Cleveland Clinic Health System Obligated Group - FMSbonds.com

Stark LawAnother federal law (known as the “Stark Law”) prohibits, subject to limited exceptions, a physician whohas a financial relationship, or whose immediate family has a financial relationship, with entities (includinghospitals) providing “designated health services” from referring Medicare patients to such entities for the furnishingof such designated health services. Stark Law “designated health services” include physical therapy services,occupational therapy services, radiology or other diagnostic services (including MRIs, CT scans and ultrasoundprocedures), durable medical equipment, radiation therapy services, parenteral and enteral nutrients, equipment andsupplies, prosthetics, orthotics and prosthetic devices, home health services, outpatient prescription drugs, inpatientand outpatient hospital services, clinical laboratory services, nuclear medicine services and supplies. The Stark Lawalso prohibits the entity receiving the referral from filing a claim or billing for the services arising out of theprohibited referral. The prohibition applies regardless of the reasons for the financial relationship and the referral;that is, unlike the federal Anti-Kickback Statute, no finding of intent to violate the Stark Law is required. Sanctionsfor violation of the Stark Law include denial of payment for the services provided in violation of the prohibition,refunds of amounts collected in violation, a civil penalty of up to $15,000 for each service arising out of theprohibited referral, exclusion from participation in the federal healthcare programs, and a civil penalty of up to$100,000 against parties that enter into a scheme to circumvent the Stark Law’s prohibition. Under an emerginglegal theory, knowing violations of the Stark Law may also serve as the basis for liability under the False ClaimsAct. The types of financial arrangements between a physician and an entity that trigger the self-referral prohibitionsof the Stark Law are broad, and include direct and indirect ownership and investment interests and compensationarrangements.The 2003 Act contained an 18-month moratorium on physician self-referrals under Medicare/Medicaid tocertain new “specialty hospitals” defined to include hospitals engaged in the care of patients with a cardiac or anorthopedic condition, patients receiving a surgical procedure or other specialized categories of patients designatedby the Secretary of DHHS. Prior to the 2003 Act, referrals to specialty hospitals were exempt from the Stark Law’sprohibitions under that law’s exception for referrals to “whole hospitals.” The moratorium contained in the 2003 Actexpired on June 8, 2005. After expiration of the moratorium, however, CMS announced that it was suspending theenrollment of specialty hospitals into Medicare. This suspension was ultimately extended until August 8, 2006, atwhich time CMS issued a final report. Among other items, the report called for transparency in hospital investmentby physicians, to include requiring specialty hospitals to disclose financial interests to CMS and to patients.On September 5, 2007, CMS issued a third phase of the regulations implementing the Stark Law (the“Phase III Regulations”). The Phase III Regulations became effective in large part on December 4, 2007. Mostrecently, the 2009 Inpatient Prospective Payment Systems Final Rule (“IPPS 2009 Final Rule”) further revised theStark regulations, with certain provisions becoming effective October 1, 2008. The provisions of the IPPS 2009Final Rule that may have the most significant impact on the Obligated Group are: (a) the definition of “entity” andthe affect on services provided under arrangements; (b) the “stand in the shoes” provisions; (c) limitations placed onrevenue-based or percentage payments for space and equipment; and (d) limitations on per click arrangements. Thedefinition of an “entity” for Stark purposes now includes the person or entity that performs DHS services, as well asthe person or entity that bills for DHS services. This change in definition has a delayed effective date of October 1,2009. This change significantly affects the manner in which an “under arrangements” relationship with physiciansmay be structured and will require many “under arrangements” relationships to be restructured or terminated. Inaddition, many revenue-based and percentage payments for space or equipment might no longer comply with thespace rental, equipment rental, fair market value, or indirect compensation exceptions. Further, many per-unit orper-click compensation methodologies for space or equipment rental charges might no longer comply with the spacerental, equipment rental, fair market value, or indirect compensation exceptions. The changes to percentage-basedand per-click compensations arrangements also have a delayed effective date of October 1, 2009. At a minimum,the new Stark regulations may require the Obligated Group to amend or terminate certain arrangements withphysicians or other referral sources to comply with the regulations’ requirements. At this point, it is uncertainwhether or how these regulations will affect the financial condition and results of operations of the Obligated Group.A number of states (including Ohio and Florida) have passed similar statutes pursuant to which similartypes of prohibitions are made applicable to all other health plans or third party payors. Although both Florida’s andOhio’s Stark-type statutes apply to fewer health care services than those specified in the Stark Law, both states’32