On September 23, 2008, a group of plaintiffs led by three cardiac cath labs, a cardiology practice group, and 30 individual cardiologists practicing medicine in the state of Colorado filed a complaint in U.S. District Court for the District of Columbia against Michael O. Levitt in his official capacity as the Secretary of the U.S. Department of Health and Human Services. Colorado Heart Institute, et al. v. Levitt, No. 1:08-cv-01626-RMC (D.D.C. Sept. 25, 2008). The complaint targets the expanded definition of a Designated Health Services (DHS) entity under the Inpatient Hospital Payment System (IPPS) Final Rule for FY 2009, which, if enforced, will render illegal "under arrangement" joint ventures that have become the common model for cardiac cath labs across the United States. 73 Fed. Reg. 48433 (August 19, 2008). For a complete discussion of the IPPS Final Rule, see the August 7, 2008 edition of the Health Law Update. The complaint seeks a judgment declaring the expanded definition unenforceable as contrary to the statutory Stark Law, arbitrary and capricious, and issued in excess of the Centers for Medicare and Medicaid Services's (CMS) authority.

Prior to the FY 2009 IPPS Final Rule, the definition of DHS entity included only the entity that directly received reimbursement from Medicare for the designated health service. Pursuant to the under arrangement model, the physician-owned cath labs would perform the services under arrangement with a local hospital. The hospital would pay the cath labs a fee for such services, but it was the hospital, not the cath labs, that would bill and be reimbursed by Medicare for the services provided. The cath labs were not deemed DHS entities, thus the physician-owners were free to refer patients to the cath labs (and the hospital), so long as the arrangement with the hospital met one of the Stark Law compensation exceptions.

If upheld, the 2009 definitional change, which expands the definition of entity to include the entity actually performing the service, will result in the cath labs themselves being characterized as DHS entities. This means that the physicians also will have to meet one of the ownership exceptions to Stark Law to stay in operation, and, save for the limited circumstances under which the rural exception may apply, there is simply no ownership exception that will likely fit. The Colorado plaintiffs allege that by characterizing under arrangements as involving a Stark Law ownership interest in addition to a Stark compensation interest, CMS has exceeded its authority and impermissibly "voided" the statutory Stark Law, which allows the operation of similar under arrangement joint ventures if they meet a compensation exception. See, 42 U.S.C. § 1395nn. While CMS has expressed concern over such under arrangements leading to overutilization of services, the Colorado plaintiffs argue that physician-owned cath labs are capable of performing services more efficiently than the hospitals themselves, thereby providing significant savings to the Medicare program.