NEWEST STARK LAW UPDATES AND OTHER CMS CHANGES 

        As discussed in prior Newsletters, the Centers for Medicare and Medicaid Services (“CMS”) has proposed several changes to the Stark Law in the last year.  On June 30, 2008, CMS proposed additional changes to Stark in its 2009 Physician Fee Schedule.  Most notably, CMS proposed modifications related to:  (1) gainsharing; (2) recently proposed anti mark-up rules; and (3) physicians providing imaging services.  On August 19, 2008, CMS finalized many changes it had proposed in 2007 related to:  (1) physician “stand-in-the-shoes”; (2) period of disallowance; (3) alternative compliance methods; (4) percentage compensation; (5) per-click leases; (6) under arrangements; (7) obstetrics-gynecology malpractice subsidies; (8) physician ownership/investment in retirement plans; (9) burden of proof; and (10) physician-hospital relationships. 

                                                I. Proposed Rules 

A.       Gainsharing 

        CMS  proposes to add a gainsharing exception under the Stark Law which would apply to payments made to a physician or physician organization by a hospital pursuant to a gainsharing agreement that meets sixteen (16) separate criteria.  The proposed criteria are directly related to:  (1) product standardization and use of technology; (2) physician access to medical technology; (3) independent physician judgment; (4) objective measurement of outcomes; (5) on-going monitoring under the agreement; (6) establishing baseline and target benchmarks; (7) agreement terms unrelated to the volume or value of referrals; (8) level of physician participation; (9) required physician and hospital documentation; (10) patient notification; (11) minimum agreement term; and (12) the nature and purpose of payments to physicians. 

        In a notable departure from its original comments, CMS admitted that the proposed rule was very narrow and would require broader limits to exempt most gainsharing arrangements.  Accordingly, CMS is soliciting comments on how to expand the exception while continuing to curb the risk of fraud and abuse.   

B.       Proposed Anti Mark-Up Rule 

        CMS continues to struggle with how exactly to implement a prohibition on the mark-up of certain diagnostic tests.  Currently, CMS has delayed implementing the recently adopted anti mark-up rule, which prohibits physicians from “marking-up” the professional or technical component of any service provided “outside the office of the billing supplier” or outside the physician’s office until January 1, 2009.  In its original proposal, the term “physician’s office,” was narrowly defined to exclude tests performed on equipment owned by the physician, but located on a different building floor than the physician’s office suite.  To address concerns related, in part, to the definition of “physician’s office,” CMS has proposed modifying the mark-up rule via one (1) of the following two (2) methods: 

(1)   Physicians would only be prevented from marking-up services where the professional or technical component was: (a) purchased from an outside suppliers; or (b) performed or supervised by a physician who is not an independent contractor of, or employed by, the billing physician or group; or 

(2)   CMS would maintain the original proposed anti mark-up rule and alter the definition of “physician’s office” to include services provided “in the same building” as the physician’s office, similar to the Stark II “location” requirement under the “in-office ancillary services exception.”  

        In addition to these proposals, CMS also seeks comments regarding the following issues: 

       ·       Should CMS exempt from mark-up prohibition any testing ordered by a physician whose physician organization has no owners receiving profit distributions? 

        ·       Should CMS further delay the anti mark-up rules beyond January 1, 2009? 

        ·       Should CMS prohibit physicians from reassigning the right to bill for services? 

C.       Physicians Who Provide Imaging Services 

         In the 2009 Physician Fee Schedule, CMS is proposing to further expand its IDTF regulations by requiring physicians or non-physician practitioner (“NPP”) organizations furnishing diagnostic testing services, except diagnostic mammography services, to enroll as an IDTF for each practice location furnishing these services.  Under current regulations, physicians who furnish tests can simply enroll as a physician office and thereby circumvent the IDTF standards.  The proposed enrollment requirement would assure CMS that all diagnostic tests, even those offered in a physician’s office, meet the IDTF standards (except for certain standards which CMS believe do not apply to physician and NPP suppliers). 

          Although proposing to apply the IDTF requirements to all diagnostic testing services furnished in physician offices, CMS is still considering whether it should limit the enrollment requirement to less than the full range of diagnostic testing services.  CMS is seeking comments about: 

•          Whether the policy should apply only to imaging services or whether it should include other diagnostic testing services, such as electrocardiograms or other diagnostic services furnished frequently by primary care physicians; and 

•          Whether the policy should be limited to advanced diagnostic testing procedures such as MRIs, nuclear medicine, PET, etc.  This would not include x-ray, ultrasound and fluoroscopy.   

        CMS has proposed an effective date of September 30, 2009 (rather than the effective date of the final rule, which is January 1, 2009).  However, for newly enrolled suppliers, the effective date would be January 1, 2009.  Because there is a conflict between the current rules which do not allow physicians and IDTFs to share space and equipment, introduction of the new proposed rules would replace the current rules entirely or in part.        

                                II. Adopted Stark Rules 

A.    Stand in the Shoes 

        Effective October 1, 2008, all providers will be deemed to “stand in the shoes” of any physician organizations in which the provider is an investor or an owner.  “Physician Organization” is defined as:  (1) physician (including a professional corporation of which the physician is the sole owner); (2) a physician practice; or (3) a group practice, as defined under Stark.  Physicians who hold only a “titular” ownership or investment interest (i.e., they receive no financial benefit from their interest via profit, dividends, income, proceeds of sale or similar remuneration) are not deemed to stand in the shoes of their physician organization. 

        CMS declined to adopt any formal stand in the shoes provision for entities at this time.  It is expected such a provision will be addressed later this year. 

