Council for Urological Interests v. Sebelius

• Decision Date: 24 May 2013
• Docket Number: Civil Action No. 09–cv–0546 (BJR).
• Citation: 946 F.Supp.2d 91
• Parties: COUNCIL FOR UROLOGICAL INTERESTS, Plaintiff, v. Kathleen G. SEBELIUS, in her official capacity as Secretary of the Department of Health and Human Services, et al., Defendants.
• Court: U.S. District Court — District of Columbia

946 F.Supp.2d 91

COUNCIL FOR UROLOGICAL INTERESTS, Plaintiff,

v.Kathleen G. SEBELIUS, in her official capacity as Secretary of the Department of Health and Human Services, et al., Defendants.

Civil Action No. 09–cv–0546 (BJR).

United States District Court, District of Columbia.

May 24, 2013.

Erica E. Stauffer, Winston & Strawn LLP, Chicago, IL, Gordon A. Coffee, Thomas Lee Mills, Winston & Strawn LLP, John A. McMillan, Pillsbury Winthrop Shaw Pittman LLP, Washington, DC, for Plaintiff.

Jacqueline E. Coleman Snead, Nicholas P. Cartier, U.S. Department of Justice, Washington, DC, for Defendants.

Denying Plaintiff's Motion for Summary Judgment; Granting Defendant's Cross–Motion for Summary JudgmentTT

BARBARA J. ROTHSTEIN, District Judge.

This case is before the Court on cross-motions for summary judgment filed by Plaintiff, the Council for Urological Interests (“CUI”), and Defendants, the Secretary of the Department of Health and Human Services and the United States.¹ CUI alleges that recent regulations implemented by the agency violate the Administrative Procedure Act (“APA”) and the Regulatory Flexibility Act (“RFA”). Having reviewed the briefs, the Administrative Record, and the relevant statutory provisions and regulations, the Court denies Plaintiff CUI's motion and grants Defendants' motion.

I. BACKGROUNDA. Urologist–Owned Joint Ventures and Their Provision of “Under Arrangements” Services

CUI is a not-for-profit corporation comprised of businesses that provide equipment and technical personnel for performing various urological medical services. Compl. ¶ 2. The equipment and technical personnel provided by CUI's members are used to treat conditions such as non-cancerous prostate enlargement, prostate cancer, and related urological conditions. Pl.'s Statement of Facts (“SOF”) ¶ 1.² One of the urological services used to treat such conditions is laser surgery. Id. ¶¶ 3–6.

According to CUI, laser surgery is more effective than open surgery in treating prostate and urological disease, but the technology is costly and requires frequent updating.³ Compl. ¶¶ 3–6; 9–11. CUI claims that due to the cost, hospitals have been reluctant to invest in laser surgery equipment. Id. ¶ 11. Instead, urologists have formed joint ventures to purchase the laser surgery equipment. CUI's members consist largely of these urologist-owned joint ventures. Id.

The joint ventures frequently enter agreements with hospitals by which a joint venture leases to the hospital the equipment and technical personnel that are then used by the urologist–owners of the joint venture to perform outpatient laser surgery. Id. ¶ 18; AR 863. The services provided under such an agreement are commonly referred to as services made “under arrangements.” In an “under arrangement” transaction, the hospital contracts with the urologist-owned joint venture (or any other third party), for the performance of a hospital service, but it is the hospital that is responsible for billing and collecting payments. See42 U.S.C. § 1395x(w).

As prostate conditions primarily affect older men, approximately 75% of patients who receive laser surgery from these joint ventures have insurance coverage through the Medicare program. Pl.'s SOF ¶¶ 1, 16. Thus, it is common that the hospital bills Medicare for the urological services. Medicare reimburses the hospital for the use of its equipment, space and non-physician personnel by paying a “technical fee.” ⁴ The hospital, in turn, will pay the urologist-owned joint venture a previously contracted amount to account for the hospital's use of the joint venture's equipment and technical personnel in rendering the urological service. See Compl. ¶¶ 19–20; Def.'s Mot. at 6. This amount, commonly referred to as a “per-click” payment, is paid by the hospital to the joint venture each time that a service is performed “under arrangements.”

As will be elaborated below, recent changes in the law have interrupted the ability of the urologists who own these joint ventures to refer their patients to receive services made “under arrangements.” CUI has thus brought suit against CMS, asserting that these recent changes in the law violate the APA and the RFA. To further appreciate CUI's claims, however, a more thorough understanding of the relevant legal framework is required.

