| On August 19, 2008, the Centers for Medicare and | | | | a physician) leases space and/or equipment to another |
| Medicaid Services (“CMS”) published final Stark | | | | entity and the physician subsequently refers patients to |
| rules in its 2009 Final Hospital Inpatient Prospective | | | | that other entity for services. For example, this would |
| Payment Systems Rule(“Final Rule”). The Final | | | | prohibit a cardiologist from leasing a CT scanner to a |
| Rule contains several significant modifications to the | | | | hospital on a per-click basis if that cardiologist refers |
| Stark regulations, some of which will require physicians, | | | | patients to the hospital for CT services. While the |
| hospitals, or other healthcare providers to unwind or | | | | original proposal only restricted “per-click” |
| restructure their arrangements. Several of the new | | | | payments when the physician was a lessor, CMS also |
| Stark regulations are not effective until October 1, | | | | sought comment on whether it should prohibit per-click |
| 2009, in order to give parties time to unwind or | | | | payments in situations in which the physician is the |
| restructure arrangements which are impacted by the | | | | lessee and a DHS entity is the lessor. |
| changes, but other provisions are effective October 1, | | | | Under the Final Rule, CMS prohibits the use of |
| 2008 In addition to these new Stark changes, | | | | “per-click” payment methodologies for leasing |
| healthcare providers must stay tuned for additional | | | | arrangements under the space and equipment lease |
| Stark and Medicare payment regulatory changes, | | | | exceptions, fair market value exception, and the |
| which are expected to be published in November 2008 | | | | exception for indirect compensation arrangements to |
| as part of the 2009 Medicare Final Physician Fee | | | | the extent that these charges reflect services |
| Schedule, and in future rulemakings. | | | | provided to patients referred between the parties. |
| In the Final Rule, CMS makes various revisions to the | | | | Notably, the “per-click” prohibition applies |
| Stark regulations. Some of these revisions emanate | | | | whether the lessor is the referring physician or an |
| from proposals contained in the 2008 Medicare | | | | entity in which the referring physician has an ownership |
| Proposed Physician Fee Schedule and some of the | | | | interest. The Final Rule is also broader than the |
| revisions emanate from proposals contained in the | | | | original proposal and applies if the lessor is a DHS |
| 2009 Inpatient Prospective Payment System | | | | entity that refers patients to a physician or physician |
| Proposed Rule. Because many of the proposals are | | | | organization lessee. |
| interrelated, CMS opted to finalize them in one | | | | CMS notes that it is not prohibiting per-click |
| rulemaking, making it easier to analyze their integrated | | | | compensation arrangements involving |
| application to financial relationships between physicians | | | | non-physician-owned lessors to the extent that such |
| and entities that provide designated health services | | | | lessors are not referring patients for DHS, nor are they |
| (“DHS”). | | | | prohibiting per-click payments to physician lessors for |
| Summary of the Final Rule | | | | services rendered to patients who were not referred |
| This section will summarize the major points contained | | | | to the lessee by the physician lessors. However, |
| in the Final Rule. Further detail on the significant | | | | CMS reminds stakeholders that all such arrangements |
| aspects of the Final Rule will be set forth later in this | | | | must still satisfy all of the requirements of the lease |
| article. A synopsis of the Stark changes as they | | | | exceptions, including the requirements that they be fair |
| appear in the Final Rule is as follows: | | | | market value and commercially reasonable. |
| - “Stand in the Shoes” Provisions: Effective | | | | Notably, in addition to the per-click restrictions, CMS |
| October 1, 2008, only physicians who have an | | | | also states that “on demand” rental agreements |
| ownership or investment interest in their physician | | | | are effectively per-click or per-use arrangements, and |
| organizations (e.g., group practice) will be required to | | | | that it considers these types of agreements to be |
| stand in the shoes (“SITS”) of those | | | | covered by the final provision. Accordingly, “on |
| organizations. Employed physicians and physicians | | | | demand” rental payments are also now prohibited |
| with a “titular ownership interest” may (but are | | | | for leases of space and equipment to the extent that |
| not required to) stand in the shoes of their physician | | | | these charges reflect services provided to patients |
| organizations. The Final Rule also carves out an | | | | referred between the parties. However, CMS |
| exception for physicians participating in financial | | | | declined to prohibit all time-based leasing arrangements |
