The Stark law is currently in a state of transition. The Stark regulations in effect since March 2004 (Stark II, Phase II) have been revised. These modifications are reflected in Stark II, Phase III (“Stark III”) and went into effect December 5, 2007. Additionally, the Center for Medicare and Medicaid Services (“CMS”) recently published multiple Proposed Stark Regulations (“Proposed Regulations”). Many interested parties (physicians, hospitals, attorneys, etc.) provided CMS with written comments regarding these modifications. In response, CMS has adopted two of the Proposed Regulations (related to the anti-mark up of diagnostic tests and independent diagnostic testing facilities). The anti-mark up and independent diagnostic testing facility changes were, in part, effective January 1, 2008. CMS continues reviewing the efficacy and need of adopting any, or all, of the remaining Proposed Regulations, and may choose to adopt these provisions any time after January 1, 2008. To help you prepare for the many important changes, the following summarizes the key Stark III provisions and Proposed Regulations.
STARK III—EFFECTIVE DECEMBER 5, 2007
A. In-Office Ancillary Services Exception: Physicians sharing Designated Health Service (“DHS”) facilities in the same building must “control” the facility and staffing at the time the DHS is furnished to the patient. CMS commentary accompanying the Stark II changes suggest that sufficient control will likely necessitate a block lease arrangement or other precautions to ensure that the referring physician participates in the control and operation of the facility at the time DHS is furnished to their patient. Stark III stops short of actually requiring a block lease, but it is clear that a lease based on “per-click” or “per-units” of time will no longer satisfy the control requirement of the in-office ancillary services exception.
B. Stand in the Shoes: When viewing otherwise indirect compensation arrangements, a physician “stands in the shoes” of his “physician organization.” Therefore, a physician is deemed to have a direct compensation arrangement with an entity furnishing DHS if the only intervening entity between the physician and the entity furnishing DHS is the physician organization. A physician organization is: 1) a professional corporation with a sole physician owner; 2) a physician practice; or 3) a group practice under Stark III. For example, to the extent a group practice (physician organization) has a professional financial relationship with a hospital (DHS entity), an independent contractor physician contracting with a group practice is now deemed to “stand in the shoes” of the group practice, causing a direction financial relationship between the hospital and the independent contractor physician. As a result, any referral that independent contractor makes to the hospital will need to fit within a Stark exception.
C. Physician Recruitment Exception: Stark III makes several changes to the physician recruitment exception. CMS will allow covenants not to complete that do not “unreasonably restrict the recruited physician’s ability to practice medicine in the geographic area served by the hospital.” There is no on-point guidance as to what constitutes an “unreasonable restriction”; however, a covenant that does not comply with state law would be deemed “unreasonable.” The following restrictions do not, per se, have a significant effect on a physician’s ability to practice medicine in the hospital’s geographic area: prohibiting moonlighting; prohibiting soliciting patients or employees; requiring a recruited physician to repay losses of his/her practice absorbed by the physician practice; and liquidated damages if the physician leaves the practice and remains in the community (as long as the liquidated damages are not significant or unreasonable).
D. Fair Market Value Compensation: CMS clarifies that arrangements for the rental of office space must comply with the Stark office space exception, and cannot simply rely on the fact that the lease arrangement complies with Stark because the payments reflect fair market value. Generally, the Stark office space exception requires not only that the lease payments be set in advance and reflect fair market value, but also that the agreement must be in writing for a term of not less than one year, the space leased must be reasonably necessary for a legitimate business purpose, and the arrangement must not take into account the value or volume of referrals.
E. Profit Shares and Bonus Compensation for “Incident-to” Services: Profits from services provided “incident-to” physician services cannot be divided in any way that takes into account the volume or value of referrals for incident-to services. However, physicians can be paid a productivity bonus based directly on services provided incident-to their services (such as services provided by a physical therapist), as long as the bonus is not directly related to the volume or value of any other type of DHS referral (such as diagnostic tests).
F. Other Modifications: Stark III also made minor changes in the following areas: (1) holdovers for personal services arrangements; (2) physician recruitment relocation and income guarantees; (3) inadvertent excess non-monetary compensation; (4) compliance training; (5) retention payments in underserved areas; (6) intra-family rural referrals; and (7) academic medical centers. Feel free to contact our office for detail on these changes.
STARK III REGULATIONS EFFECTIVE JANUARY 1, 2008 AND JANUARY 1, 2009
1. Independent Diagnostic Testing Facilities (IDTFs): CMS has adopted a provision revising § 410.33(g)(15) that, with the exception of hospital-based and mobile IDTFs, a fixed based IDTF may not: (1) share a practice location with another Medicare-enrolled individual or organization; (2) lease or sublease its operations or practice location to another Medicare-enrolled individual or organization; or (3) share diagnostic testing equipment used in the initial diagnostic test with another Medicare-enrolled individual or organization. This proposal virtually eliminates the ability of fixed based IDTFs to enter into any type of space or equipment lease with a physician practice or other individual or entity, regardless if the lease is based on “per-click” or “block of time.” While this regulation goes into effect January 1, 2008, CMS has adopted a one-year transition period (until January 1, 2009) for IDTFs currently sharing a practice location with another Medicare individual or organization. This transition period, however, does not extend to IDTFs currently maintaining leasing or subleasing agreements or sharing diagnostic testing equipment. Any leasing of space or equipment must be amended, as applicable, beginning January 1, 2008.
