After a seven-year hiatus, CMS issued its first substantive advisory opinion analyzing the Stark Law in August 2005. CMS Advisory Opinion No. CMS-AO- 2005-08-01 (Aug. 22, 2005). Since 1998, the only Stark advisory opinions that CMS issued related to the specialty hospital moratorium issued in 2004 and 2005. CMS's most recent advisory opinion addresses whether the purchase and ownership of certain stock by physicians in a nonprofit, tax-exempt corporation operating a large group practice constitutes a financial relationship for purposes of the Stark law, 42 U.S.C. § 1395nn(a).

The nonprofit corporation in question employs more than 700 physicians across various specialties. At the time the corporation was formed, state law permitted nonprofit corporations to issue capital stock. Although the state's corporate law was later amended to eliminate capital stock for new nonprofit corporations, existing nonprofit corporations were grandfathered in their current form. Accordingly, many of the employed physicians own capital stock in the nonprofit corporation. Nevertheless, stockholders have no claim to the corporation's assets, receive no dividends on their investments, and will receive no appreciation or depreciation of the stock value upon resale of the stock.

Given the unique characteristics of the nonprofit corporation's stock, CMS concluded that the stock did not constitute a financial relationship within the meaning of the Stark law. Thus, the Stark law did not limit referrals by physician-shareholders to the corporation's medical practice. CMS reasoned that the physician-shareholders are analogous to members in a nonprofit corporation because the stock lacks certain fundamental financial attributes of an ownership or investment interest under the Stark law. Specifically, the physician-shareholders have no way of financially benefiting from their referrals to the nonprofit corporation through their stock ownership.

Without a finding of a Stark financial relationship, CMS indicated that it was unnecessary to analyze whether any Stark law exceptions might apply to the arrangement.

The Stark advisory opinion is notable in that CMS looked beyond the form of the arrangement to its substance. CMS essentially ignores the stock ownership. Instead, it focuses on the reality that the stock ownership does not create an opportunity for the physician-shareholders to benefit financially from their referrals to the nonprofit corporation. Outside the advisory opinion context, the form of an arrangement often predominates over its substance for purposes of the Stark law.