| arrangements that satisfy the Stark exception for | | | | (e.g., block time leases), as CMS believes that may |
| academic medical centers and grandfathers a limited | | | | meet the requirements of the space and equipment |
| group of arrangements that previously met the Stark | | | | lease exceptions. CMS cautions, however, that the |
| indirect compensation arrangement exception. | | | | same concerns that arise with respect to per-click |
| - “Set in Advance” and Amendments to | | | | payments can exist with certain time-based leasing |
| Agreements: CMS now states that it is reversing its | | | | such as leasing the space or equipment in small blocks |
| prior Stark II Phase III position and permitting multi-year | | | | of time (e.g., once a week for 4 hours), and parties |
| agreements to be amended after the first year | | | | entering into block leases should carefully structure |
| without violating Stark’s “set in advance” | | | | them taking into account the anti-kickback statute. |
| requirement. | | | | The final per-click prohibitions are effective for lease |
| - Period of Disallowance: Effective October 1, 2008, | | | | payments made on or after October 1, 2009. CMS |
| CMS establishes a rule that sets the outer limit of the | | | | delayed the effective date of these changes to |
| time period during which referrals are prohibited as a | | | | provide parties sufficient time to restructure existing |
| result of a financial relationship that fails to satisfy a | | | | arrangements or to unwind such arrangements. |
| Stark exception. Disallowance begins when the | | | | Services Provided “Under Arrangements”- Time |
| relationship fails to satisfy an exception and ends no | | | | to Unwind |
| later than the date that it satisfies an exception and | | | | Under current Stark law, only entities to which CMS |
| the parties have returned all overpayments or paid all | | | | makes payment for the DHS are considered to be |
| underpayments. | | | | furnishing DHS. Prior to the changes contained in |
| - Alternative Method for Compliance with Signature | | | | the Final Rule, Stark generally permitted physicians to |
| Requirements: Effective October 1, 2008, if a financial | | | | invest in entities which provided services “under |
| relationship complied with an applicable Stark | | | | arrangements” to hospitals because the physician |
| exception, except for meeting the signature | | | | did not have an ownership interest in the hospital (i.e., |
| requirement, Medicare payments to the entity will be | | | | entity furnishing DHS). The Final Rule significantly |
| permitted if the signature requirement is satisfied within | | | | expands the definition of “entity” to include |
| thirty (30) days (for knowing failures) or ninety (90) | | | | entities that perform services that are in turn billed as |
| days (for inadvertent failures) after the | | | | DHS by another entity. As a practical matter, this |
| commencement of the relationship. | | | | change means that referring physicians likely will not be |
| - Percentage-Based Leasing Arrangements: | | | | able to have an ownership or investment interest in |
| Effective October 1, 2009, CMS eliminates | | | | “under arrangements” service providers. |
| percentage-based compensation in space and | | | | Specifically, under the Final Rule, effective October 1, |
| equipment leases, paralleling its new treatment of | | | | 2009, an “entity” for purposes of Stark will |
| “per-click” payments in space and equipment | | | | include the person or organization that has: (1) billed for |
| leases. Under the Final Rule, compensation for the | | | | the DHS; or (2) performed the DHS. Under these |
| rental of office space or equipment that is determined | | | | new rules, where one entity performs a service that is |
| using a formula based on a percentage of the | | | | billed by another entity, both entities are considered |
| revenue raised, earned, billed, collected, or otherwise | | | | DHS entities with respect to that service. Pursuant |
| attributable to the services performed, or business | | | | to the Final Rule, any financial relationship between the |
| generated in the office space, or the services | | | | service provider and the physicians who refer to it for |
| performed or business generated through the use of | | | | services that the hospital bills “under |
| equipment is prohibited. | | | | arrangements” will need to comply with a Stark |
| - “Per-Click” Leasing Arrangements: Effective | | | | exception. The arrangement will be analyzed as a |
| October 1, 2009, CMS eliminates the use of | | | | direct financial relationship if the referring physician |
| “per-click” fee payments in space and/or | | | | stands in the shoes of the service provider or as an |
| equipment leases when the payments reflect services | | | | indirect financial relationship if the physician does not, or |
| provided to patients referred between the parties. | | | | is not required to, stand in the shoes of the service |