2. Changes to reassignment and physician self-referral rules relating to diagnostic tests (anti-markup provision): CMS has adopted an anti-markup provision on the technical component (TC) and professional component (PC) of diagnostic tests. The originally proposed anti-mark up regulation would have taken into account the employment status of the physician provider; independent contractor or part-time employee vs. full-time employee. The adopted final provision makes no distinction based on employment status, considering only whether the PC or TC was purchased and where it was performed. The new regulations specifically prohibit any mark up of the TC or PC if: (1) the TC or PC is purchased (i.e., a purchased diagnostic test); or (2) the TC or PC is performed at a site other than the office of the billing physician or billing supplier.
For example, a group practice physician orders a diagnostic test, which is performed by a part-time technician employed by the practice (the TC). An independent contractor radiologist interprets the test in the practice’s office (the PC). The anti-mark up provision will not apply for the group to bill either the PC or the TC. If the radiologist performed the PC in her own private office, anti-mark up would apply to the PC because it was not performed at the office of the billing physician (group practice). If the radiologist performs the PC in her own office, but does not reassign the right to bill the PC to the physician ordering the test, but instead bills for the PC herself, anti-mark up will not apply because the PC was performed at the office of the billing physician (the radiologist billed for the test and performed the test at her office).
Due, in part, to a lack of clarity in the final rule, CMS has delayed implementing most of the anti-mark up regulations until January 1, 2009, and it intends to issue clarification on the rule before that time. However, this one-year delay does not apply to (1) the purchase of the TC; or (2) anatomic pathology diagnostic tests furnished in a group practice′s centralized building (which does not qualify as a "same building" under Stark regulations).
PROPOSED STARK REGULATIONS
A. Limitations on Per-Click Leases for Space and Equipment: CMS proposes to prohibit the use of per-click lease payments involving space or equipment where an entity owned by a physician is leasing space or equipment to another entity and the physician then refers patients to that other entity for services. For example, under the Proposed Regulation, a cardiologist could not lease a CT scanner to a hospital on a per-click basis if the cardiologist would be referring patients to the hospital for cardiovascular CT services.
B. Narrowing the In-Office Ancillary Services Exception: The in-office ancillary service exception allows members of a group practice to refer patients for DHS using facilities owned or operated by the group practice. While no specific proposals were made to change this exception, CMS requested comments on whether certain DHS should be exempted from the in-office ancillary exception, whether physicians should be restricted from certain ownership or investment interests and to qualify for the exception, whether changes should be made to the “same building” or “centralized building” requirements of the exception, and whether specialist physicians should be allowed to use the exception to refer patients for specialized services involving use of equipment owned by non-specialists.
C. Prohibition on Percentage Leases With Referral Sources: CMS proposes to change the definition of “set-in-advance” so that percentage based compensation can only be used when paying for personally performed physician services, and the percentage would be based on revenue DIRECTLY resulting from physician services and NOT cost savings. If adopted, this proposal will prohibit common compensation arrangements involving the use of percentage based rental and management fees.
D. Under Arrangement: CMS proposes to modify the term “entity” to encompass not only a person paid for DHS by assignment or directly, but also a person who causes claims to be submitted to Medicare for DHS (i.e., service provider). This Proposed Regulation appears born out of concern that many physicians are establishing joint ventures with hospitals where the physicians provide imaging services (that were formerly provided by the hospitals directly) for a fee, and the hospital bills for the services, receiving a higher rate of reimbursement from Medicare than that available to a physician. CMS believes this provides an incentive for referring physicians to make money on referrals for services they provide “under arrangement” to the hospital.
If adopted, this proposal would effectively bar many “under arrangement” transactions in which a physician-owned or joint venture organization owns or leases equipment, space and personnel involved in the performance and delivery of services (such as diagnostic imaging services) that are billed as hospital services furnished “under arrangement,” and for which the service provider receives an agreed upon fee from the hospital.
E. Other Proposed Regulations: Additional proposals include: (1) exempting interests in retirement plans from the Stark III ownership or investment exceptions; (2) an allowed period of disallowance for non-compliant financial relationships; (3) obstetrical malpractice insurance subsidies; and (4) shifting the burden of proof on the provider to prove Stark compliance.
Should you have any questions or comments related to any of these changes and how they may impact your practice, please do not hesitate to contact us.
