This September, the Centers for Medicare and Medicaid Services (“CMS”) will require 500 hospitals to complete a comprehensive report to disclose all ownership and compensation relationships with physicians. The disclosure report must be submitted within 45 days of receipt, and copies of all physician contracts must be attached.

For all hospitals, but particularly those who have yet to manage physician contracts centrally or conduct a comprehensive Stark compliance review of all physician contracts, this new mandatory disclosure program is daunting.

The disclosure program arises from the Deficit Reduction Act of 2005, which mandated that the Department of Health and Human Services develop a plan to address physician investment in specialty hospitals. From this initiative, CMS developed a voluntary hospital survey instrument regarding physician investment and compensation. CMS is now planning to use a variation of that survey instrument, and its authority under Section 1877(f) of the Social Security Act, to begin a program of mandated hospital disclosure of physician ownership and compensation relationships.

A hospital that receives the survey and fails to submit a completed report within 45 days is subject to penalties of $10,000 per day. A CEO, CFO, or comparable officer of the hospital must certify that the report is true and accurate.

The reporting survey contains a section for reporting physician investment and ownership in the hospital, including physician investments, and loans and loan guarantees by the hospital on behalf of physician investors. The instructions make clear that CMS is seeking information only on direct physician investment in hospitals, not indirect investments. Accordingly, hospitals need not report investment or ownership by a physician professional corporation or other corporate entity. The reporting period appears to be as of the end of the Hospital’s cost reporting period that ended in 2006.

The survey also mandates disclosure of any land, building, or equipment leasing relationships with physicians.

Also mandated is information regarding all compensation arrangements with physicians. Hospital must specify what Stark exception within which each compensation arrangement fits (e.g., space rental, equipment rental, personal services arrangements), and must attach the relevant contract. The physician’s NPI/UPIN number must be disclosed.

Although the form does not specify it explicitly, it appears that only direct compensation arrangements with physicians (or immediate family members) must be reported. The instructions state that the term “physician,” on the form means the definition of physician in the Stark regulations, at 42 C.F.R. § 411.351. This would not include indirect compensation relationships with physician groups or physician joint ventures. If disclosure of relationships with physician groups is not required, then reporting will be significantly less burdensome.

Nonetheless, the new reporting program clearly compels hospitals to manage physician arrangements and contracts in a manner that allows for quick retrieval of all contracts and basic information about arrangements at any time, and for any point in time.

Just as importantly, all hospitals, whether they receive the disclosure mandate in September or not, should conduct a comprehensive Stark audit of physician relationships. It is likely that a Stark disclosure program will be ongoing. And it is far better to identify and correct real or potential problems before receiving the disclosure reporting form.