| As a starting point, Stark prohibits physicians from | | | | whole or partial reduction of any coinsurance |
| referring Medicare beneficiaries to an entity in | | | | obligation. Phase III also modifies the exception |
| which they (or an immediate family member) | | | | to clarify that it applies only to hospitals and other |
| have a direct or indirect financial relationship for | | | | providers with formal medical staffs (including |
| DHS. DHS include: clinical lab; physical therapy; | | | | group practices), and not to suppliers, such as |
| occupational therapy; radiology, including MRI, CT | | | | laboratories or DME companies. |
| scans, and ultrasound; radiation therapy and | | | | - Retention payments in underserved areas |
| supplies; DME and supplies; parenteral and enteral | | | | exception modified in several respects. Phase III |
| nutrients, equipment and supplies; prosthetics, | | | | modifies the exception for retention payments in |
| orthotics, and prosthetic devices and supplies; | | | | underserved areas in several respects, including |
| home health services; outpatient prescription | | | | expanding the exception by permitting certain |
| drugs; and inpatient and outpatient hospitalization | | | | retention payments in the absence of a written |
| services. | | | | recruitment offer, by adding flexibility for |
| Stark even applies to referrals of DHS within a | | | | retention payments to physicians who serve |
| group practice. For example, if a group provides | | | | underserved areas and populations, and by |
| services such as x-rays, labs, ultrasound or | | | | allowing rural health care clinics to make retention |
| physical therapy within the practice, Stark will be | | | | payments. |
| implicated. Once the prohibition is triggered, the | | | | Other Recent Proposals on the Stark Horizon |
| physician’s relationship must fit within a Stark | | | | - No Marking Up Purchased or Reassigned |
| exception. There are exceptions in Stark that | | | | Technical and Professional Services. CMS has |
| apply to both compensation and ownership | | | | long expressed its concerns regarding certain |
| investment relationships, exceptions that apply | | | | health care structures such as pathology pod labs |
| only to ownership/investment relationships, and | | | | involving the shared use of equipment, |
| exceptions that apply only to compensation | | | | technologists, and pathologists between physician |
| arrangements. | | | | practices and pathology labs. CMS also believes |
| 1. Financial relationships that can trigger Stark | | | | that certain diagnostic testing arrangements |
| include, but are not limited to physician | | | | between physician practices and diagnostic testing |
| relationships with: | | | | suppliers raise potential fraud and abuse |
| - Hospitals (e.g., leases, personal services, | | | | concerns. In order to address its concerns, |
| employment, medical directorships and | | | | CMS proposed prohibiting physicians and practices |
| recruitment agreements); | | | | from marking up the outside supplier’s net |
| - Suppliers of service (e.g., mobile ultrasound | | | | charge for the diagnostic test to the Medicare |
| suppliers, DME companies, home health agencies); | | | | program. Notably, this anti-markup prohibition |
| - Group practices (e.g., to evaluate compliance to | | | | applies regardless of whether the diagnostic test |
| perform ancillary services and to evaluate | | | | is purchased outright from the supplier or whether |
| compensation arrangements within the group | | | | the practice is billing Medicare pursuant to a |
| practice); | | | | reassignment from the supplier. The proposed |
| - Independent contractor physicians (e.g., to | | | | rule applies to both the professional component |
| evaluate agreements for reading and | | | | and the technical component of the services. |
| interpretation services). | | | | The only exception to this anti-markup rule is for |
| Highlights of Phase III | | | | full-time employees. |
| - Safe harbor for fair market value is eliminated. | | | | - Narrowing of the Stark In-Office Ancillary |
| As part of Phase II, CMS created a voluntary fair | | | | Services Exception. The in-office ancillary |
| market value “safe harbor” provision | | | | services exception is arguably the single most |
| applicable to hourly payments to physicians for | | | | important exception to the Stark law, which |
| their personal services. Due to numerous | | | | allows physicians to furnish ancillary services (e.g., |
| commenters’ concerns that the “safe | | | | x-ray, lab, ultrasound, physical therapy) in their |
