HEALTH INDUSTRY ONLINE - Increased Scrutiny Of Financial Relationships Between Hospitals And Physicians Is On The Way

Increased Scrutiny Of Financial Relationships Between Hospitals And Physicians Is On The Way

In August 2006, the U.S. Department of Health and Human Services (HHS) announced the release of its Final Report to Congress "outlining a 'strategic and implementing plan' to address key issues relating to physician investment in specialty hospitals."¹ Although the Final Report generally arose out of the intense scrutiny given to physician-owned specialty hospitals, it identifies certain actions HHS has taken or intends to take that will affect all Medicare-certified hospitals. As discussed below, these include increased disclosure and scrutiny of financial relationships between hospitals and physicians.²

Background

In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)³ , Congress required the Secretary of HHS to impose an 18-month moratorium on payments to certain specialty hospitals for services furnished to Medicare beneficiaries as a result of a referral from a physician with an investment interest in the hospital. In the MMA, specialty hospitals were defined as hospitals that are "primarily or exclusively engaged in the care and treatment" of patients with a cardiac or an orthopedic condition, or patients receiving a surgical procedure. The MMA moratorium expired in June 2005.

Despite the expiration of the moratorium, the Secretary of HHS continued to review various issues relating to specialty hospitals. Although the focus of the review was on specialty hospitals, the Deficit Reduction Act of 2005
(DRA)⁴ also required the Secretary of HHS to develop a "strategic and implementing plan" to address the following issues relating to financial relationships between hospitals and physicians: (1) annual disclosure of investment information; (2) bona fide investment; (3) proportionality of investment return; and (4) appropriate enforcement. The Final Report was issued pursuant to these requirements of the DRA, and it indicates a continued focus by HHS on the terms of financial relationships between Medicare-certified hospitals and physicians.

HHS's Desire to "Promote Transparency of Investment"

The Final Report indicates that:

The Centers for Medicare & Medicaid Services (CMS) intends to formulate and implement requirements mandating that hospitals provide information to CMS on a periodic basis concerning their investment and compensation relationships with physicians. These requirements will be implemented pursuant to the authority granted to HHS in Section 1877(f) of the Social Security Act, which generally allows HHS to collect "information concerning [an] entity's ownership, investment and compensation arrangements." CMS notes that, under already existing statutory and regulatory provisions, "Hospitals that do not respond timely with the required information can face stiff penalties, including a fine of up to $10,000 for each day that the response is late."
CMS is exploring a change to its regulations, either in hospital conditions of participation or in provider agreement requirements, to require hospitals to disclose to patients investment interests, and possibly certain compensation arrangements as well, with physicians who refer to the hospital.

Enforcement of Stark and Anti-Kickback Rules for Improper Investment

In the Final Report, CMS states that non-proportional returns on investments made by physicians in hospitals, and non-bona fide investments of physicians in hospitals, may violate the physician self-referral statute and are suspect under the anti-kickback statute. The Final Report gives examples of matters that CMS may consider to constitute "disproportionate returns" or "non-bona fide investments." The Final Report states: "We consider a disproportionate return on investment to encompass a situation in which a physician-investor makes a capital contribution of say, 2 percent but receives a profit distribution in excess of 2 percent. Investments may not be bona fide for a number of reasons. For example, a non-bona fide investment would include one in which the physician-investor has received a loan at less than fair market value rates from the hospital or from an entity or person with a financial interest in the hospital." The Final Report further states that CMS and the Office of the Inspector General (OIG) will take appropriate action against any such arrangements that are identified, and that the required disclosure of these financial arrangements (discussed above) will provide CMS and the OIG with the information needed to identify potentially concerning investment relationships for further investigation.

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The initiatives contemplated by the Final Report are further evidence of the increased scrutiny being given to financial relationships between health care providers. Pending adoption of any of the contemplated requirements discussed above, hospitals and physicians with whom they have financial relationships should continue to evaluate those relationships and structure them to comply with the applicable laws and regulations. Further, those parties should monitor whether CMS adopts any of the proposed disclosure requirements summarized above and, if new requirements are adopted, the parties should implement procedures to ensure compliance with the requirements on an ongoing basis.