Hospitals Need to Prepare Now for CMS’ New Stark Compliance Audits
Executive Summary
The Centers for Medicare and Medicaid Services (CMS) is planning, for the first time, to actively police Stark II compliance by sending out disclosure forms to 500 hospitals requiring the hospitals to disclose any financial arrangements with physicians. Hospitals with non-compliant financial arrangements will be subject to substantial civil fines and program exclusion for the resulting Stark violations. Hospitals will have 60 days to comply with the disclosure request with a potential fine of $10,000 per day for every day the report is late.
CMS announced its intention to begin distributing financial relationship reporting forms to an initial group of 500 hospitals. CMS is currently awaiting clearance by the Office of Management and Budget. Of the 500 hospitals selected will be 290 hospitals that received a similar voluntary disclosure form in 2006 and 210 hospitals will be randomly selected. CMS estimates that hospitals will have a 1 in 50 chance of being randomly selected in the initial group of hospitals. The odds will increase substantially in the planned subsequent rounds of the Disclosure of Financial Relationships Report (DFRR) requests.
The DFRR will require the hospitals to disclose every current and past financial relationship with physicians going back to 2005 and to document each relationship’s compliance with the hospital/physician financial relationship exceptions to Stark II, 42 U.S.C. 1395nn. Hospitals that fail to reply to the DFRR within 60 days are subject to civil monetary penalties of $10,000 per day for each day the report is overdue.
In CMS’s 2009 IPPS Final Rule, CMS underscored the fact that it has “not engaged in a comprehensive reporting initiative to examine financial relationships between hospitals and physicians.” DFRR is CMS’ first big step in policing Stark compliance among hospitals. CMS stated that the DFRR was “designed … to assist with our statutory obligations to ensure that no payment is made for a prohibited referral.” CMS intends the DFRR to: 1) identify arrangements that potentially do not comply with federal self-referral laws, including Stark; and 2) identify examples and areas of non-compliance that will aid CMS in future rulemaking.
The DFRR is a lengthy form with eight attached worksheets requiring hospitals to disclose an extensive amount of information including, but not limited to, information regarding: 1) direct and indirect physician investment in the hospital; 2) space and equipment rental agreements with physicians; 3) personal service agreements (i.e. Medical Director and Coverage Agreements); 4) physician recruitment agreements; and 5) non-monetary compensation arrangements with physicians and medical staff incidental benefits that exceed published limits, etc.
Considering the penalties for failure to timely respond to the DFRR, it should be a high priority for all hospitals. Even more importantly, every hospital needs to review its physician agreements and ensure Stark II compliance before receiving the DFRR. If a hospital has a financial arrangement with a physician and that arrangement does not meet each and every requirement of a Stark exception, the statute is violated regardless of knowledge or intent. Every Medicare claim related to any referral by that physician is a separate violation of Stark II. The penalties include civil fines of up to $15,000 per claim, potential exclusion, as well as False Claims Act liability.
These penalties attach to even inadvertent, or technical, violations of Stark II. For instance, if a hospital has a medical director agreement with a physician and also employs the physician’s spouse or any other immediate family member, the agreements must either cross-reference each other or be listed on a master list. Otherwise, each and every referral made by the physician is prohibited. Additionally, if a hospital cannot locate a Medical Director agreement that was signed by both parties, the statute is violated. Another example is if a hospital discovers various hospital personnel took a physician to dinner(s) and the dinner(s) exceeded the Stark limit (between $300 and $355 depending on the year), the statute is violated. Considering how many claims for services a physician may make at the hospital over the course of a year, the amount of fines under Stark and the False Claims Act could easily bankrupt a hospital.
Consequently, it is imperative that hospitals begin the process of ensuring that each and every financial relationship with a physician or a member of physician’s immediate family from 2005 to the present fully satisfies all Stark II criteria. Since selected hospitals will only have 60 days to respond to the DFRR, Hospitals need to review their compliance efforts and safeguards with experienced health law counsel to determine compliance. Gathering accurate records and data will be essential to completing the DFRR and may require a detailed search of the hospital’s records and agreements.
“Hospitals Need to Prepare Now for CMS’ New Stark Compliance Audits.”
Louisiana Hospital Association Impact Lawbrief, Vol. 24, (No.6). June 26, 2009
Michael R. Schulze
Share This Article
Looking for representation?
The lawyers at Sullivan Stolier Schulze have the ability to handle your legal needs with the highest degree of competence and care. The combination of experience, approach, competitive rates, and prompt service are the resources our Firm provides. If you have a need in healthcare –
THINK – THE HEALTH LAW CENTER.