CMS Seeks Data on Financial Relationships; 500 Hospitals Must Explain Physician Deals

July 21, 2007

Reprinted from the July 2, 2007, issue of REPORT ON MEDICARE COMPLIANCE, the nation’s leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

CMS is putting hospital-physician financial relationships under a microscope, apparently driven by concern that some may be illegal, lawyers say.

CMS is preparing to send a new, mandatory “Disclosure of Financial Relationships Report” (DFRR) to about 500 specialty and acute-care hospitals to elicit information on their physician investment, ownership and compensation relationships. The reporting has become a requirement because more than half of hospitals were unresponsive when CMS tried to get these data voluntarily from almost 300 of them. Based on the responses it gets from the 500 hospitals, CMS will decide whether to collect the same data annually from all Medicare-participating hospitals to assess compliance with the Stark physician self-referral law.

The report, which includes multiple disclosure forms, is expected to go out to hospitals around September, a CMS official says.

“This poses significant compliance issues,” says attorney Julie Chicoine, compliance director at Ohio State University Medical Center. “CMS is coming up with a way to audit Stark compliance. There is no good way to audit through claims.”

CMS will assign a program safeguard contractor (PSC) to compile and analyze the DFRR information from the 500 hospitals and submit its findings to CMS. PSCs are the fraud-and-abuse arm of CMS.

The plan to survey hospitals was announced in the May 18 Federal Register (72 FR 28056). CMS says in the small notice that the DFRR is “a new collection instrument that will be used by CMS to obtain information necessary to analyze each hospital’s compliance” with the Stark law and its implementing regulations.

CMS is taking a hard line with the DFRR. Recipient hospitals have 45 days to respond, and hospitals that fail to comply face a $10,000-a-day civil monetary penalty for every day beyond the deadline, CMS says in documents that accompany the forms.

Nashville attorney Patricia Powers says the forms ask for information in a way that doesn’t always mesh with real-world hospital-physician relationships. That may cause problems for hospitals and physicians down the line, says Powers, who is with the law firm of Waller Lansden Dortch & Davis. CMS could presume there are abusive hospital-physician relationships based on the way the information is sought when the facts don’t support that conclusion, she says. For example, for each physician investor, the information requested is “the cost (not the fair-market value) of all physician investment at the end of the cost-reporting period ending in 2006.” If an entity sold interests in 2005 but not 2006, would there be anything to disclose? The form also appears to require the recalculation of ownership percentages based on the amount paid for the interest rather than on the percentage purchased. Finally, the form asks “whether there is any type of limitation of liability, regardless of source.” Most joint ventures are organized as either limited partnerships or limited liability companies, and are perfectly acceptable business organizations, but by definition limit liability. Is this something that should be disclosed?

Powers says hospitals and physicians should bring problems with the form to the attention of CMS, which is accepting comments on the DFRR until July 17.

Data Gathering Began With DRA

The ball for CMS’s information gathering got rolling with the Deficit Reduction Act (DRA). Congress directed CMS to send a voluntary survey about their physician relationships to 130 specialty hospitals and 322 general acute-care hospitals. But the response rate was poor. Only 64 specialty hospitals and 76 acute-care hospitals responded. That raised suspicions at CMS. “Because we are unable to determine whether the hospitals that did not respond to our DRA survey questions on investments and compensation relationships had tainted relationships or whether their non-response was for other reasons, we will begin our disclosure initiative with those 290 hospitals. We will select an additional 210 hospitals, for a total of 500 hospitals,” according to a CMS statement accompanying the forms. (However, a CMS official says the 500 figure is an estimate.)

CMS will e-mail the mandatory DFRR, which includes a Microsoft Excel spreadsheet and instructions, to the 500 hospitals, but they must return it in hard-copy form. The forms must be signed by a chief financial officer, CEO or other “appropriate official,” who must certify the accuracy of their contents, CMS says. Chicoine interprets the executive-signature requirement to mean that if a Stark violation is alleged, the hospital can’t put all the blame on a lower-level manager.

The DFRR forms delve into details about all kinds of hospital-physician financial relationships, including space and equipment rentals, personal-services arrangements, physician recruitment, stock equity, secured debt and capital equipment. The hospital must provide the National Provider Identifiers of all physicians who have a compensation relationship with, or ownership or investment interest in, the hospital. Under arrangements, which refer to service arrangements between hospitals and providers under which only the hospital bills Medicare, are also targeted, Powers says; there is a DFRR worksheet eliciting the disclosure of under arrangements. It contains yes-or-no questions that ask whether the hospital is the sole owner of the land on which hospital operations are conducted, and whether the hospital is the sole owner of capital equipment. If the hospital answers “no” to either question, the hospital has to elaborate and submit a copy of the applicable lease agreement in effect during the 2006 cost-reporting period.

Powers thinks CMS might be hunting down all this hospital-physician information because it is worried that providers are entering into deals that skirt the edges of the Stark law.

So what should hospitals do in light of the DFRR? Determine if you are one of the 500. There is a list of the targeted hospitals in a DRA report that CMS prepared for Congress. If you are on the hit list, alert relevant hospital managers to the fact that they may receive an e-mail from CMS containing the DFRR, Chicoine says. “Hospitals need to be vigilant for receipt of this e-mail,” she notes.

Chicoine recommends that hospitals convene a task force immediately to determine the best way to compile and disclose the information on the DFRR when it arrives. Include legal counsel on the task force, she says. “CMS has indicated it can share information from the DFRR with other agencies,” such as the HHS Office of Inspector General (OIG) and Department of Justice (DOJ), and with congressional committees, though not with the public, Chicoine says. And if the PSC finds indications of Stark law violations, there could also be referrals to OIG or DOJ for further evaluation, she says. For understanding of Stark and its implications, she recommends the OIG 2005 hospital supplemental compliance-program guidance.

Powers is concerned that CMS will begin investigating hospitals for perfectly legal arrangements. The DFRR “could scare people,” says Powers. “It may cause them to unwind their investments.” Or physicians and hospitals may simply become so conservative that they hire experts to establish fair-market value for every single deal — even the simplest of medical directorships — which would be very expensive.

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