The Stark Law, 42 U.S.C. 1395nn, places restrictions on lease arrangements between physician groups and hospitals for equipment owned by the physicians, leased to the hospitals and then used by the same physicians to treat patients at the hospital.  Under the Stark Law, such leases are prohibited unless the arrangement complies with the equipment rental exception, 42 U.S.C. 1395nn(e)(1)(B).

One requirement of the equipment rental exception, which is both statutory and regulatory (42 C.F.R. 411.357(b)), is that the rental charges be “set in advance.”  In a recent case from the D.C. Circuit Court of Appeals, Council for Urological Interests v. Burwell, the court considered whether a “per-click” or “per-use” fee could be considered “set in advance” and otherwise meet the criteria for the exception.  In an oddly constructed opinion, the court struck down a regulatory prohibition on per-click arrangements, but remanded under terms that would permit the restriction to be re-instated.

Specifically, the court considered 42 C.F.R. 411.357(b)(4)(ii)(B), which provides that an equipment lease does not fall within the exception if the rental charge formula is based on “per-unit of service rental charges”, where the services are provided to patients referred by the physician-lessor of the equipment.  The court by-passed the Secretary’s argument that the per-unit restriction was valid because per-unit rates caused the total amount of the lease to fluctuate over the term based on volume and therefore did not meet the statutory “set in advance” requirement.  The court found this explanation “bewildering” and refused to credit it.

The court nevertheless remanded the case to the district court “with instructions to remand to the Secretary” to consider “with more care than she exercised here” the rationale for the restriction.  In particular, the Secretary is directed to consider whether the restriction is consistent with the 1993 House Conference Report that states that “units of service rates” may not fluctuate during the contract period, not the lessor’s total rental income.

On remand, the Secretary will emphasize that the Conference Report does not supplant the language of the statute and does not limit other authority given to the Secretary to issue regulations “as needed to protect against program or patient abuse.”  Providers are well-advised to move cautiously in this area, notwithstanding the opening for per-click leases that this opinion creates.