Renal Physicians Ass'n v. Department of Health & Human Services

422 F. Supp. 2d 75, 2006 U.S. Dist. LEXIS 32578, 2006 WL 563688
CourtDistrict Court, District of Columbia
DecidedMarch 7, 2006
DocketCIV.A.05-0067 (RBW)
StatusPublished
Cited by5 cases

This text of 422 F. Supp. 2d 75 (Renal Physicians Ass'n v. Department of Health & Human Services) is published on Counsel Stack Legal Research, covering District Court, District of Columbia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Renal Physicians Ass'n v. Department of Health & Human Services, 422 F. Supp. 2d 75, 2006 U.S. Dist. LEXIS 32578, 2006 WL 563688 (D.D.C. 2006).

Opinion

MEMORANDUM OPINION

WALTON, District Judge.

The Renal Physicians Association (“the plaintiff’) brings this action challenging the validity of the safe harbor provision published by the United States Department of Health and Human Services and the Center for Medicare and Medicaid Services (“the defendants”) as part of the Stark Law regulations governing physician referrals under the Medicare program. 42 C.F.R. § 411.351 (2004). The plaintiff claims that this regulatory provision, which sets forth two methodologies by which employers may safely compute the fair market value of hourly physician compensation, “violates the plain language of the Stark Law” and was promulgated “without proper notice or a meaningful opportunity for public comment and discussion.” Complaint (“Compl.”) ¶ 1. The plaintiff further alleges that although the compensation rates derived by these methodologies do not truly reflect the fair market value of physicians’ services, employers wishing to ensure compliance with the Stark Law routinely utilize the safe harbor provision when contracting with physicians. Id. ¶¶ 48-56. Consequently, the plaintiff asks the Court to declare that the safe harbor provision is invalid and to enjoin its use by the defendants. Id. ¶ 1. Currently before the Court is the defendants’ motion to dismiss the complaint for lack of standing. 1 *77 For the reasons set forth below, the Court finds that the injury asserted by the plaintiff is not likely to be redressed by the requested relief. The Court therefore grants the defendants’ motion to dismiss.

I. Background

Enacted to prevent abuse of the Medicare program, Section 1877 of the Social Security Act (“the Stark Law”) generally prohibits physician referrals of Medicare and Medicaid patients to health service providers, including dialysis facilities, with which the physician has an existing financial relationship. 42 U.S.C. § 1395nn (2000). One notable statutory exception to the Stark Law prohibition permits referrals if the physician and provider have a “bona fide employment relationship” or a “personal service arrangement” in which the physician is being compensated at the “fair market value” in a manner that does not take into account “the volume or value of any referrals.” 42 U.S.C. §§ 1395nn(e)(2), (3). In other words, if a physician is being paid by the provider for something other than patient referrals, and such payment is at the “fair market value” for the physician’s services, then the physician may refer Medicare patients to the provider. The Stark Law defines “fair market value” as “the value in arms length transactions, consistent with the general market value.” 42 U.S.C. § 1395nn(h)(3).

In January 1998, the Center for Medicare and Medicaid Services (“CMS”) issued a Notice of Proposed Rulemaking (“NPRM”) setting forth draft regulations to implement the Stark Law. 63 Fed.Reg. 1,659 (January 9, 1998). For the purposes of the aforementioned statutory exception, the NPRM defined “fair market value” as follows:

Fair market value means the value in arm’s-length transactions, consistent with the general market value. “General market value” means ... the compensation that would be included in a service agreement, as the result of bona fide bargaining between well-informed parties to the agreement.... Usually the fair market price is ... the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement.

Id. at 1,721. Phase I of the final rulemaking, issued in January 2001, adopted this definition with only slight modification. 2 66 Fed.Reg. 856, 953-54 (January 4, 2001). In response to comments regarding the difficulty of determining whether a compensation arrangement reflects the fair market value, the Phase I preamble clarified that the CMS “intend[s] to accept any method [to determine the fair market value] that is commercially reasonable and provides [the agency] with evidence that the compensation is comparable to what is ordinarily paid ... by parties in arm’s-length transactions who are not in a position to refer to one another.” Id. at 944. The preamble further stated that

[t]he amount of documentation that will be sufficient to confirm fair market value ... will vary depending on the circumstances in any given case; that is, there is no rule of thumb that will suffice for all situations. The burden of establishing the ‘fairness’ of an agreement rests with the parties involved in the agreement. Depending on the circumstances, the parties may want to *78 consider obtaining good faith, written assurances as to fair market value from the party paying or receiving the compensation, although such written assurances are not determinative.

Id. The CMS continued to accept comments on Phase I rulemaking until April 2001, and the Phase I regulations became effective in January 2002. Id. at 856.

Phase II of the final rulemaking was designed to address all areas of the Stark Law not covered by Phase I, as well as “comments received in response to [the Phase I] rulemaking, as appropriate, and certain proposals for new exceptions to [the Stark Law] not included in the [NPRM], but suggested in public comments.” Id. The Phase II rulemaking was issued as an interim final rule on March 26, 2004, to take effect on July 26, 2004. 69 Fed.Reg. 16,054 (March 26, 2004). Included as part of Phase II was the safe harbor provision that is the focus of this litigation. Id. at 16,128. To begin with, the CMS reiterated in the Phase II preamble that it “will consider a range of methods of determining fair market value and that the appropriate method will depend on the nature of the transaction, its location, and other factors.” Id. at 16,107. The agency, responding to a comment recommending that it “establish[ ] a presumed appropriate fair market hourly rate” for medical directors at end-stage renal disease (ESRD) facilities, also stated:

With respect to the commenters’ suggestion that we fix a fair market value benchmark for medical directors, we are not in a position — nor would it be appropriate — to set a fixed, industry-wide fair market value for ESRD medical directors. However, we are creating a ‘safe harbor’ provision under the definition of ‘fair market value’ ... for hourly payments to physicians for their personal services. The ‘safe harbor’ provision applies to payments for services provided personally by the physician____The safe harbor is not limited to medical director services for ESRD facilities, but may be used for other hourly physician compensation paid by any [designated health services (“DHS”) ] entity.

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422 F. Supp. 2d 75, 2006 U.S. Dist. LEXIS 32578, 2006 WL 563688, Counsel Stack Legal Research, https://law.counselstack.com/opinion/renal-physicians-assn-v-department-of-health-human-services-dcd-2006.