DC Appeals Court Permits Physicians to Challenge Stark Law Regulations

Until October 2009, physicians could lawfully act as service providers to hospitals by furnishing their services “under arrangements” where a physician or group of physicians would provide services, equipment and supplies to a hospital’s patients by contracting with the hospital to provide the services. Urologists, for instance, regularly furnished lithotripsy services under arrangements. The relationship was permissible under Stark because the hospital would bill for the services, deeming the hospital the entity furnishing the designated health services (“DHS”), not the physicians. However, in October 2009, new Stark regulations made these relationships impermissible as the regulations declared entities providing under arrangement services (e.g., the urologists) were furnishing DHS.

After the regulations were issued, but before they became effective, the Council for Urological Interests (“Council”) filed suit in the US District Court for the District of Columbia, challenging the new regulations. Generally, the Social Security Act provides for judicial review of reimbursement decisions only after administrative remedies have been exhausted. The Supreme Court held in Shalala v. Illinois Council on Long Term Care, Inc. (“Illinois Council”) that an exception to this requirement existed where application of the general rule “would not lead to a channeling of review through the agency, but would mean no review at all.” The District Court, relying on Illinois Council, held that Council’s claims must be channeled through the agency’s administrative procedures prior to seeking judicial review. Despite Council’s contention that physician groups are not afforded administrative review (as administrative review was limited to “providers” only), the District Court dismissed Council’s complaint for lack of subject matter jurisdiction, holding that the hospitals (i.e. providers) could challenge the regulation through the administrative process.

On December 23, 2011, the US Court of Appeals for the District of Columbia Circuit overturned the District Court’s decision holding that the channeling requirement under Illinois Council was not a requirement of complete preclusion of judicial review. “Particularly considering the Supreme Court’s characterization of section 405(h) [of the Act] as ‘a channeling requirement, not a foreclosure provision’ we see no ‘clear and convincing evidence’ in the statute’s language or structure indicating that Congress deliberately intended to completely bar non-providers from seeking review of regulations that target them directly” (internal citations omitted).

This ruling is a victory for physicians and physician groups in that the DC Appeals Court has recognized the administrative and judicial limitations imposed upon them to represent their interests and has rectified this bar.

For more information regarding the Stark Law and its regulations, please contact Adrienne Dresevic, Esq. or Carey F. Kalmowitz, Esq. and for more information on fraud and abuse litigation, please contact Alan G. Gilchrist, Esq. All attorneys may be contacted at (248) 996-8510 or (212) 734-0128 or by visiting the HLP website.