This post was also written by Heather M. Zimmerman and Thomas W. Greeson.


On Aug. 19, 2008, the Centers for Medicare & Medicaid Services (“CMS”) published a final rule to implement the Fiscal Year 2009 Hospital Inpatient Prospective Payment System (the “2009 IPPS final rule”). 73 Fed. Reg 48433. The IPPS final rule includes significant changes to the federal Physician Self-Referral Law, or “Stark Law,” regulations. Under the Stark Law, if a physician or a member of a physician’s immediate family has a financial relationship with an entity, the physician may not make referrals to that entity for the furnishing of certain “designated health services” (“DHS”) under Medicare, unless an exception applies. If a physician makes a prohibited referral for DHS, the entity is prohibited from seeking or keeping payment from Medicare for the DHS. The IPPS final rule adopts as final, numerous changes to the Stark Law regulations that were proposed in the 2009 Hospital Inpatient Prospective Payment System proposed rule (“2009 IPPS proposed rule”), as well as changes that were proposed in the 2008 Medicare Physician Fee Schedule proposed rule (“2008 MPFS proposed rule”) and adopted as final in the September 2007 Stark Law, Phase III regulations (“Phase III”).

The following changes have a delayed effective date of Oct. 1, 2009, since they have the potential to substantially impact joint venture arrangements between physicians and hospitals, and may require the parties to restructure or dissolve existing financial arrangements in order to bring them into compliance with the Stark Law:

  • Prohibition on the use of percentage-based compensation formulae for equipment and office lease arrangements.
  • Prohibition on the use unit-of-service (“per click”) payments in office space and equipment lease arrangements to the extent the payments reflect referrals between the parties.
  • The expanded definition of “entity” to include not only the entity that submits claims to Medicare for DHS, but also the “person or entity that performs the DHS” in an effort to restrict the provision of DHS to hospitals by physician or physician organizations “under arrangements.”

Other changes to the Stark Law regulations that become effective Oct. 1, 2008 include:

  • Revisions to the “stand in the shoes” provisions.
  • Requirement that hospitals disclose to patients on request, physician-ownership.
  • Requirement that hospitals disclose financial relationships with physicians.
  • Revisions to the exception for payment of obstetrical malpractice insurance subsidies.
  • Clarification regarding physician ownership in a retirement plan.
  • Creation of a new exception for technical non-compliance with signature requirements.
  • Definition of a “period of disallowance.”
  • Requirement that in an appeal action, the burden of proof for establishing that DHS was not furnished pursuant to a prohibited referral is on the DHS entity.

This Client Alert describes the key provisions of the 2009 IPPS final rule and provides our commentary on aspects of the proposals that we expect to be of greatest interest to our clients.