The Disclosure of Financial Relationships Report: A Stark Compliance Audit for Hospitals

August 29, 2008

Part 3 of 5: Key CMS Amendments to Physician Self-Referral Rules Contained in the 2009 IPPS

(see part 1 and part 2)

The Centers for Medicare and Medicaid Services (“CMS”) published the 2009 Inpatient Prospective Payment Systems final rule (“Final Rule”) in the Federal Register on August 19, 2008. The Final Rule includes several important changes to the Stark Act that will likely impact many health care providers. Among the notable revisions to the Stark Act announced in the Final Rule, CMS reiterated its intent to conduct an audit of hospital financial relationships with physicians in the near future.

After withdrawing its information collection request on April 10, 2008, CMS once again plans to seek information from up to five hundred specialty and general acute care hospitals about their financial relationships with physicians by requiring them to complete a comprehensive Disclosure of Financial Relationships Report (“DFRR”). CMS notes that it has not conducted an audit of financial relationships between hospitals and physicians since the Stark Act was first enacted.

The primary purpose of the audit will be to determine if surveyed hospitals are complying with the Stark Act’s prohibition against physician self-referrals. CMS also suggested that it would use collected information to inform future Stark Act rulemaking and reporting requirements. The DFRR Stark Act Compliance Audit will be a one-time event. CMS, however, stated it would consider future, separate rule making to institute regular reporting depending upon the information gathered from the audit.

The most recent draft of the DFRR contains eight worksheets. The first six worksheets address direct and indirect physician investment and ownership interests in hospitals. The seventh worksheet requests information about rental, personal service and recruitment arrangements between hospitals and physicians. The last worksheet includes a series of questions targeting non-monetary compensation arrangements and medical staff benefits exceeding approved limits and charitable donations by physicians to hospitals.

Based upon responses from hospitals and other industry representatives, CMS has concluded that surveyed hospitals should be able to complete the DFRR in approximately one hundred hours at a cost of $4,080. These estimates reflect CMS’s belief that hospitals already maintain the information required to complete the DFRR, and that the task of completing the report should be largely administrative (although CMS recognizes that many hospitals may seek assistance from accountants and lawyers). The time and monetary burden of compiling data for, and carefully responding to, the survey will likely be substantial. Additionally, a number of commentators believe that CMS still has not accurately considered all of the potential costs associated with completing the DFRR.

CMS will require each hospital to complete and return the DFRR within sixty days of its receipt. The agency has commented that although it has authority to impose civil monetary penalties of up to $10,000 per day for late responses, it will not penalize hospitals that fail to respond to the DFRR until after it has provided a notice letter to hospitals that do not timely return the DFRR. Additionally, CMS has agreed to grant extensions to hospitals that are able to show good cause for failing to respond.

Please contact the authors if you have any questions regarding the DFRR.