20 Mar 2015

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The long awaited third and final phase of the rulemaking that amends the Stark regulations (Stark) was released by the Centers for Medicare and Medicaid Services (CMS) on August 27, 2007. The phase III final rule (Phase III) will be effective December 4, 2007. Although CMS states that Phase III is flexible and favorable to the health care industry, Phase III is not the last piece of the puzzle addressing changes to Stark. That is, recently there have been significant proposals, pending legislation, and a CMS mandate regarding disclosures of hospital physician financial relationships, all of which may lead to more changes to Stark and may have a profound impact on the health care industry. This article will: (1) address the highlights of the Phase III final rule; and Air Jordan 14s (2) identify potential future changes to Stark which may impact common health care arrangements. As a starting point, Stark prohibits physicians from referring Medicare beneficiaries to an entity in which they (or an immediate family member) have a direct or indirect financial relationship for DHS. DHS include: clinical lab; physical therapy; occupational therapy; radiology, including MRI, CT scans, and ultrasound; radiation therapy and supplies; DME and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospitalization services.

Stark even applies to referrals of DHS within a group practice. For example, if a group provides services such as x rays, labs, ultrasound or physical therapy within the practice, Stark will be implicated. Once the prohibition is triggered, the physician’s relationship must fit within a Stark exception. There are exceptions in Stark that apply to both compensation and ownership/investment relationships, exceptions that apply only to ownership/investment relationships, and exceptions that apply only to compensation arrangements.

Now that the Stark regulations have finally been promulgated, physicians involved in financial relationships that implicate Stark, should have a health care attorney conduct a “Stark audit” to ensure compliance with the final regulations.

Safe harbor for fair market value is eliminated. As part of Phase II, CMS created a voluntary fair market value “safe harbor” provision applicable to hourly payments to physicians for their personal services. Due to numerous commenters’ concerns that the “safe harbor” was impractical and infeasible, Phase III eliminates the “safe harbor”. CMS emphasizes, however, that it will continue to scrutinize the fair market value of arrangements. Parties to a transaction may calculate fair market value using any commercially reasonable methodology that is appropriate under the circumstances Air Jordan 5s and otherwise fits within the definition of fair market value.

A physician in the group practice must have a direct relationship with the group and provide services in the group’s facilities. CMS has modified the definition of “physician in the group practice” to make clear that an independent contractor physician must furnish patient care services for the group practice under a direct contractual arrangement with the group, and not between the group practice and other entity, such as a staffing entity. CMS also reiterated its position that an independent contractor physician must provide patient care services in the group’s facilities to ensure there is a true nexus with the group’s medical practice. For example, when a group of orthopedic surgeons independently contracts with a radiologist to perform the reading and interpretation of the group’s imaging services, the radiologist must provide such services in the group’s facilities, not at some off site location.

Definition of referral CMS clarifies the few, if any, situations in which a physician would personally furnish DME. If a physician personally performs a service it is not considered a referral for purposes of the Stark physician self referral prohibition. In Phase III, CMS notes that there are few, if any, situations in which a referring physician could personally furnish durable medical equipment (DME), because doing so would require the physician to be enrolled in Medicare as a DME supplier and personally perform all of the duties of a supplier. CMS believes that it is highly unlikely that a referring physician would meet the criteria for personally performed services when dispensing DME, including continuous positive airway pressure equipment (CPAP). CMS also notes that CPAP is DME that does not qualify for the in office ancillary services exception. Accordingly, physicians cannot furnish and bill for DME in their offices.

CMS makes changes to the group practice definition making clear that productivity bonuses can be based directly on “incident to” services but upon further reflection, CMS now states that overall profit shares cannot relate directly to “incident to” services. In Phase III, in the group practice setting, CMS makes clear that productivity bonuses can be based directly on “incident to” services that are incidental to the physician’s personally performed services, even if those “incident to” services are otherwise designated health service (DHS) referrals. For example, a physician can be paid a productivity bonus based directly on physical therapy services provided “incident to” his or her services. However, the productivity bonus cannot be directly related to any other DHS referrals, such as diagnostic tests. Further, although in Phase II CMS stated that overall profit shares could relate directly to “incident to” services, upon further reflection, CMS now states that its previous interpretation is inconsistent with the statutory language, which includes “incident to” services only in the context of productivity bonuses. Accordingly, under Phase III, profits of the group must be allocated in a manner that does not directly relate to DHS referrals, including any DHS billed as an “incident to” service.

