Good News for Health Care Providers: SRDP Financial Analysis May Be Limited to Four Years

The Centers for Medicare and Medicaid Services (CMS) recently posted on its website four answers to Frequently Asked Questions (FAQs) that provide important new guidance on the implementation of the Voluntary Self-Referral Disclosure Protocol (SRDP). The SRDP, originally issued in September 2010, is available for self-reporting, by providers, of potential or actual violations involving the federal physician self-referral law, commonly known as the Stark Law. The new guidance provided by the recent FAQs is a very positive development for providers, as it reduces the burden on providers who participate in the SRDP process.

In an SRDP submittal, the disclosing party must provide CMS with a self-estimated financial analysis that includes a total amount actually or potentially due and owing as a result of the disclosed violation(s). From this financial analysis, CMS begins its evaluation of the appropriate reduced settlement amount. The new FAQs indicate that a disclosing provider will satisfy the SRDP by submitting a financial analysis that is limited to (only) four years’ worth of payments stemming from non-compliant physician arrangements, even if those arrangements were out of compliance with the Stark Law for a longer period of time. That is, CMS is now confining the reporting period, for purposes of the financial analysis, to the Medicare claims reopening period, unless there is fraud.

For providers, this means, for example, that a smaller hospital that previously had elected not to consider a submittal under the SRDP may want to use the SRDP as a proactive step in “cleaning out the closets” and preparing for a sale or integration transaction. Now that the presumptive cutoff for the financial look-back is four years, a provider could conceivably use the SRDP to settle its liability for older potential violations without any financial risk. Consider a situation where a hospital had a non-compliant arrangement with a physician that was never cured, but ended over four years ago. In such a case, the potential Stark violation can in all likelihood be expunged through the SRDP, with no financial liability in the SRDP due to the four-year cutoff.

Consider as well a scenario where transaction due diligence by a Buyer-Hospital uncovers potential Stark issues of a Seller-Hospital. These new FAQs make it somewhat more likely that the parties might be able to use the SRDP to gain clarity as to the exposure, rather than scuttle the deal. This, of course, was true before the new FAQs were issued, but the corresponding risk was clearly greater.

None of this is meant to suggest that a provider would lightly enter into the SRDP process. However, after thorough due diligence to ascertain the scope of potential issues and then serious consultation with qualified counsel, an SRDP submittal may, depending on circumstances, now be looked at as a much more palatable option.

It is encouraging to see that CMS, as part of its continuing evaluation and tweaking of the SRDP process, has adjusted its views on how far to go back on the financials in the routine SRDP submittal. This will result in reducing the burden on future disclosing providers to search for financial information that may no longer be readily available. And just as importantly, it establishes the starting point for discussions as to the appropriate reduced settlement amount at a more favorable number, which may increase the feasibility of entering the Protocol for at least some providers.