Reproduced with permission from Health Care Fraud Report, BNA’s Health Care Fraud Report, 07/24/2013. Copy-
right 姝2013 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Court Sides With CMS Stark Regulations on Physician-Owned Under Arrangement
Service Providers
BYTHOMAS S. CRANE
On May 24, the U.S. District Court for the District
of Columbia in Council for Urological Interests v.
Sebelius
1
(‘‘CUI’’) sided with the Centers for
Medicare & Medicaid Services in a lawsuit brought by a
group of urologists and upheld CMS’s 2008 regulations
that prohibited physician-owned ‘‘under arrangement’’
service providers under the Stark Law (the ‘‘2008
Rule’’).
The court also upheld a parallel part of CMS’s regu-
lations that prohibited per-service (or ‘‘per-click’’)
leases with referring physicians.
The issue in CUI involves a technical part of the Stark
Law interpreting what it means to be a provider ‘‘fur-
nishing’’ ‘‘designated health services’’ (‘‘DHS’’).
As is well known, the law prohibits physicians from
referring Medicare patients to entities furnishing DHS
with which they have a financial relationship unless an
exception applies. A financial relationship may be ei-
ther an ownership or investment interest or a compen-
sation arrangement. Inpatient and outpatient hospital
services are classified as DHS.
The group of urologists was challenging a 2008 regu-
latory change that characterized their arrangements
with hospitals as impermissible ownership arrange-
ments, whereas under CMS’s Phase I 2001 interpreta-
tion, such arrangements only needed to qualify under
the compensation exceptions.
Brief History of Physician-Owned Service
Providers
Well before the enactment of the Stark Law, physi-
cians held many types of ownership interests in service
providers. In some cases, the services were clearly
DHS, for example imaging services, and in other cases
they were not, for example lithotripsy, cardiac catheter-
ization, ambulatory surgery and dialysis centers. In
some of these cases, the non-DHS service was provided
by the physician-owned service provider in the hospital
for reimbursement and other reasons.
These historic arrangements followed various mod-
els, but in most cases the outside service provider
leased space from the hospital, provided equipment and
supplies, and employed or contracted for the staff and
physicians needed to provide the service.
These services provided by outside physician-owned
service providers needed to comply with Medicare’s
‘‘under arrangement’’ rules.
2
Under these rules the hos-
pital must exercise professional responsibility over the
service. In addition, ‘‘The provider must accept the pa-
1
Slip Op., 09-cv-0546 (BJR).
2
Medicare General Information, Eligibility, and Entitle-
ment Manual, Chapter 5 – Definitions; § 10.3 - Under Arrange-
ments; CMS Pub. 100-01. http://www.cms.gov/Regulations-
and-Guidance/Guidance/. . ./ge101c05.pdf
Crane is a member with Mintz, Levin, Cohen,
Ferris, Glovsky and Popeo PC, Washington
and Boston. He practices in the firm’s Health
Care Enforcement Defense Group and Health
Section, specializing in fraud and abuse. He
can be reached at (617) 348-1676 or
TSCrane@Mintz.com.
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