| harbor” was impractical and infeasible, Phase | | | | practices. In the proposed MPPFS, CMS expressed |
| III eliminates the “safe harbor”. CMS | | | | its concern that this exception is being |
| emphasizes, however, that it will continue to | | | | inappropriately used for services that are not |
| scrutinize the fair market value of | | | | closely connected to the physician’s practice. |
| arrangements. Parties to a transaction may | | | | CMS solicited public comment as to whether the |
| calculate fair market value using any commercially | | | | exception should be narrowed or limited to some |
| reasonable methodology that is appropriate under | | | | extent. |
| the circumstances and otherwise fits within the | | | | - Limitations on Per-Click Leases for Space and |
| definition of fair market value. | | | | Equipment. Presently per-click lease payments |
| - A physician in the group practice must have a | | | | are generally permitted under the Stark law if the |
| direct relationship with the group and provide | | | | per-click payment is fair market value. In the |
| services in the group’s facilities. CMS has | | | | proposals, CMS is now reconsidering its position |
| modified the definition of “physician in the | | | | stating that it considers certain per-click payment |
| group practice” to make clear that an | | | | arrangements to be susceptible to abuse. Thus, |
| independent contractor physician must furnish | | | | CMS has proposed to prohibit the use of per |
| patient care services for the group practice under | | | | click-lease payments involving space and/or |
| a direct contractual arrangement with the group, | | | | equipment leases in those situations where an |
| and not between the group practice and other | | | | entity owned by a physician leases space and/or |
| entity, such as a staffing entity. CMS also | | | | equipment to another entity and the physician |
| reiterated its position that an independent | | | | subsequently refers patients to that other entity |
| contractor physician must provide patient care | | | | for services. For example, the proposal would |
| services in the group’s facilities to ensure | | | | prohibit a cardiologist from leasing a CT scanner |
| there is a true nexus with the group’s medical | | | | to the hospital on a per-click basis if that |
| practice. For example, when a group of | | | | cardiologist will be referring patients to the hospital |
| orthopedic surgeons independently contracts with | | | | for cardiac CTA services. CMS is also |
| a radiologist to perform the reading and | | | | considering whether it should prohibit per-click |
| interpretation of the group’s imaging services, | | | | payments by a physician to an entity from which |
| the radiologist must provide such services in the | | | | the physician leases space or equipment if that |
| group’s facilities, not at some off-site location. | | | | entity refers patients to the leasing physician. |
| - Definition of referral- CMS clarifies the few, if | | | | - Prohibition on Percentage Leases with Referrals |
| any, situations in which a physician would | | | | Sources. Many of the current Stark exceptions |
| personally furnish DME. If a physician personally | | | | allow percentage compensation arrangements |
| performs a service it is not considered a referral | | | | such as the space and equipment lease |
| for purposes of the Stark physician self-referral | | | | exceptions, the personal service exception and |
| prohibition. In Phase III, CMS notes that there | | | | the fair market value exception. CMS is now |
| are few, if any, situations in which a referring | | | | proposing that percentage based compensation |
| physician could personally furnish durable medical | | | | can only be used when paying for personally |
| equipment (DME), because doing so would require | | | | performed physician services and that the |
| the physician to be enrolled in Medicare as a DME | | | | percentage must be based on the revenues |
| supplier and personally perform all of the duties of | | | | directly resulting from the physician services. If |
| a supplier. CMS believes that it is highly unlikely | | | | finalized, this proposal would prohibit many |
| that a referring physician would meet the criteria | | | | common compensation arrangements involving |
| for personally performed services when | | | | the use of percentage based rental and |
| dispensing DME, including continuous positive | | | | management fees. |
| airway pressure equipment (CPAP). CMS also | | | | - “Under Arrangements” Under Attack. |