Physicians “stand in the shoes” of their group practices. Phase III includes new provisions addressing compensation arrangements in which a group practice (or other “physician organization” as newly defined in Phase III) is directly linked to the physician in a chain of financial relationships between the referring physician and a DHS entity. For purposes of determining whether a physician has a direct or indirect financial relationship with a DHS entity to which the physician refers, under Phase III, the physician will “stand in the shoes” of his or her group. For example, under this new “stand in the shoes” doctrine, a contract between a group practice and a hospital must now be structured to meet a direct Stark exception.

Physicians can have a security interest in equipment that was sold to a hospital. CMS revises the regulations so that a security interest held by a physician in equipment sold by the physician to a hospital and financed through a loan from the physician to the hospital will not be considered an ownership interest in the hospital. In the past, this security interest would have created an ownership interest in part of a hospital, and thus would have been considered a prohibited financial relationship. Under Phase III, this security interest will be considered a compensation arrangement between the physician and hospital.

In office ancillary shared services arrangements must be carefully structured and operated to satisfy the in office ancillary services exception. As a practical matter, CMS points out that this necessitates a block lease for the space and equipment used to provide the DHS. CMS also notes that common per use or per click fee arrangements may implicate the anti kickback statute. Further, CMS opines that part time, shared, off site facilities (such as “condo” pathology laboratories) are readily subject to abuse. CMS will be addressing this potential for abuse in a separate rulemaking. In the meantime, however, CMS cautions parties involved in shared arrangements in the same building and in off site buildings that the arrangements must fully comply with the in office ancillary services exception in operation, not just on paper.

Intra family rural referrals exception modified to include an alternative distance test. There is an exception under Stark for certain referrals from a referring physician to his or her immediate family member or to a DHS entity with which the physician’s immediate family member has a financial relationship. In part, the exception requires that the patient reside in a rural area and that there is no other person or entity available to furnish the referred DHS in a timely manner, at the patient’s residence, or within 25 miles of the patient’s residence. Phase III modifies the exception to include an alternative distance test based on transportation time (45 minutes) from the patient’s residence.

Holdovers now permitted in personal service arrangements . Phase III modifies the personal service arrangements exception to include a provision which permits a holdover personal service arrangement (services provided after the term of the contract expires) for up to six months for personal service arrangements that otherwise meet the requirements of the personal services exception. This new holdover concept is similar to the holdover provisions which Nike Air Foamposite One are permitted in the exceptions for office space and equipment leases.

Physician recruitment exception relaxed. The physician recruitment exception is designed to protect certain remuneration that is provided by a hospital to a physician as an inducement for the physician to Air Jordan 6s relocate his or her medical practice into the “geographic area served by the hospital”. The most significant changes to the Stark regulations contained in Phase III are changes to the physician recruitment exception. Phase III makes a number of changes that relax the exception. Group practices involved in physician Air Jordan Future recruitment relationships are afforded relief under Phase III as follows:

v CMS modifies the exception to allow group practices to impose practice restrictions if they do not “unreasonably restrict” the recruited physician’s ability to practice in the “geographic area served by the hospital”. Notably, in Phase III, CMS states that restrictions on moonlighting; prohibitions on soliciting patients, or employees; requiring the recruited physician to repay losses of his or her practice absorbed by the physician practice; and requiring liquidated damages if the physician leaves the practice and remains in the community, are all restrictions and prohibitions that CMS does not consider to have a substantial effect on the physician’s ability to remain in the hospital’s geographic service area. CMS does state, however, that a liquidated damages clause which provides for a significant or unreasonable payment may have a substantial effect on the physician’s ability to remain in the service area.

v CMS also clarifies that the provisions of the recruitment exception that apply to recruitment arrangements involving physicians who join an existing practice do not apply when the recruited physician is just co locating or sharing space with an existing practice and does not join the practice.

