Freddy Kreuger from Nightmare on Elm Street, Jason from Friday the 13th, and The Exorcist.  This triumvirate struck fear in me as a kid and caused many sleepless nights.  Fast forward to present, and the Stark Law invokes similar fears, with its strict liability and draconian punishments for even inadvertent violations.  The Stark Law prohibits a physician from billing any federal healthcare program for items or services provided by another entity with whom the physician has a financial relationship, unless the arrangement falls within a statutory exception.  See generally, 42 U.S.C. 1395nn.

The Secretary for Health and Human Services has enacted three major regulatory declarations interpreting and refining implementation of the Stark Law.  These have been collectively referred to as Stark I, Stark II, and Stark III.

On June 12, 2015, the United States Circuit Court for the District of Columbia took a step forward in clarifying an issue that has flummoxed medical practitioners since the “Stark III” update in 2007.  See Council for Urological Interests v. Burwell, 2015 WL 3634632 (June 12, 2015).  Medical practices often lease equipment to hospitals, such as radiological equipment, and charge the hospital for the use of the equipment on a per-use, or “per-click” basis.  In 2007, Stark III changed CMS’s interpretation of the equipment rental exception and specifically prohibited such per-click leasing arrangements if the medical practice leasing the equipment to a hospital also referred patients to that hospital for services provided using the leased equipment. See 42 C.F.R. 411.357(b)(4)(ii)(B).  These per-click arrangements were permitted under Stark II pursuant to the statutory exception for equipment rentals. 42 U.S.C. 1395nn(e)(1)(B)(iv).

In response, the Council for Urological Interests, an association of physicians representing those who lease equipment to hospitals and then refer their patients to those hospitals to perform procedures using the leased equipment, filed a challenge to Stark III’s prohibition of such per-click arrangements.

The argument advanced by the Council of Urological Interests stated that the Stark III rule exceeded the Secretary’s authority under the Administrative Procedure Act (“APA”) and violated the procedural requirements of the Regulatory Flexibility Act (“RFA”).

The D.C. Circuit Court evaluated the challenge in the context of the equipment rental exception under 42 U.S.C. 1395nn(e)(1)(B)(iv).  Under that section, a medical provider may lease equipment to a hospital and refer patients to have procedures performed on that equipment so long as “rental charges over the term of the lease are set in advance, are consistent with fair market value, and are not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties.”

Citing legislative history, the D.C. Circuit ultimately remanded 42 C.F.R. 411.357(b)(4)(ii)(B) to the district court with instructions to remand to the Secretary of HHS for further proceedings.  Specifically, the D.C. Circuit held that the Secretary should reconsider whether a per-click ban on equipment leases is consistent with a 1993 Conference Report published at the time Congress passed the Stark Law.

This D.C. Circuit decision is important to health care providers who rent equipment to a hospital and then treat their Medicare patients using the equipment they rent to the hospital.  The 2008 prohibition of this practice may begin to crumble, and providers should monitor its progress and take advantage of the ability to once again enter into such per-click arrangements if the current ban is reversed.