| This “per-click” fee prohibition applies to both | | | | provider. Direct compensation exceptions should be |
| direct leasing arrangements and indirect leasing | | | | available to protect referrals for the service |
| arrangements (e.g., leases between physician-owned | | | | provider’s non-owner physicians, but very few |
| leasing companies and hospitals). | | | | exceptions are available for referring physicians who |
| - Services Provided “Under Arrangements”: | | | | own an interest in the service provider. |
| Effective October 1, 2009, both the hospital that bills for | | | | CMS does not define what it means to |
| services provided “under arrangements” and the | | | | “perform” a service, but does indicate that an |
| entity that performs the services to the hospital will be | | | | organization is not performing DHS if it only leases or |
| considered to be furnishing “designated health | | | | sells space or equipment, furnishes supplies that are |
| services” (“DHS”) under Stark. This change | | | | not separately billable, or provides management, billing |
| will effectively eliminate a referring physician’s ability | | | | services or personnel to the entity performing the |
| to own interests in such service providers. CMS does | | | | service. CMS does state that the common meaning |
| not define what it means to “perform” the | | | | of the term “perform” applies and it considers a |
| services, but does signify that an organization is not | | | | physician or physician organization to have performed |
| performing a DHS if it only leases or sells space or | | | | DHS if the physician or physician organization does the |
| equipment, furnishes supplies that are not separately | | | | medical work for the service and could bill for the |
| billable, or provides management, billing services, or | | | | service, but the physician or organization has |
| personnel to the entity performing the services. | | | | contracted with a hospital and the hospital bills for the |
| - Exception for Obstetrical Malpractice Insurance | | | | service instead.” CMS warns, however, that a |
| Subsidies: Effective October 1, 2008, CMS adds an | | | | physician service provider cannot escape the reach of |
| alternative exception for subsidies of malpractice | | | | the statute by doing substantially all of the medical |
| insurance premiums provided by hospitals, federally | | | | work for a service, and arranging for the billing entity or |
| qualified health centers, and rural health clinics. | | | | some other entity to complete the service. |
| - Ownership or Investment Interest in Retirement | | | | Further, certain entities such as physician-owned |
| Plans: Effective October 1, 2008, CMS narrows the | | | | medical device companies, are safe for now. In |
| so-called “retirement plan exception” to ensure | | | | response to commenters that were concerned that |
| that referring physicians cannot use it to evade | | | | implant or medical device companies should not be |
| Stark’s self-referral prohibition by investing in a DHS | | | | considered an entity under Stark, CMS states that |
| entity via their employer’s retirement plan. Under | | | | “we are not adopting the position that |
| the Final Rule, only a physician’s ownership or | | | | physician-owned implant or other medical device |
| investment interest in their employer-sponsored | | | | companies necessarily ‘perform the DHS’, and |
| retirement plan is protected. | | | | are therefore an ‘entity’ on that basis.” |
| - Burden of Proof: Under the Final Rule, CMS revises | | | | In the preamble commentary, many stakeholders |
| the regulations to place the burden of proof in appeals | | | | expressed concern that the proposals would disrupt |
| of Stark-based payment denials on the entity | | | | access to care, particularly in underserved or rural |
| appealing the denial. This burden is consistent with | | | | areas. In response, CMS notes that it is not prohibiting |
| the burden of proof on Medicare providers and | | | | services to be furnished “under |
| suppliers appealing payment denials based upon other | | | | arrangements.” For example, with respect to |
| reasons, such as a failure to meet a condition of | | | | service providers that furnish services to rural patients, |
| coverage. Moreover, CMS clarifies that the burden of | | | | CMS states that the new rules will not alter the |
| production at each level of appeal is initially on the DHS | | | | availability of the exception for an ownership interest in |
| entity, but may shift to CMS (or its contractors) | | | | a rural provider, but as a DHS entity, a physician owner |
| depending upon the evidence presented by the DHS | | | | investor in such a service provider would need to |
| entity. | | | | meet an ownership exception (such as the rural |
| - Disclosure of Financial Relationships Report | | | | provider exception) in order to protect his or her |
| (“DFRR”): The Final Rule announces that CMS | | | | referrals to the service provider. |