B.    Period of Disallowance

        Beginning October 1, 2008, Stark set forth restrictions on physicians being allowed to refer or bill for DHS payable under a federal healthcare program after entering into a financial relationship that does not comply with Stark.  Under this provision, a physician may not refer or bill for DHS until: (1) in the case where excess compensation was paid, such excess compensation is returned to the party that paid it; or (2) in the case where a party was under-compensated, the party receives the additional required compensation. 

        As an example of how this provision will be applied, assume on September 1, 2008 Physician A enters into an agreement with a hospital to lease an MRI machine to the hospital for more than fair market value (or, alternatively, for less than fair market value).  On October 1, 2008, the hospital begins paying fair market value under the lease.  From September 1, 2008 until September 20, 2008, Physician A and the hospital may not bill Medicare or Medicaid for services provided in connection with patients Physician A referred to the hospital for DHS services.   

C.    Alternative Compliance        

        CMS has adopted a provision whereby it will not be deemed a failure to comply with one of the Stark exceptions related to compensation relationships (such as, rental of space and equipment, employment and personal services) solely because a party’s signature is missing from the written agreement.  If failure to obtain a signature was “inadvertent,” the parties must obtain the necessary signature within ninety (90) days of the start of the financial relationship.  If failure to obtain the signature was “not inadvertent,” then the time frame is thirty (30) days.  This provision goes into effect October 1, 2008, and can only be relied on three (3) times in one (1) year per referring physician.   

D.    Percentage Compensation        

        Beginning October 1, 2009, Stark will prohibit percentage compensation for the leasing of office space or equipment.  Accordingly, all compensation will need to be expressed as a flat-fee. 

E.     Per Click Arrangements        

        Beginning October 1, 2009, Stark will prohibit a physician or entity (lessor) who leases equipment to another individual or entity (lessee) from referring patients to that individual or entity for services that will involve using the leased equipment on a per-click basis.  For example:  Physician A leases an MRI machine to a hospital on a per-click basis (i.e., Physician A receives a fee from the hospital every time the hospital uses the machine).  Medicare and Medicaid will not pay for any MRI service provided to any patient referred to the hospital by Physician A.  The same would be true if the hospital was the lessor and Physician A was the lessee, or if Physician A was an owner or investor in a group practice that leased the MRI to the hospital. 

F.     Under Arrangements        

        Last year, CMS proposed to revise the definition of a “DHS entity” to include the person or entity that performs the DHS, as well as the person or entity that submits claims or causes claims to be submitted to Medicare for DHS (the DHS service provider).  This proposal sought to address CMS’ concern that many physicians are establishing joint ventures with hospitals whereby the physicians provide imaging services (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 offered to the physician.  CMS believed this provides an incentive for referring physicians to make money on referrals for services it provides “under arrangement” to the hospital. 

        Effective October 1, 2009, CMS will adopt the proposed definition of “DHS entity” to include the person or entity performing the DHS and the person or entity submitting the claim for payment.  Accordingly, the hospital (the billing entity) and the joint venture (the providing entity) both will be viewed as providing the DHS.  Such “under arrangement” scenarios will violate Stark, as there is no available Stark exception. 

G.    Obstetrics and Gynecology Malpractice        

        Effective October 1, 2008, Stark adds a additional provision whereby federally qualified health centers, rural health centers and hospitals can provide malpractice subsidies to obstetric and gynecology providers.  To qualify under the exception, the following criteria must be present: 

        (a)   physician regularly engages in obstetrics as a routine part of his or her medical practice; and 

        (b)   the medical practice is located in either:  (i) a primary care health provider shortage area; (ii) a rural area; or (iii) an area of demonstrated need as determined by the         Secretary of Health and Human Services; or 

        (c)   is comprised of patients at least seventy-five percent (75%) of whom reside in a medically underserved area or are part of a medically underserved population. 

H.    Ownership or Investment Interest in Retirement Plans 

        Effective October 1, 2008, the exception for ownership and investment interests via retirement plans will only relate to investment interests in employer-sponsored retirement plans offered to a physician or immediate family member as a result of the physician’s or immediate family member’s employment with an entity.  

        CMS adopted this previously proposed regulation due to concern that some physicians were circumventing Stark via retirement investments.  For example:  a physician participates in a retirement plan unrelated to his employment, and that plan invests in an imaging facility to which the physician refers.  Under the new provision, physicians cannot make such referrals without violating Stark because investment in an imaging facility through a retirement plan is not excepted under Stark.  However, if the physician participates in a retirement plan as a hospital employee, and that plan maintains an interest in an imaging facility, the physician is not deemed to have an investment interest in the imaging facility. 

I.      Burden of Proof 

        As of October 1, 2008, CMS is clarifying that the burden of proof rests with the provider, and not CMS, to show that he or she did not violate Stark.  CMS, however, bears the burden to produce documentation to support its position that a violation occurred. 

J.     Physician and Hospital Financial Relationships 

        CMS addressed a few issues related to physician-hospital financial relationships, as follows: 

1.      CMS will be sending “Disclosure of Financial Relationship Reports” (“DFRR”) to approximately five hundred (500) hospitals.  These reports will identify physician arrangements with hospitals that may not be Stark compliant.  The DFRR rollout is an important reminder to make certain that all your relationships comply with Stark, as applicable, and that a Stark violation does not require intent—simply engaging in a prohibited referral violates the statute.  

        2.     The definition of "physician-owned hospital" has been expanded to include hospitals owned by an immediate family member of a physician.  Additionally, a physician-owned hospital must provide a comprehensive list of all owners immediately upon the request of a patient.  Failure to comply with this, or any other physician-owned hospital requirement, could place the hospital's Medicare provider status in jeopardy. 

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        We continue to be available to assist you in analyzing your healthcare relationships and addressing any potential regulatory violations.  Should you have questions or concerns about any of the aforementioned changes, please do not hesitate to contact our office.