One of the government’s tools for combating fraud and abuse in the healthcare industry is the Stark Law, also known as the self-referral law. In its continual efforts to protect individuals from healthcare fraud, the Centers for Medicare and Medicaid Services (CMS) has periodically sought to broaden the law and further define the various types of fraud that may occur in the healthcare industry. Recently, the per-click fee restriction included in Stark IV has come under fire in the D.C. Circuit for exceeding the statutory authority of the U.S. Department of Health and Human Services (HHS). To understand the court’s decision and its implications, it is important to understand both the history of the Stark Law and the history of the case itself.

The Stark Law was initially designed to prevent physician self-referrals, which potentially encourage the over-utilization of healthcare services and increase healthcare costs. The original Stark Phase I (out of four phases), was introduced in the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989), and became effective in 1992.¹ Stark I allowed physicians with an ownership interest in an equipment leasing company to refer patients to that company and receive a fee for each patient that used the physician-owned equipment.² Physicians who owned these leasing companies were eligible to receive payments because of a “loophole” in Stark I that only forbade reimbursement for the entity or individual that directly billed Medicare for that designated health service (DHS), in contrast to forbidding reimbursement to the entity or individual that performed the DHS.³

Since OBRA 1989, Stark Phase I has been expanded to Stark Phases II, III, and now IV, with each phase adding more modifications and restrictions than the previous phase.⁴ As part of Stark IV, regulators added restrictions for diagnostic imaging arrangements based on concerns that physicians’ equipment lease arrangements with hospitals promoted over-utilization of their own equipment and shifted the focus away from patient need and toward financial gain.⁵

In Stark IV, CMS restricted the ability of physicians to use a unit-of-service, or “per-click,” fee payment system for space or equipment leases with a hospital to which the physician refers patients.⁶ A per-click arrangement is one in which a physician or healthcare entity leases equipment to another healthcare organization and receives a fee each time the equipment is used.   Importantly, Stark IV, which was adopted in the Inpatient Prospective Payment Systems Fiscal Year 2009 Final Rule (IPPS Rule) in August 2008, prohibits physicians who refer any patients to a hospital from leasing equipment to that facility on a per-click basis.⁷ The IPPS Rule essentially changed the definition of “entity” to include both the entity or the individual billing Medicare for the DHS and the entity or individual performing the DHS.⁸ This language change indicates that physicians who referred patients to hospitals that used their equipment were now referring patients to their own company, creating a self-referral payment system that would violate Stark Law unless an exception applied.⁹ However, the IPPS Rule specifically noted that per-click fee arrangements no longer fit within the exceptions to the prohibitions on lease arrangements, including the lease exception, the fair market value exception, and the exception for indirect compensation arrangements, “to the extent that these charges reflect services provided to patients referred between the parties.”¹⁰ The per-click part of the rule went into effect on October 1, 2009,¹¹ giving physicians a year from publication to restructure or eliminate any operational per-click arrangements with hospitals to meet the new compliance standards.¹²

After CMS released the updated regulations, some physicians disagreed with the new restrictions in the IPPS Rule and accused HHS of overstepping its statutory authority.¹³ In 2009 in the district court of D.C., the Council for Urological Interests, a urologist-owned group of joint ventures that leased laser technology to hospitals, brought a lawsuit against the Secretary of HHS arguing that the per-click restrictions and definition change of “entity” violated the Administrative Procedure Act and the Regulatory Flexibility Act and overstepped HHS’s authority under Stark Law because the changes prohibited the urologists from providing laser treatment to Medicare patients.¹⁴ The D.C. district court dismissed the case in December 2010 on jurisdictional grounds, but, on appeal, the decision was reversed and remanded back to the district court for further proceedings.¹⁵ Upon rehearing the case, the district court again found in favor of the Secretary, granting her motion for summary judgment based on the finding that (1) HHS’s interpretation of performing DHS was reasonable and consistent with the statutory purpose of Stark Law (i.e., prohibiting physician self-referrals); and, (2) the prohibition on per-click payments was valid.¹⁶

However, on appeal from that decision, the D.C. Circuit Court of Appeals held that although (1) the Secretary was not barred from prohibiting physicians from charging hospitals for leased equipment on a per-click basis; and, (2) that the new definition of “entity” was reasonable, the Secretary’s interpretation of the Stark Law, i.e., that it barred physicians from charging a hospital for equipment on a per-click basis when those physicians also referred patients to that facility for procedures, was unreasonable.¹⁷ The court remanded the case back to the district court, with instructions to send the issue to the Secretary herself for consideration, “with more care than she exercised here,” of whether the per-click ban was consistent with the 1993 House Conference Report on which she relied in her argument.¹⁸ The D.C. Circuit expressed bewilderment regarding the Secretary’s explanation of why the per-click restriction was valid, i.e., “because per-unit rates caused the total amount of the lease to fluctuate over the term based on volume and therefore did not meet the statutory ‘set in advance’ requirement.”¹⁹ The court noted that the Secretary’s interpretation of the 1993 report seemed to ignore some of the language within it,²⁰ pointing out that the report “makes clear that the ‘units of service rates’ are what cannot ‘fluctuate during the contract period,’ not the lessor’s total rental income.”²¹

With the case currently on remand to the HHS Secretary, there is speculation in the healthcare industry surrounding how HHS will interpret, and whether it will enforce, the per-click restrictions. One option is that the HHS Secretary may choose not to re-address the per-click issue, thus implicitly allowing per-click fee arrangements.²² HHS may also use the Office of Inspector General (OIG) to issue guidance or an enforcement action on the issue, or even relate such fee arrangements to the Anti-kickback Statute.²³ HHS may choose to interpret the language in a way that maintains the restriction’s validity by focusing on its authority to issue regulations as needed in order to guard against patient and/or program abuse.²⁴ Given the variety of outcomes that may occur as a result of the court’s decision, physicians and hospitals would be well served to proceed cautiously when considering equipment leasing arrangements.