Inadvertent excess nonmonetary compensation can now be cured. In Phase I of the rulemaking, CMS established an exception to protect non monetary compensation provided to physicians up to $300 (adjusted annually for inflation).

Fair market value exception expanded to cover compensation from a physician. Phase III amends the exception for fair market value to permit application of the exception to arrangements involving fair market value compensation to physicians from DHS entities, as well as to arrangements involving fair market value compensation to DHS entities from physicians. In the past, parties could not utilize the exception unless the arrangement involved compensation to a physician from an entity.

Compliance training exception expanded. Phase III amends the compliance training exception to cover compliance training programs that involve CME credit so long as the compliance training is the primary purpose.

Professional courtesy exception revised to delete notification requirement . Phase III modifies the professional courtesy exception by deleting the requirement that an entity notify an insurer when the professional courtesy involves the whole or partial reduction of any coinsurance obligation. Phase III also modifies the exception to clarify that it applies only to hospitals and other providers with formal medical staffs (including group practices), and not to suppliers, such as laboratories or DME companies.

Retention payments in underserved areas exception modified in several respects. Phase III modifies the exception for retention payments in underserved areas in several respects, including expanding the exception by permitting certain retention payments in the absence of a written recruitment offer, by adding flexibility for retention payments to physicians who serve underserved areas and populations, and by allowing rural health care clinics to make retention payments.

Other Recent Proposals on the Stark Horizon

The Stark Phase III Final Rule comes out amidst a flurry of other current activity outside of the Stark regulatory final rulemaking which could have a significant impact on Stark. In July of 2007, CMS proposed several significant proposals in the 2008 Medicare Proposed Physician Fee Schedule (MPPFS), which would amend the Stark regulations. These MPPFS proposals are separate from, and in addition to, the revisions in the Phase III Final Rule. Although these proposals do not promulgate any final regulations, they are noteworthy in that they contain discussions by CMS of its concern regarding many common health care structures. If adopted, the MPPFS proposals could be effective as early as January 1, 2008 and have a significant impact on many common health care arrangements. A few of the highlights of the MPPFS proposals are briefly summarized below.

No Marking Up Purchased or Reassigned Technical and Professional Services. CMS has long expressed its concerns regarding certain health care structures such as pathology pod labs involving the shared use of equipment, technologists, and pathologists between physician practices and pathology labs. CMS also believes that certain diagnostic testing arrangements between physician practices and diagnostic testing suppliers raise potential fraud and abuse concerns. In order to address its concerns, CMS proposed prohibiting physicians and practices from marking up the outside supplier’s net charge for the diagnostic test to the Medicare program. Notably, this anti markup prohibition applies regardless of whether the diagnostic test is purchased outright from the supplier or whether the practice is billing Medicare pursuant to a reassignment from the supplier. The proposed rule applies to both the professional component and the technical component of the services. The only exception to this anti markup rule is for full time employees.

If finalized, essentially this proposal will remove all economic incentives for physician practices to bill Medicare for the professional component of diagnostic tests not performed by full time employees of the practice (which is commonly done through the use of the Stark physician services exception). Under the proposal, the practice will not be able to recover from Medicare the overhead practice expense of interpretations performed in the practices facilities by part time or independent contractor physicians. Consequently, for example, practices that currently utilize part time or independent contractor radiologists for the interpretation of diagnostic imaging services may decide to discontinue billing Medicare for such interpretation services or employ, if feasible, a radiologist on a full time basis.

Narrowing of the Stark In Office Ancillary Services Exception. In the proposed MPPFS, CMS expressed its concern that this exception is being inappropriately used for services that are not closely connected to the physician’s practice. CMS solicited public comment as to whether the exception should be narrowed or limited to some extent.

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