United States: DC Circuit Calls Into Question Legality Of Stark Law Ban On Per-Click Equipment Leases

On June 12, 2015, the US Court of Appeals for the District of Columbia Circuit issued a lengthy decision calling into question the regulatory prohibition on per-click equipment leases under the federal physician self-referral law (or "Stark Law"), 42 U.S.C. §§ 1395nn and 1396(b)(s).  Council for Urological Interests v. Burwell, No. 13-5235.  In a 2-1 decision, the Court of Appeals held that the explanation offered by the US Department of Health & Human Services ("HHS") for prohibiting per-click equipment leases — from "the cross-your-fingers-and-hope-it-goes-away school of statutory interpretation" according to the Court — is based on an unreasonable interpretation of the Stark Law.  In the same decision, the Court unanimously upheld HHS's broad definition of a "furnishing" entity to include both the entity that performs the "designated health services" ("DHS") at issue and the entity that bills for them.


The Stark Law has a referral prohibition and a billing prohibition.  Pursuant to the referral prohibition, in the absence of an applicable exception, a physician who has a "financial relationship" with an "entity" may not make a "referral" to that entity for the "furnishing" of DHS for which payment may be made by the Medicare program.  Pursuant to the billing prohibition, in the absence of an applicable exception, the furnishing entity may not bill for improperly referred DHS.  A physician may have a "financial relationship" with an entity if he or she has a direct or indirect "ownership or investment interest" in, or a "compensation arrangement" with, the DHS entity.

An arrangement that implicates the Stark Law will not violate the statute or its implementing regulations, 42 C.F.R. § 411.350 et seq., if a statutory or regulatory exception is met.  One such exception covers the rental of equipment.  Under the statutory exception, a "compensation arrangement" does not include "[p]ayments made by a lessee of equipment to the lessor for the use of the equipment," provided certain conditions are met.  One of the conditions is that the rental charges must not be "determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties."

In a 1998 proposed rulemaking, the Health Care Financing Administration, the predecessor to the Centers for Medicare & Medicaid Services ("CMS"), considered prohibiting certain "per-click" equipment lease arrangements that would permit a physician-lessor to be paid each time he or she referred a patient to a hospital-lessee.  In 2001, however, CMS decided against this prohibition because the agency had "reviewed the legislative history with respect to the exception for space and equipment leases" —  specifically, H.R. Rep. No. 103-213, at 814 (1993) ("Conference Report") — and "concluded that the Congress intended that time-based or unit-of-service-based payments be protected, so long as the payment per unit is at fair market value at inception and does not subsequently change during the lease term in any manner that takes into account DHS referrals."  (The precise language in the Conference Report is as follows:  "[t]he conferees intend that charges for space and equipment leases may be based on...time-based rates or rates based on units of service furnished, so long as the amount of time-based or units of service rates does not fluctuate during the contract period.")

In 2008, however, CMS had a change of heart, and revised its regulations concerning the equipment lease exception to prohibit arrangements where the formula for rental charges is based on "[p]er-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee."  In the same rulemaking, CMS expanded the regulatory definition of "entity" to include not only the entity that bills Medicare for the DHS at issue, but also the entity that "performs" such DHS.  As a result of these amendments, arrangements pursuant to which physicians lease equipment to hospitals on a per-use basis and "perform" the procedures using the equipment have been precluded, in large part, from relying on the equipment lease exception.

In March 2009, the Council for Urological Interests (the "Council") filed suit in the US District Court for the District of Columbia, alleging that HHS's 2008 rulemaking exceeded the agency's authority under the Administrative Procedure Act ("APA").  The district court granted summary judgment in favor of HHS, holding that the rulemaking was entitled to Chevron deference and that the agency's construction of the Stark Law was reasonable. 

Per-Click Equipment Leases

The D.C. Circuit reviewed the regulatory ban on per-click equipment leases using the two-step Chevron test.  Under the first step, the Court reviewed whether Congress unambiguously forbade HHS from banning per-click equipment leases.  The Court focused on two clauses in the statutory exception:

  • the requirement that the "rental charges over the term of the lease are set in advance, are consistent with fair market value, and are not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties" (the "rental charge clause"); and
  • the requirement that the lease "meet[] such other requirements as [HHS] may impose by regulation as needed to protect against program or patient abuse" (the "other requirements clause").

Given the ambiguity of the first clause and the clarity of the second, a majority of the Court concluded that the "text of the statute does not unambiguously preclude [HHS] from using [its] authority to add a requirement that bans per-click leases" (emphasis added).  Quite to the contrary, the other requirements clause "clearly provides [HHS] with the discretion to impose any additional requirements that [it] deems necessary 'to protect against program or patient abuse.'"