| is proceeding with its proposal to send the DFRR to | | | | With respect to ownership or investment interests that |
| 500 hospitals. The DFRR is designed to collect | | | | will not qualify for the rural provider exception, CMS |
| information regarding the ownership and investment | | | | believes access will not be significantly disrupted for |
| interests and compensation arrangements between | | | | several reasons. First, CMS states that the final rules |
| hospitals and physicians. Hospitals will have sixty (60) | | | | do not prohibit physician group practices or other |
| days to complete the DFRR and may be subject to | | | | physician organizations from contracting with a hospital |
| civil monetary penalties of up to $10,000 per day that | | | | for the provision of services “under |
| the submission is late, although CMS will first issue a | | | | arrangements.” CMS points out that any physician |
| letter to the hospital and the hospital may obtain an | | | | that has a compensation arrangement (not an |
| extension for good cause. | | | | ownership or investment interest) with the physician |
| “Stand in the Shoes” (“SITS”)- CMS | | | | group practice or other physician organization may |
| Simplifies the SITS Doctrine | | | | refer patients for services that are provided by the |
| Under the Stark Phase III SITS doctrine, referring | | | | hospital “under arrangements” provided that one |
| physicians are treated as standing in the shoes of their | | | | of the compensation exceptions is met. Moreover, |
| physician organization for purposes of applying the | | | | CMS notes that to the extent that an owner/investor |
| rules that describe direct and indirect compensation | | | | in the physician service provider has referred the |
| arrangements between the referring physician and a | | | | patient for a service but then personally performs |
| DHS entity. Under Stark Phase III, a physician | | | | the service, there is no referral and Stark is not |
| organization was defined as a physician, physician | | | | implicated. CMS does caution, however, that despite |
| practice, or a group practice. When performing a | | | | the personal performance of the professional |
| Stark analysis, the SITS provisions are applied for | | | | component, the technical component to any service or |
| purposes of evaluating the relationship between a | | | | a facility fee that is billed by any provider “under |
| DHS entity and a referring physician when a physician | | | | arrangements” is considered a referral. CMS also |
| organization is an intervening link in the chain of | | | | believes that in many cases physician groups could |
| relationships and linked to the physician with no other | | | | provide the services and bill for them directly (without |
| intervening links between them. Under the SITS | | | | the need to contract with a hospital to provide them |
| doctrine, a referring physician is considered to have the | | | | “under arrangements”), and that to the extent |
| same compensation arrangements as the physician | | | | that the services would be DHS when performed and |
| organization in whose shoes the physician stands. If | | | | billed by the physician group directly, referrals to the |
| a physician stands in the shoes of his or her physician | | | | physician entity could be protected by the in-office |
| organization, the physician (and DHS entity) will have to | | | | ancillary services exception. |
| satisfy a more stringent direct Stark exception with | | | | It is expected that there are a substantial number of |
| regard to financial relationships between the physician | | | | existing “under arrangements” transactions |
| organization and the DHS entity, to which the physician | | | | involving physician-owned entities that will have to be |
| refers. | | | | unwound or restructured before the October 1, 2009 |
| Industry stakeholders, such as academic medical | | | | effective date. One issue that appears to be left |
| centers (“AMCs”) and integrated tax-exempt | | | | uncertain is whether an entity that performs some, but |
| health care delivery systems (“IDSs”), responded | | | | not substantially all, of the medical work for the service |
| to the Phase III SITS provisions with concerns as to | | | | (e.g., turnkey management service provider) will be |
| how the SITS provisions would apply in such settings, | | | | considered to be performing DHS. |
| and how “mission support payments” and similar | | | | New Alternative Exception for Obstetrical Malpractice |
| payments (“support payments”) would satisfy | | | | Insurance Subsidies |
| the requirement contained in many direct Stark | | | | The current Stark regulations include an exception for |
| exceptions that compensation be fair market value for | | | | obstetrical malpractice insurance premium subsidies |
| items or services provided. These stakeholders | | | | that meet the anti-kickback safe harbor for such |
| argued that prior to Stark Phase III SITS, these support | | | | subsidies. In order to address concerns that the |