B. Legal Framework

1. The Stark Law

This litigation plays out against the backdrop of the Medicare Act—the vast federal statute that provides federal financial support for disabled persons and persons over the age of 65. 42 U.S.C. § 1395 et seq. Medicare provides a system for paying physicians, hospitals, and prescription drug providers for patient care. Id. Early in the law's history, it became evident that abuse of the system could occur. One of the key areas of concern was that of “physician self-referrals”—patient referrals by a physician to a facility with which that physician had a financial relationship. Medicare and Medicaid Programs; Physician's Referrals to Health Care Entities With Which They Have Financial Relationships, 63 Fed.Reg. 1659, 1661 (proposed Jan. 9, 1998). Congress was concerned that a physician's financial interest could “affect [his or her] decision about what medical care to furnish a patient and who should furnish the care.” Id. Simply put, Congress was worried that a physician who had a financial interest in a facility would refer patients to that facility in order to make money, rather than to provide the best course of treatment. Id.

In 1989, Congress responded to the issue of physician self-referrals by enacting the Stark Law, named after its sponsor, Congressman Fortney “Pete” Stark and codified at 42 U.S.C. § 1395nn. Am. Lithotripsy Soc'y v. Thompson, 215 F.Supp.2d 23, 26 (D.D.C.2002). In its original form, the Stark Law responded to abuses in the use of clinical laboratories. The law prohibited a physician who had a financial relationship with a clinical laboratory from making a referral to that same laboratory for the furnishing of services that Medicare would pay for. 63 Fed.Reg. at 1661. Four years later, in 1993, Congress expanded the Stark Law from the clinical laboratory context, naming eleven other types of services where physician self-referrals would be prohibited. Am. Lithotripsy, 215 F.Supp.2d at 26. Together, these twelve categories are referred to in the Stark Law as “designated health services” (“DHS”). Of specific relevance here, one of these DHS categories is “[i]npatient and outpatient hospital services.” 42 U.S.C. § 1395nn(h)(6)(K).

In its current form, the Stark Law states that “if a physician ... has a financial relationship with an entity ... then the physician may not make a referral to the entity for the furnishing of a [DHS] for which payment otherwise may be made under [the Medicare Act].” 42 U.S.C. § 1395nn(a)(1)(A). Moreover, if a referral is prohibited under § 1395nn(a)(1)(A), “the entity may not present or cause to be presented” a Medicare claim for the DHS that was received. 42 U.S.C. § 1395nn(a)(1)(B).

A “financial relationship” is defined as either (1) a physician's “ownership or investment interest in the entity” or (2) a “compensation arrangement ... between the physician and the entity.” 42 U.S.C. § 1395nn(a)(2)(A)-(B). An “ownership or investment interest ... may be through equity, debt or other means and includes an interest in an entity that holds an ownership or investment interest in any entity providing the designated health service.” Id. § 1395nn(a)(2)(B). “The term ‘compensation arrangement’ means any arrangement involving any remuneration between a physician ... and an entity.” Id. § 1395nn(h)(1). Thus, the Stark law prohibits a physician who owns an entity or has entered into a payment arrangement with an entity from referring his or her patients to that entity for DHS.

2. Relevant Regulatory Background

a. 2001 Regulations

Congress delegated authority to the Secretary to promulgate regulations implementing the Stark Law. See, e.g.,42 U.S.C. §§ 1395nn(b)(4). In 2001, CMS promulgated regulations that defined “outpatient hospital services” as “includ[ing] services that a hospital provides for its patients that are furnished either by the hospital or by others under arrangements with the hospital.” 42 C.F.R. § 411.351 (2001). In other words, as of the 2001 Regulations, services performed “under arrangements” with a hospital would qualify as “outpatient hospital services” for purposes of the Stark Law. See id. Because “under arrangement” services are “outpatient hospital services,” and because, as discussed earlier, the Stark Law expressly provides that “outpatient hospital services” are DHS, it follows that services performed “under arrangements” are DHS. Accordingly, under the 2001 Regulations, services provided “under arrangements” (including urological services performed by urologist-owned joint ventures) are subject to the Stark Law's prohibition on physician self-referrals. See66 Fed.Reg. at 923.

In addition to defining “outpatient hospital services,” the 2001 Regulations also clarify what the term “entity” means under the Stark Law, which is not defined in the statute. “Entity” refers to a physician's sole practice, group of physicians, or other organization (like a corporation, partnership, etc.) that “furnishes DHS.” 42 C.F.R. § 411.351 (2001). Moreover, under the 2001 Regulations, “[a] person or entity is considered to be furnishing DHS if it is the person or entity to which CMS makes payment for the DHS, directly or upon assignment on the patient's behalf.” Id. In other words, an entity furnishing DHS was limited to only the person or entity that was billing Medicare. This narrow definition was significant to urologists who owned joint ventures because, as the joint venture was not billing Medicare, the urologist-ownersremained free to refer Medicare patients to the joint venture for DHS. See42 U.S.C. § 1395nn(a)(1)(A).

Lastly, in the 2001 Regulations, CMS interpreted the Stark...