The U.S. District Court for the District of Columbia has dismissed a lawsuit brought by several cardiac catheterization facilities and physician-owners challenging a change to the definition of "entity" in the Stark Law. Colorado Heart Institute, LLC v. Johnson, No. 08-1626 (D.C. Apr. 20, 2009).
The Stark Law generally prohibits physicians from referring Medicare or Medicaid patients to an entity that furnishes designated health services (DHS) if the physician (or immediate family member) has a financial relationship with the entity, unless an exception applies. Effective October 1, 2009, the current definition of entity, which is limited to entities that bill for DHS, will be expanded to include entities that perform DHS. Under the current definition, physician-owned cardiac catheterization facilities that furnish cardiac catheterization services to hospitals under arrangements do not need to meet a Stark Law exception for the ownership interest because the physician-owned entity is not billing for the service; instead, the hospital bills for the service as a hospital service. After October 1, 2009, many of these facilities will be considered to have performed the service, thus necessitating an exception for the ownership interest. Because no exception exists outside of rural areas, the plaintiffs in the lawsuit claimed that the change effectively destroys their business.
The plaintiffs sought a judgment declaring the expanded definition unenforceable as contrary to Stark Law, arbitrary and capricious, and issued in excess of the authority of the Centers for Medicare and Medicaid Services (CMS). The judge dismissed the lawsuit on the basis of lack of subject matter jurisdiction, holding that the plaintiffs could get their claims heard administratively, even though they could not bring a direct administrative challenge to the regulatory change.
In light of the October 1, 2009, effective date of the new regulation, physician-owned entities that perform services under arrangements with hospitals should examine their relationship to assure Stark Law compliance.