Do You Know Where Your Health Lawyer is Tonight?

When asked what I do as a Board Certified Health Lawyer, I ask in response, would you have heart surgery performed by your general practitioner? The answer, of course, is no. The same is true for licensed professionals and businesses in the heavily regulated health care industry–they are best served by having legal representation in their contracts and business dealings by a lawyer who is expert in the complex and ever-changing Federal and state health care laws.

One such law is the Stark Law, which (i) prohibits a physician from referring patients for a list of 11 designated health services[i] (DHS) payable by Medicare to an entity with which the physician (or an immediate family member) has a financial relationship, either through ownership or compensation, unless an exception applies; and (ii) prohibits the DHS entity from filing claims with Medicare (or billing anyone) for DHS resulting from a prohibited referral. Penalties are severe and include payment denials, refunds, fines, civil money penalties, exclusion from Medicare and possible prosecution under the civil or criminal Federal False Claims Act. The Stark Law establishes specific exceptions for financial relationships that the government believes pose no risk of program or patient abuse.

On Aug. 19, 2008, the Center for Medicare and Medicaid Services (CMS) published a final regulation[ii] that includes significant changes to the Stark Law regulations[iii], some of which are effective as early as Oct. 1, 2008. More complex changes have an extended effective date of Oct. 1, 2009, as they will require many joint ventures between physicians or physician groups and hospitals or other providers for DHS under arrangements to be dissolved or restructured. There is no grandfathering provision. We recommend that those of you in the health care field begin reviewing with your health lawyers any existing financial arrangements and take timely corrective action, if required by the new final regulations.

The following changes to the Stark Law regulations become effective Oct. 1, 2008:

Provisions defining when physicians stand in the shoes of their physician organizations;
Requirement that hospitals disclose physician-ownership to patients on request;
Requirement that hospitals disclose to CMS financial relationships with physicians;
Revisions to the exception allowing payment of obstetrical malpractice insurance subsidies;
Clarification regarding physician ownership in a retirement plan;
New exception for technical non-compliance with signature requirements;
Revised definition of set in advance compensation;
Clarification of when multi-year agreements may be amended;
Definition of period of disallowance resulting from non-compliance; and
Burden of proof that DHS were not furnished pursuant to a prohibited referral.
The following changes have a delayed effective date of Oct. 1, 2009:

Prohibition on percentage-based compensation for equipment and space leases;
Prohibition on unit-of-service (per click) payments in space and equipment leases; and
Expanded definition of DHS entity to include not only the entity that submits claims to Medicare for DHS, but also the person or entity that performs the DHS.
The above final Stark Law regulations have major implications for the health care industry. The changes are far broader and more complex than CMS previously proposed. CMS ominously has indicated the regulations will be strictly applied, regardless of the parties intent or knowledge, or the financial impact on the Medicare program and that it will continue to enact future regulations to tighten the Stark Law in areas where it continues to perceive program abuses.

Hospitals and other health care providers that have under arrangements contracts, equipment or facility leasing arrangements, joint ventures, or any other financial arrangements with entities owned by referring physicians that involve DS should begin now to carefully review those arrangements for compliance with the revised Stark Law regulations. It is likely that many financial relationships may need to be dissolved or restructured within the next year to assure compliance with the new expanded definition of DHS entity and the prohibitions on percentage compensation and per click lease payments that take effect as of Oct. 1, 2009.

If you think CMS isn’t serious, effective Jan. 1, 2009, CMS will use a new code to notify DHS providers when a Medicare claim is denied because the physician or immediate family member has a financial relationship with the DHS provider and fails to meet one of the Stark Law’s exceptions. Much of the information CMS will need likely will come from the Disclosure of Financial Relationships Report (DFRR) that CMS intends to send to 500 hospitals to collect information on ownership and compensation arrangements with physicians.
Sandra P. Greenblatt is a Board Certified Health Lawyer and President of Sandra Greenblatt, PA, a health law firm in Miami, FL, which has advised physicians and health care providers for over 20 years regarding their regulatory and transactional legal needs. She may be reached at (305) 577-9995 or [email protected]. This article is an overview of a complex area of the law and is not intended as legal advice, which requires specific analysis of your individual facts and circumstances.


[i] DHS include clinical lab services, physical therapy, occupational therapy, speech language pathology, radiology and certain other imaging services, radiation therapy services and supplies, durable medical equipment and supplies, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics and prosthetic devices and supplies, home health services, outpatient prescription drugs and inpatient and outpatient hospital services.

[ii] 73FedReg 48433 (Aug. 19, 2008).
[iii] 42 CFR § 411.354 et seq.