District Court Rejects Challenge by Physicians for New Stark Act Definition of "Entity"

Effective October 1, 2009, the Centers for Medicare & Medicaid Services (CMS) will expand the definition of a designated health service (DHS) "entity" by including the entity that performs the DHS in addition to the current definition covering the entity that bills the DHS service. This change in the definition of DHS entity is requiring many physician-owned entities that provide services to hospitals "under arrangement" to either unwind or restructure the entity so that the entity is incapable of performing the DHS service.

In the case of Colorado Heart Institute LLC v. Johnson, a group of cardiologists and surgeons that provide cardiac catheterization services to local hospitals through labs owned by the physicians challenged CMS's authority to redefine a DHS entity to include entities that perform DHS services. The hospitals, however, that were purchasing the services from the physician-owned entity would have standing but were not the parties asserting the claim before the District Court.

The Colorado Heart Institute case is another reminder for providers that have under arrangements with physician-owned entities that they have until October 1, 2009, to restructure such arrangements to comply with the new definition of a DHS entity.

Providers should contact legal counsel with questions on this case; the October 1, 2009 deadline; or any other issue related to the Stark Act.