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Disclosure of Financial Relationships Report (DFRR): CMS Proposes Mandatory Reporting of Hospitals' Financial Relationships and Solicits Comments on Proposed Rule

Hospital Emergency Services Under the Emergency Medical Treatment and Labor Act (EMTALA)

CMS "Manualizes" Incident to Rules

New Enrollment Forms Required as of June 1, 2008

Payment Group

Principals

Thomas W. Coons

Leslie Demaree Goldsmith

Carel T. Hedlund

S. Craig Holden

Julie E. Kass

Paul W. Kim (Counsel)

Associates

May 15, 2008

Disclosure of Financial Relationships Report (DFRR)

CMS Proposes Mandatory Reporting of Hospitals' Financial Relationships and Solicits Comments on Proposed Rule

Julie E. Kass
410-347-7314
jekass@ober.com

On April 30, 2008, the Centers for Medicare and Medicaid Services (CMS) published its fiscal year (FY) 2009 Hospital Inpatient Prospective Payment System (IPPS) Proposed Rule. 73 Fed. Reg. 23528, 23695 (Apr. 30, 2008). One of the proposals includes another effort by CMS to mandate the reporting by hospitals of their financial relationships with physicians pursuant to CMS's statutory authority under the Stark Law and regulations. (Section 1877(f) of the Social Security Act (Act); 42 C.F.R.§ 411.361). CMS proposes sending 500 hospitals a financial disclosure form entitled "Disclosure of Financial Relationships Report" (DFRR) designed to capture reportable information from surveyed hospitals regarding the ownership and investment interests, and compensation arrangements (collectively, financial relationships) between hospitals and physicians (or their immediate family members). Although the primary purpose of this mandatory reporting is to determine whether the surveyed hospitals are in compliance with the Stark Law and regulations, CMS states it will use this information to assist it in future rulemaking concerning the reporting requirements and other Stark Law provisions, and that information obtained from DFRRs will permit it to analyze the types of financial relationships involving hospitals and physicians and structure of various compensation arrangements and trends.

Background
The proposed DFRR has its origins in the Deficit Reduction Act (DRA) of 2005, which directed the Secretary to develop a strategic and implementing plan to address a number of issues relating to physician-owned specialty hospitals. To assist it in preparing the report and implementation plan, CMS sent a voluntary survey to 130 specialty hospitals and 220 competitor hospitals, seeking detailed information about their financial arrangements with physicians.

On May 18, 2007, CMS signaled its intent to collect information beyond that required to study specialty hospital issues when it published the information collection request as a pilot program for the mandatory survey of 500 facilities. As required by the Paperwork Reduction Act of 1995, CMS prepared and submitted a proposed DFRR to the Office of Management and Budget (OMB) for approval, and sought public comment on the DFRR in a sixty-day Federal Register notice. 72 Fed. Reg. 28056. On September 14, 2007, CMS published a revised collection request, increasing the time required by hospitals to complete the request from forty-five days to sixty days, and making a number of changes to the DFRR, the most significant of which was the addition of worksheets to capture information concerning indirect ownership. 72 Fed. Reg. 52568.

The DFRR was under review by OMB for several months when it was withdrawn on April 10th, four days before CMS issued the FY 2009 Proposed Rule.

The Proposed DFRR - Format and Contents
In the preamble to the Proposed Rule, CMS indicated that initially it estimated that a hospital could complete the DFRR in six hours, with an estimated cost of $50 per hour. CMS has re-evaluated this estimate. Based on responses from thirty-three hospitals in an earlier survey, CMS has concluded that it will take a hospital thirty-one hours to complete the DFRR, with an estimated cost of $1,550. This cost estimate is based on a $50 hourly rate for accountants. CMS's view is that hospitals are required to maintain this information and that completion of the DFRR will be largely administrative.

CMS proposes that a completed DFRR be received within sixty days of the date that appears on the cover letter or e-mail transmission of the DFRR. Pursuant to 42 C.F.R. § 411.361(f), CMS has the authority to impose civil monetary penalties (CMPs) of up to $10,000 for each day beyond the deadline established for the disclosure. CMS indicates that initially it will not seek to invoke this authority, and will assist hospitals in complying with these reporting requirements. Prior to imposing CMPs, CMS proposes sending a notice letter to hospitals that do not file a timely response and, upon a showing of good cause, the hospital may receive an extension of time to submit the requested information.

The proposed new version of the DFRR is contained in Appendix C of the Proposed Rule. In its proposed format, the DFRR is very extensive. It consists of eight worksheets with instructions for completing the DFRR and a cover sheet (a certification page). The first six worksheets are designed to capture direct and indirect physician investment and ownership in hospitals and payment to the hospitals by physician owners. The seventh worksheet requires a listing of each rental, personal service and recruitment arrangement between the hospital and physicians. Worksheet eight includes a series of questions designed to solicit information on other types of compensation arrangements or medical staff incidental benefits that exceed published limits and charitable donations by a physician to a hospital.

An entity that furnishes a total (Part A and/or Part B) of 20 or fewer Medicare services during a calendar year is excepted from this reporting requirement. The entity is required to complete a certification letter in the proposed format, attesting to this fact.

CMS is soliciting the comments on the DFRR which must be received by CMS before June 13. CMS has indicated that a final rule can be expected before August 1, 2008. Specifically, CMS is seeking comments on the following:

Whether the disclosure should be recurring and, if so, whether it should be implemented on an annual, or some other, periodic basis;
Whether CMS is collecting too much or too little information, and whether it is collecting the correct (or incorrect type) of information;
The amount of time and associated costs to complete the DFRR, and the amount of time that should be given to complete the responses.
Whether the DFRR should be sent to all hospitals and, if so, whether the collection should be staggered so that only a certain number of hospitals are subject to it in any given year;
Whether hospitals should be required to submit an annual DFRR or whether, following the initial DFRR, be required to report only changed information

Ober|Kaler's Comments: It is likely that this rule will be published in the summer and soon after, hospitals will begin receiving requests for information. Since hospitals will have to provide the information fairly quickly, hospitals should begin assembling the information and creating a system to track the financial relationships the hospitals have with physicians.