void for vagueness and unconstitutional taking.

The plaintiffs are asking the court to issue a preliminary and permanent injunction stopping the defendants from taking any action to enforce the Physicians Hospital Law.

Tyler attorney Lindsey S. Birdsong of Birdson & Armstrong and Richmond, Virginia attorneys Scott C. Oostdyk and Virginia L. Hudson of McGuire Woods LLP are representing the plaintiffs.

U. S. District Judge Michael H. Schneider is assigned to the case.

Case No. 6:10cv00277

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