| notes that CPAP is DME that does not qualify for | | | | Pursuant to the current Stark regulations, an |
| the in-office ancillary services exception. | | | | entity is not considered a designated health |
| Accordingly, physicians cannot furnish and bill for | | | | services (DHS) entity unless it is the entity that is |
| DME in their offices. | | | | paid by Medicare for the DHS. The current |
| - Physicians can have a security interest in | | | | definition of DHS entity permits certain joint |
| equipment that was sold to a hospital. CMS | | | | venture arrangements between hospitals and |
| revises the regulations so that a security interest | | | | referring physicians in which the physicians are |
| held by a physician in equipment sold by the | | | | providing services to the hospital “under |
| physician to a hospital and financed through a loan | | | | arrangements”. In the MPPFS, CMS |
| from the physician to the hospital will not be | | | | expressed its concerns with “under |
| considered an ownership interest in the hospital. | | | | arrangements” ventures between hospitals |
| In the past, this security interest would have | | | | and physicians that appear to be designed to |
| created an ownership interest in part of a hospital, | | | | enable the physician-investors to profit from |
| and thus would have been considered a prohibited | | | | referrals to the hospital and proposes to revise |
| financial relationship. Under Phase III, this security | | | | Stark so that the definition of DHS entity is |
| interest will be considered a compensation | | | | either the entity that submits a claim to Medicare |
| arrangement between the physician and hospital. | | | | for the DHS, or the entity that performed the |
| - Physician recruitment exception relaxed. The | | | | DHS. If CMS’ proposal were finalized, it |
| physician recruitment exception is designed to | | | | would essentially bar referring physicians from |
| protect certain remuneration that is provided by a | | | | participating in joint ventures that provide services |
| hospital to a physician as an inducement for the | | | | “under arrangements” to hospitals or |
| physician to relocate his or her medical practice | | | | other providers. Given that hospital-physician |
| into the “geographic area served by the | | | | “under arrangements” joint ventures are |
| hospital”. The most significant changes to | | | | commonplace, this proposal would require the |
| the Stark regulations contained in Phase III are | | | | restructuring of a significant amount of |
| changes to the physician recruitment exception. | | | | arrangements that currently comply with the |
| Phase III makes a number of changes that relax | | | | law. |
| the exception. Group practices involved in | | | | - Ownership or Investment in Retirement Plans. |
| physician recruitment relationships are afforded | | | | Current Stark regulations provide that a physician |
| relief under Phase III as follows: | | | | does not have an ownership or investment |
| CMS modifies the exception to allow group | | | | interest in an entity that furnishes DHS solely by |
| practices to impose practice restrictions if they do | | | | having an interest in that entity’s retirement |
| not “unreasonably restrict” the recruited | | | | plan. CMS learned that physicians are attempting |
| physician’s ability to practice in the | | | | to abuse this exception by using their retirement |
| “geographic area served by the hospital”. | | | | plans to purchase entities that provide DHS and to |
| Notably, in Phase III, CMS states that restrictions | | | | which the physician refers patients. For example, |
| on moonlighting; prohibitions on soliciting patients, | | | | a group of physicians participates in a retirement |
| or employees; requiring the recruited physician to | | | | plan and that plan invests its funds by purchasing |
| repay losses of his or her practice absorbed by | | | | an MRI center. The physicians will then refer |
| the physician practice; and requiring liquidated | | | | their patients to the MRI center without violating |
| damages if the physician leaves the practice and | | | | Stark because they claim they have an |
| remains in the community, are all restrictions and | | | | investment in the retirement plan, not the MRI |
| prohibitions that CMS does not consider to have a | | | | center. In an attempt to close this loophole, in |
| substantial effect on the physician’s ability to | | | | the MPPFS, CMS proposes to apply the ownership |
| remain in the hospital’s geographic service | | | | or investment exception only to investment |
