In accordance with the Deficit Reduction Act, the Department of Health and Human Services (“HHS”) is undertaking an initiative to require all hospitals participating in a Medicare program to provide information to HHS on a periodic basis concerning their investment and compensation relationships with physicians. As the initial step in this process, HHS will send a mandatory disclosure report form to 500 hospitals in September of this year, on which those hospitals will be required to disclose their investment and compensation arrangements with physicians. HHS will use the information gathered to analyze the relationships for compliance with applicable federal law, including the federal Stark statute. 

The HHS notice can be found by clicking here. The mandatory information request is authorized by federal regulations found at 42 CFR 411.361.

In addition to the obligation to return any amounts improperly collected from the Medicare program, penalties for violating the Stark statute include a $15,000 fine for each impermissible referral and for each claim submitted pursuant to an impermissible referral, as well as potential liability under the False Claims Act.

Because any compensation or investment relationship between a physician and a hospital may be the basis for a Stark violation, it is strongly recommended that physicians who have financial relationships with hospitals conduct an audit of those relationships to ensure compliance with the Stark law, the anti-kickback statute and any other applicable federal statutes. Compensation and investment relationships of concern will include physician-hospital joint ventures, leasing arrangements, medical directorship arrangements, independent contractor relationships and the like. 

Among other things, an audit of these relationships should look at whether the relationships are pursuant to written agreements signed by the parties, whether those agreements are in effect and whether the compensation/financial terms are consistent with fair market value.  In addition, as a general matter it is wise to conduct compliance auditing activities under the supervision of legal counsel to retain the attorney-client privilege to the extent possible in connection with those activities.