On May 24, in Council for Urological Interests v. Sebelius et al., the United States District Court for the District of Columbia granted CMS’ motion to dismiss a challenge to 2008 regulations promulgated by CMS that:

  • expanded the definition of an entity furnishing designated health services (“DHS”) to mean not only the billing organization but also the organization that performed the DHS, and
  • prohibited “per-click” rental payments to physician-hospital joint ventures for DHS provided under arrangements to patients referred to the joint venture by a physician-owner.

The challenge was made by the Council for Urological Interests, a not-for-profit trade group representing providers of urology equipment and technical personnel and was made under the Administrative Procedure Act (“APA”) and the Regulatory Flexibility Act (“RFA”), two statutes governing the process for federal administrative rulemaking.  In accordance with the standard for summary judgment, the Court held that there was no genuine dispute as to a material fact such that CMS was entitled to a judgment as a matter of law with respect to the legality of its rulemaking process. In short, the Court found that (i) CMS’ rulemaking was lawful under the APA standard of judicial review of agency rulemaking set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the seminal case on the matter, and (ii) the required regulatory flexibility analysis for the RFA was provided by CMS as part of the entire Inpatient Prospective Payment System final rule and was not required to be provided separately with respect to the challenged 2008 regulations, which were promulgated as a part thereof.

The impact of the Court’s decision is to validate the 2008 regulations, which made it impossible for non-rural physicians to use a Stark Law exception to protect physician owners of joint ventures providing DHS under arrangements by prohibiting such physicians from (i) referring patients to the joint venture to receive DHS made under arrangements and (ii) receiving per-click rental payments for the use of the joint venture’s equipment and technical personnel relating to DHS performed on patients referred to the joint venture by the physician owner. 

These changes represent a complete departure from regulations previously promulgated by CMS in 2001, which permitted such under arrangements.  Under the 2001 regulations, because the joint ventures were not billing Medicare in under arrangements, they were not considered to be furnishing DHS, and, therefore, the physician owners were free to refer Medicare patients to the joint venture for DHS.  Further, the 2001 regulations specifically interpreted the lease exception to the Stark Law as allowing these per-click rental charges.

Because these changes were effective October 1, 2009, physician-hospital joint ventures have already changed their business models and modified arrangements to account for the changes; however, the Court’s ruling reemphasizes the importance of analyzing CMS’ ever-changing interpretations of the Stark Law to consider the impact of such changes on physician-hospital joint ventures and leasing arrangements.