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The surprise release by the Centers for Medicare & Medicaid Services of far-reaching proposed regulations governing financial arrangements between doctors and hospitals has heightened concerns about litigation and turned lawyers into lobbyists. The federal agency unveiled the sweeping proposals in an early July announcement about 2008 doctor reimbursement rates for Medicare Services. The fee schedule includes new restrictions to the physician self-referral law, known as the Stark Law, which governs doctor referrals of Medicare patients to a health service entity where the doctor or an immediate family member has a financial interest. The expected release of other Stark Law regulations over the next several months creates further uncertainty, lawyers say. [See " Stark Law reform is in the works."] The proposed rules would prohibit doctors from collecting a per-use fee when they refer patients to a hospital for testing done by equipment the doctors lease to the hospital. The rules would also limit doctors and hospitals to percentage-based compensation arrangements for services performed by the doctors, not the percentage of revenue generated by the equipment or office space the doctors leases to the hospital. Attorneys foresee additional lawsuits � including whistleblower litigation and suits among doctors and hospitals in contractual relationships � if the rules are tightened. Lawyers are racing to meet the Aug. 31 deadline for comments. The director of media affairs for the Centers for Medicare & Medicaid Services, Jeff Nelligan, said the law provides for a 60-day comment period for the fee schedule. He declined further comment. ‘Susceptible to abuse’ The proposed rules, which invite comments on a number of technical areas, discuss the agency’s concerns about abuses. In the section about disallowing the per-use fees for the referrals for testing on doctor-leased equipment, the agency called such arrangements “inherently susceptible to abuse because the physician lessor has an incentive to profit from referring a higher volume of patients to the lessees.” Carl J. Rychcik, a Pittsburgh, Pa., litigator at Philadelphia-based Fox Rothschild who defends organizations facing False Claims Act lawsuits for allegedly violating the Stark Law, said that changing the rules could lead to litigation against physicians and hospitals that aren’t able to move quickly enough. “Anytime you have a moving target and those rules are changing, depending on how quickly or effectively hospitals and physicians can respond, it’s likely to lead to more challenges by potential whistleblowers,” Rychcik said. Cases alleging Stark Law violations are pending in appeals courts and federal district courts in Kentucky, Louisiana, Mississippi and Washington state. The lawsuits allege that the organizations’ fraudulent Medicare billings violate the False Claims Act, the Stark Law and anti-kickback laws. More whistleblowers? The tighter the regulations, the greater the potential for whistleblowers to find potential cases, said Linda Baumann, a health care lawyer at Washington-based Arent Fox. Baumann also said whistleblower False Claims Act cases involving alleged Stark Law violations can be a gold mine for plaintiffs, since defendants can be fined thousands of dollars for each violation or “false claim.” Each lab test that didn’t meet the rules for leasing arrangements between doctor-owners and hospital users, for example, would be a violation under that scenario, Baumann said. “There’s a lot of money at stake,” she said. Health care lawyer Dan Mulholland of Horty, Springer & Mattern in Pittsburgh agrees that slow response by doctors and hospitals to new rules will trigger litigation. Mulholland also said that the proposed changes are a breeding ground for a different type of litigation: suits over how to unwind contracts between hospitals and the doctor groups that lease equipment to them, as well as the compensation arrangements between doctors and hospitals. “They need to modify relationships,” Mulholland said. “If they can’t agree, there might be some litigation.” Helping clients make a case for less restrictive regulations by the Aug. 31 comment deadline is “daunting,” since any given hospital system might have dozens or hundreds of arrangements that might have to be reviewed under the proposals, said Michael Manthei, a lawyer in the Boston office of Holland & Knight who specializes in health care law. “That process would take longer in a reasonable situation than the comment period,” he said. “It’s a huge task,” Manthei added. “That’s where the activity is right now.” Baumann has also been intensively reviewing clients’ contracts, helping some draft comments, and in some cases helping health care organizations make changes in advance of the regulations. “The more conservative ones have been saying lets just change it right now,” she said.

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