Last year, as required by the Deficit Reduction Act of 2005, CMS began investigating the proportionality of physician investment return and bona fide investment in specialty hospitals. In order to compare physician relationships at specialty hospitals to those at acute care hospitals, CMS created a survey to be sent to both specialty and acute care hospitals. CMS sent this voluntary request for information regarding physician relationships to 320 acute care hospitals and 130 specialty hospitals. In August 2006, CMS published a report to Congress regarding the results of this survey. (Available here: http://www. Reports.asp)

The response rate to that survey was poor. Only 76 out of the 320 acute care hospitals responded. Further, CMS noted in its report to Congress that many of the hospitals that returned surveys to CMS did not answer all of the questions. As a result, CMS stated:

…[B]ecause many hospitals did not respond to our survey questions on investment interests and compensation arrangements (or did not respond completely), we are sufficiently concerned about potential tainted relationships and will begin seeking financial disclosure with those hospitals and will implement a regular disclosure process. (Emphasis added.) 

In May 2007, CMS issued notice that it would implement a new survey to investigate the non-responsive hospitals as well as additional hospitals. This new survey, entitled the Disclosure of Financial Relationships Report (DFRR), is mandatory. Hospitals will have forty-five (45) days in which to respond or face a penalty of $10,000 per day for late responses The DFRR is, in effect, a Stark compliance audit. The DFRR states that its purpose is to review “investment/ownership and compensation arrangements between physicians and hospitals to determine whether they are in compliance with the physician self-referral statute and implementing regulations.” The portions of the DFRR most applicable to acute care hospitals are:

Worksheet 5, which requires each hospital to identify (for 2006):

  • all sales and leases of land or buildings to physicians, and include copies of all such contracts as well as copies of supporting documentation showing how fair market value of the land/building was calculated; and
  • all leases of capital equipment to or from physicians, and include copies of all such leases as well as copies of supporting documentation showing how fair market value of the equipment was calculated

Worksheet 6, which requires each hospital to identify (for 2006): 

  • each physician with whom the hospital has a compensation arrangement (lease, personal services arrangement, recruitment agreement), and include copies of all such documents; 
  • any isolated transactions with physicians; 
  • any physician who has made a charitable contribution to the hospital; and 
  • whether the hospital provided non-monetary compensation or incidental benefits to any medical staff member that exceeded the permissible limits.

Hospital respondents are required to have the CEO, CFO or other appropriate official certify the accuracy of the DFRR responses. CMS has stated that responses will be shared with other federal agencies.

Finally, CMS plans to use the data from these surveys to assist in proposing a regular financial disclosure process that would apply to all Medicare participating hospitals. Such a process is still in the early stages of design, but all hospitals should understand that even if they do not receive the DFRR survey, they will likely have to report similar information to CMS in the future.

It is expected that CMS will send out the DFRR around September of this year. Approximately 500 hospitals will receive the DFRR. All 290 of the hospitals that received but did not respond to the 2006 survey (including all 244 non-responsive acute care hospitals) will receive the DFRR. These non-responsive hospitals are identifiable – a list of the hospitals that received the 2006 survey and a list of the hospitals that responded are available as part of the CMS report to Congress (cited above). In addition to the identified non-responsive hospitals, CMS intends to select an additional, currently unidentified, 210 hospitals nationally to receive the DFRR.

It is advisable for all hospitals to understand what would be expected of them if they receive the DFRR and to take steps to ensure the hospital is in a position to respond. Moreover, those hospitals identified as non-responsive to the 2006 survey must understand that they will be receiving the mandatory DFRR survey. Such hospitals should immediately begin preparing for the DFRR survey. With only 45 days to respond to the DFRR, it is imperative that hospitals have a comprehensive inventory of all physician relationships to enable a response. Further, such hospitals should consider conducting a preliminary internal review to identify and resolve questions while there is time. Hospitals may want to work with legal counsel to assist with these activities or address problematic issues. A Stark compliance audit is on the horizon for many hospitals; prepartion should begin now to get ready for it.