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ABA Health eSource
 November 2007 Volume 4 Number 3

CMS's Mandatory Disclosure of Financial Relationships May Have Considerable Impact on Hospitals and Physicians
by Summer H. Martin, McKenna Long & Aldridge LLP, Atlanta, GA

Summer H. MartinOn May 18, 2007, the Centers for Medicare and Medicaid Services ("CMS") published its proposed reporting worksheets, the Disclosure of Financial Relationships Report ("DFRR"), that would place a mandatory obligation on hospitals to disclose comprehensive information on their financial relationships with physicians under the physician self referral law, 42 U.S.C. § 1395nn ("Stark"). 1 According to CMS, the DFRR will be used by CMS to obtain information necessary to analyze each hospital's compliance with Stark and its implementing regulations. In addition, CMS has indicated that it may share the information collected with other federal agencies and Congressional committees.

The DFRR is an offshoot of the August, 2006 "Final Report to the Congress and Strategic and Implementing Plan Required under Section 5006 of the Deficit Reduction Act of 2005" (the "Final Report") made by the Department of Health and Human Services ("HHS"). 2 Section 5006 of the Deficit Reduction Act ("DRA") required HHS to develop a strategic and implementing plan to address physician investment in specialty hospitals, including plans to address annual disclosure of physician investment information. 3 In preparation for the final report, HHS sent a voluntary survey to 130 specialty hospitals and over 300 general acute care hospitals requesting information regarding arrangements with physicians that had an ownership interest in the hospital, and information on other "related issues that [HHS believed] may be of interest to the Congress." These voluntary surveys did not, however, request information on all financial relationships with physicians (regardless of whether the physician was an investor in the hospital). Although Section 5006 was related to physician ownership in specialty hospitals, HHS indicated in the Final Report that it would implement a regular disclosure process that would "require hospitals to provide us information on a periodic basis concerning their investment and compensation relationships with physicians." 4

The DFRR will be a mandatory disclosure instrument that is currently comprised of a set of eight detailed worksheets, requiring hospitals to report all ownership, investment, and compensation arrangements with physicians (and their immediate family members). Hospitals must disclose detailed information regarding (1) ownership of the hospital by a physician investor; (2) payments made to the hospital by physician owners, including initial investments capital calls and loan guarantees; (3) an investment reconciliation for each physician owner and (4) compensation arrangements with physicians including space, equipment, personal service and recruitment arrangements. Further, hospitals must disclose isolated transactions, remuneration to physicians unrelated to designated health services, payments made by physicians to the hospital, charitable donations received from physicians, non-monetary compensation or medical staff incidental benefits granted to a physician and loans or loan guarantees. Moreover, detailed supporting documentation must also be submitted with the DFRR. For instance, hospitals must furnish their audited financial statements and all written agreements in effect in 2006 for each category of compensation arrangement. The hospital CFO, CEO or other appropriate hospital official must sign a certification statement verifying the completeness and accuracy of the information reported in the DFRR.

The DFRR will be used as a pilot program for CMS to assist in proposing a regular financial disclosure process for all Medicare participating hospitals. Accordingly, the DFRR will initially be sent to 500 hospitals. CMS will begin by sending the DFRR to 290 hospitals that failed to completely respond to the voluntary survey requesting information for the Final Report. CMS will select an additional 210 hospitals to complete the mandatory reporting forms. It is unclear how these additional hospitals will be selected. The 500 selected hospitals will have 60 days to complete and submit the DFRR. CMS has indicated that failure to submit a completed DFRR within the 60 day window may result in civil penalties up to $10,000 each day beyond the deadline.

On September 14, 2007, CMS published a notice requesting public comment to the Office of Management and Budget ("OMB"). Specifically, CMS invited comment regarding "(1) the necessity and utility of the proposed information collection for the proper performance of the Agency's function; (2) the accuracy of the estimated burden; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden." In response, the American Hospital Association submitted a letter to OMB urging OMB to deny CMS authorization to proceed with the DFRR as proposed, stating that "CMS offers no justification for the broad-based, intrusive and extremely burdensome demand on community hospitals." 5

If CMS moves forward with the current version of the DFRR, the timeframe and production requirements will pose a substantial administrative burden on most hospitals. Additionally, CMS has reinforced its position that it will seek to impose mandatory reporting requirements about financial relationships with physicians for all hospitals. Accordingly, hospitals should begin to prepare their files and carefully review their financial relationships with physicians (and their immediate family members) to ensure compliance with the Stark law and prepare for any subsequently imposed mandatory reporting requirements.

For questions or for more information on the DFRR please contact Summer Martin at (404) 527-4910, Charlene McGinty at (404) 527-4660 or Amy Fouts at (404) 527-8417.


1 72 Federal Register 28056 (May 18, 2007). CMS accepted comments on the proposed form of the DFRR. Based upon the comments received, CMS recently made several changes to the DFRR. A copy of the DFRR is available at http://www.cms.hhs.gov/PaperworkReductionActof1995/PRAL/list.asp#TopOfPage, CMS - 10236.
2 A copy of the Final Report is available at http://www.cms.hhs.gov/PhysicianSelfReferral/06a_DRA_Reports.asp.
3 Deficit Reduction Act of 2005 § 5006, Pub. L. No. 109-171 (2006).
4 For example, HHS noted that "other types of compensation arrangements, that is, those that do not arise from an investment interest per se, implicate [Stark] (and, depending on the circumstances, potentially the anti-kickback statute)." Final Report at p. 69.
5 Letter dated October 10, 2007 to OMB Human Resources and Housing Branch from American Hospital Association, Re: Disclosure of Financial Relationships Report ("DFRR"): Form Number: CMS-10236 (OMB#: 0938-New), Vol. 72, No. 178 Fed. Reg., September 14, 2007, available at http://www.aha.org/aha/letter/2007/071010-CL-DFRR.pdf.