In reaching this conclusion, the majority rejected an argument made by the Council that per-click leases were intended to be permitted because a per-click charge could meet the requirements of the rental-charge clause (as long as the charge remained the same for the duration of the lease).  The Court concluded that this argument ignores the other requirements clause, which "explicitly permits" HHS to impose additional conditions on equipment rental agreements.  Because of this clause, as well as the fact that the Stark Law "nowhere expressly states" that per-click rates are permitted, the ban on per-click leases could be properly classified as an "other" requirement.

The majority also rejected an argument made by the Council that the Stark Law's legislative history plainly shows that Congress intended to permit per-click leases.  The Council pointed to the portion of the 1993 Conference Report stating that under the rental-charge clause charges "may be based on . . . time-based rates or rates based on units of service furnished, so long as the amount of time-based or units of service rates does not fluctuate during the contract period."  Focusing on the use of the term "may," the majority concluded that the Conference Report merely showed that the rental-charge clause did not necessarily preclude per-click leases.

While a majority concluded that the statute does not unambiguously forbid HHS from banning per-click leases (Chevron step one), a (different) majority also concluded the per-click ban "falters...at Chevron step two," which requires an assessment of "the agency's statutory interpretation to determine whether it is a 'permissible' and 'reasonable' view of Congress's intent."  "In making this assessment," the Court "look[s] to what the agency said at the time of the rulemaking" and "not to its lawyers' post-hoc rationalizations."  The Court then continued as follows:

In the preamble to the [2008] per-click ban, the [HHS] Secretary identified the 1993 Conference Report as an important locus of statutory interpretation...This is unsurprising as the Secretary felt completely bound by the Conference Report in 2001...The Secretary now believes the Conference Report is ambiguous but her explanation in the 2008 rulemaking borders on the incomprehensible.  According to the Secretary:

Where the total amount of rent (that is, the rental charges) over the term of the lease is directly affected by the number of patients referred by one party to the other, those rental charges can arguably be said to . . . "fluctuate during the contract period based on" the volume or value of referrals between the parties. Thus...the Conference Report can reasonably be interpreted to exclude from the space and lease exceptions leases that include per-click payments for services provided to patients referred from one party to the other...

This jargon is plainly not a reasonable attempt to grapple with the Conference Report; it belongs instead to the cross-your-fingers-and-hope-it-goes-away school of statutory interpretation. The Conference Report makes clear that the "units of service rates" are what cannot "fluctuate during the contract period," not the lessor's total rental income...The Secretary's interpretation reads the word "rates" out of the Conference Report entirely.  If a "reasonable" explanation is "the stuff of which a 'permissible' construction is made"...the Secretary's tortured reading of the Conference Report is the stuff of caprice.

Because the per-click ban failed step two of the Chevron test, the majority remanded the regulation to the district court with instructions to remand to HHS.  The majority instructed that, on remand, HHS should consider "with more care" whether a per-click ban on equipment leases is consistent with the 1993 Conference Report.

Furnishing Entity Definition

The Court also reviewed the regulatory definition of "entity furnishing designated health services," found at 42 C.F.R. § 411.351.  Because the Council conceded that the relevant provision in the Stark Law was ambiguous, the D.C. Circuit analyzed whether, under step two of the Chevron test, CMS's definition of DHS entity as including the provider of services, and not just the entity that bills Medicare, was based on a reasonable interpretation of the Stark Law.  Reviewing the text and purpose of the Stark Law, the Court unanimously concluded that defining the "entity furnishing designated health services" to include the entity providing the services was a permissible construction of the statute.  The Court noted that the terms "provide" and "furnish" are used interchangeably in the Stark Law, and emphasized that the regulatory definition furthered the purposes of the statute by "closing a loophole" otherwise available to physician-owners (who could circumvent the purposes of the Stark Law merely by having the hospital bill Medicare for the services at issue).


It is unclear whether Council for Urological Interests means the end of the regulatory prohibition on per-click equipment leases.  As noted above, the D.C. Circuit remanded the case to the district court so that it, in turn, could instruct HHS to consider whether a ban on per-click equipment leases is consistent with the Stark Law.  It remains to be seen whether HHS will attempt to re-promulgate the per-click ban using a new rationale and, if so, whether it will be able to do so successfully.  (In this regard, note that all three judges concluded that the per-click ban ran afoul of Chevron; their disagreement was only with respect to why it did so.)

Although the D.C. Circuit's ruling did not address the legality of CMS's prohibition on per-click leases in the context of the Stark Law exceptions for space leases, 42 C.F.R. § 411.357(a), and indirect compensation arrangements, 42 C.F.R. § 411.357(p), the underlying rationale of the decision suggests that those prohibitions also may be ultra vires, at least as presently promulgated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
6 Dec 2017, Webinar, New York, United States

Join Dentons for a complimentary webinar focused on the ongoing challenge of integrating new technologies into existing information governance policies and risk management frameworks.

7 Dec 2017, Seminar, Cape Town, South Africa

Dentons South Africa would be delighted if you could join us for our upcoming event.

8 Dec 2017, Seminar, Johannesburg, South Africa

Dentons South Africa would be delighted if you could join us for our upcoming event.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.