Beginning October 1, 2008, the Centers for Medicare and Medicaid Services (“CMS”) will engage in a reporting initiative that requires selected hospitals to provide information concerning their financial relationships with physicians. These relationships may involve ownership or investment interests, compensation arrangements or both, and may be direct or indirect. Such relationships have implications under the Physician Self-Referral Law, more commonly referred to as the Stark Law. Until now, CMS has not engaged in a comprehensive reporting initiative to examine financial relationships between hospitals and physicians since the Stark Law was first enacted in 1989. In the Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates Final Rules (“IPPS 2009 Final Rules”) published on August 19, 2008, CMS created an information collection instrument, referred to as the Disclosure of Financial Relationships Report (“DFRR”). The DFRR is designed to collect information concerning financial relationships between hospitals and physicians.

The basic requirements regarding hospitals’ agreements with most physicians have not changed. Such agreements must be (1) written, (2) signed, (3) for a term of at least one year, (4) for fair market value compensation, and (5) set compensation in a manner that does not vary with the volume or value of referrals. There are exceptions that are not required to be written for employment agreements, and some uncertainty over how to memorialize payments for call, but all other agreements must be in writing and signed before any remuneration under the agreement is paid. Stark imposes enormous and disproportionate penalties for trivial failures to comply, with a new and limited ability to correct for some timing omissions, like obtaining signatures or holding over on leases.

In light of the IPPS 2009 Final Rules, it is important for hospitals to check their existing physician agreements to ensure they are in compliance with these basic requirements, and to ensure that their systems which alert them about termination and renegotiation dates for all arrangements for physicians are up to date and carefully monitored. If there is not such a central collection and triggering system for all contracts, it is critical to implement one. An expired or unsigned lease or contract, if not quickly corrected, can make a compliant relationship non-compliant and put all Medicare referrals from the physician at risk during the period spent waiting for signatures or finalizing contracts. Hospitals should determine if any physician agreements have expired and ensure that agreements that are cross-referenced in any physician agreements also meet these basic requirements and have not expired.