A federal lawsuit challenging healthcare reform's restrictions on physician-owned hospitals hangs in uncertainty after a judge canceled a scheduled trial in light of a forthcoming ruling.

While the content of the judge's opinion is as yet unknown, the lawsuit's plaintiffs, a Texas specialty hospital and the industry group Physician Hospitals of America, say they'll continue to pursue their case against the government in appeals court.

Texas Spine and Joint Hospital in Tyler was in the midst of a $27 million expansion to add 3 ORs and 20 beds when the March 2010 passage of the healthcare reform law, and its restrictions on physician hospital expansion, brought the project to a halt. The hospital, along with PHA — for which Texas Spine partner Michael Russell, MD, serves as president — filed suit against U.S. Health and Human Services Secretary Kathleen Sebelius in June, seeking the repeal of what they argued were "exclusionary and unconstitutional" restrictions. Pre-trial arguments were conducted and a tentative trial date was set for Dec. 9.

In an order issued on Nov. 24, however, U.S. District Court Judge Michael Schneider announced that he'd issue a ruling without hearing a trial. "Given the forthcoming memorandum opinion and final judgment, trial is unnecessary," he wrote.

Judge Schneider's order sided with several of the government's pre-trial arguments for the case's dismissal. The section of the healthcare reform law that limits physician hospitals does not violate constitutional rights, he wrote. But he also ruled that the hospital and PHA were within their rights to sue in federal court.

"He found for jurisdiction, which is very important," says plaintiffs' attorney Scott Oostdyk, JD, of McGuireWoods' Richmond, Va., office. "That gives us a leg up on appeal." Had the judge ruled that the case didn't belong in federal court, the plaintiffs would have little recourse to the upcoming opinion.

Despite the uncertainty surrounding the judge's opinion, which Mr. Oostdyk anticipates arriving in a month or more, he says appeal is a certainty. "This case will go up either way," he says. "The goal is appellate court, the level at which most cases are decided with finality."

Representatives of HHS and the Department of Justice, whose attorneys are arguing the government's case, did not immediately respond to requests for comment.

Mr. Oostdyk says the appeal will seek the government's justification for the retroactive nature of the restrictions. Lawmakers were aware of the number of physician-owned hospital projects under development, he says, and could well have created a reasonable timeline for their completion. As it stands, he notes, the capital invested in these projects is non-recoupable.

Until the appeal, however, the expansion project — and physician hospitals — can only wait. "Win or lose, you're in the same position when appealing the judge's order," he says, since you can't build with certainty until the appeals process concludes.

See the cover story in December's issue of Outpatient Surgery Magazine for more about the federal restrictions on physician-owned hospitals.

David Bernard

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