| area. CMS does state, however, that a liquidated | | | | interests in legitimate employer-sponsored |
| damages clause which provides for a significant or | | | | retirement plans. |
| unreasonable payment may have a substantial | | | | - Independent Diagnostic Testing Facility (IDTF) |
| effect on the physician’s ability to remain in | | | | Issues. In a related matter, the MPPFS also |
| the service area | | | | provides some significant revisions, additions, and |
| CMS also clarifies that the provisions of the | | | | clarifications to the existing IDTF performance |
| recruitment exception that apply to recruitment | | | | standards. Of significant importance is CMS’ |
| arrangements involving physicians who join an | | | | controversial standard that would significantly |
| existing practice do not apply when the recruited | | | | impact block leasing and other shared imaging |
| physician is just co-locating or sharing space with | | | | arrangements involving IDTFs and physicians. |
| an existing practice and does not join the practice. | | | | This new standard would prohibit a fixed site |
| - Inadvertent excess nonmonetary compensation | | | | IDTF from sharing space, equipment, or staff, or |
| can now be cured. In Phase I of the rulemaking, | | | | from subleasing its operations to another individual |
| CMS established an exception to protect | | | | or organization. If this proposal were adopted, it |
| non-monetary compensation provided to | | | | would eliminate the ability of an IDTF to enter into |
| physicians up to $300 (adjusted annually for | | | | any type of sublease arrangement with a |
| inflation). Phase III makes two substantive | | | | physician practice, hospital, or other individual or |
| changes to the exception by: (1) allowing | | | | entity. |
| physicians to repay certain excess nonmonetary | | | | In addition to the MPPFS proposals, on August 1, |
| compensation within the same calendar year to | | | | 2007 the U.S. House of Representatives passed a |
| preserve compliance with the exception; and (2) | | | | bill, which would have a significant impact on the |
| allowing entities without regard to the $300 dollar | | | | permissible legal structures of physician owned |
| limit to provide one medical staff appreciation | | | | hospitals. The house-passed bill would amend the |
| function (such as a party) for the entire medical | | | | Stark whole hospital exception as follows: (1) |
| staff per year. | | | | eliminate the whole hospital exception so that |
| - Fair market value exception expanded to cover | | | | physicians cannot self-refer to hospitals (not just |
| compensation from a physician. Phase III | | | | specialty hospitals); (2) grandfather hospitals that |
| amends the exception for fair market value to | | | | were in operation with Medicare provider |
| permit application of the exception to | | | | agreements as of July 24, 2007; and (3) require |
| arrangements involving fair market value | | | | grandfathered hospitals to meet certain standards |
| compensation to physicians from DHS entities, as | | | | (including limiting physician ownership to an |
| well as to arrangements involving fair market | | | | aggregate of 40% and no more than 2% |
| value compensation to DHS entities from | | | | individually) |
| physicians. In the past, parties could not utilize | | | | CMS has also recently announced its intention to |
| the exception unless the arrangement involved | | | | mandate Medicare-participating hospitals to report |
| compensation to a physician from an entity. | | | | to CMS details of their financial relationships with |
| - Compliance training exception expanded. Phase | | | | their referring physicians. Commencing |
| III amends the compliance training exception to | | | | September 2007, CMS has initially selected 500 |
| cover compliance training programs that involve | | | | hospitals that will be required to report financial |
| CME credit so long as the compliance training is | | | | information. CMS can request among other |
| the primary purpose. | | | | information, the name and unique physician |
| - Professional courtesy exception revised to | | | | identification number or national provider number |
| delete notification requirement. Phase III modifies | | | | of each physician (and any immediate family |
| the professional courtesy exception by deleting | | | | member) with a reportable financial relationship, |
| the requirement that an entity notify an insurer | | | | the covered services furnished by the entity, and |
| when the professional courtesy involves the | | | | the nature of the financial relationship. |