| payments were analyzed under the indirect | | | | current exception was unnecessarily restrictive and |
| compensation arrangement rules, and were | | | | limited access to obstetrical care in underserved areas, |
| permitted. In order to address these concerns, | | | | CMS finalizes an alternative exception for malpractice |
| CMS delayed the applicability of SITS for one year | | | | insurance premium subsidies, which protects subsides |
| only to certain compensation arrangements involving | | | | paid by a hospital, federally qualified healthcare center |
| AMCs and IDSs. Shortly after publication of the | | | | (“FQHC”), or rural health clinic (“RHC”). |
| one-year delay, other stakeholders urged that the | | | | CMS did not extend the new alternative exception to |
| applicability of the SITS provisions to support | | | | other entities because it was not persuaded that there |
| payments should not be dependent upon whether the | | | | would be no risk of program or patient abuse |
| system is an AMC or has a particular status under the | | | | The new alternative exception allows hospitals, |
| Internal Revenue Service. | | | | FQHCs, and RHCs to provide an obstetrical |
| In response, CMS proposed in the 2009 IPPS | | | | malpractice insurance subsidy to a physician who |
| proposed rule, two alternative ways to address | | | | regularly engages in obstetrical practice as a routine |
| SITS. The first proposal included two options for | | | | part of a medical practice that is: (1) located in a |
| revising the Phase III SITS provisions, and the second | | | | primary care HPSA, rural area, or area with a |
| proposal left the Phase III SITS provisions untouched, | | | | demonstrated need, as determined by the Secretary in |
| but proposed creating a new regulatory exception for | | | | an advisory opinion; or (2) is comprised of patients at |
| support payments. | | | | least 75% or whom reside in a medically underserved |
| | | | | area (“MUA”) or are part of a medically |
| Ultimately, in the Final Rule, CMS provides more | | | | underserved population (“MUP”). The criteria of |
| flexibility for healthcare providers under the SITS | | | | this new exception focus on the patient population |
| doctrine. Specifically, CMS finalizes certain revisions to | | | | served by the physician receiving the subsidy, rather |
| the stand in the shoes Phase III provisions to deem | | | | than focusing on the location of the entity providing the |
| only a physician who has an ownership or investment | | | | subsidy. |
| interest in a physician organization to stand in the | | | | In addition, the new alternative exception requires the |
| shoes of that physician organization. Further, | | | | following: (1) the arrangement is set out in writing, |
| physicians with only a “titular ownership interest” | | | | signed by the physician, and the hospital, FQHC, or |
| are not required to stand in the shoes of their | | | | RHC, and specifies the payments to be made and the |
| organizations. Physicians with titular ownership | | | | terms under which the payments are to be provided; |
| interests are those physicians without the ability or the | | | | (2) the arrangement is not conditioned on the |
| right to receive the financial benefits of ownership or | | | | physician’s referral of patients to the entity |
| investment, including, but not limited to, the distribution of | | | | providing the payment; (3) the hospital, FQHC, or RHC |
| profits, dividends, proceeds of sale, or similar returns on | | | | does not determine (directly or indirectly) the amount |
| investment (e.g., captive P.C.). In sum, CMS provides | | | | of payment based upon the volume of value of any |
| more flexibility under the Final Rule, now only permitting | | | | actual or anticipated referrals or other business |
| (but not requiring as it did under Stark Phase III), | | | | generated between the parties; (4) the physician is |
| non-owner physicians and titular owners to stand in the | | | | allowed to establish staff privileges any hospital, |
| shoes of their physician organizations. | | | | FQHCs, or RHCs and to refer business to such entities |
| Additionally, CMS creates a carve out from the SITS | | | | (except as referrals may be restricted under an |
| provisions for arrangements that meet the | | | | employment contract); (5) The payment is made to the |
| requirements of the AMC Stark exception in Section | | | | person or organization (other than the physician) that |
| 411.355(e), but CMS declined to finalize a separate | | | | is providing malpractice insurance (including a |
| exception for compensation arrangements involving | | | | self-funded organization); (6) the physician treats |
| support payments in the context of AMCs and IDS. | | | | obstetrical patients who receive medical benefits or |
| CMS stated that it was not its intention, “now or in | | | | assistance under any Federal health care program in a |
| the future, to regulate financial relationships between | | | | nondiscriminatory manner; (7) the insurance is a bona |
| DHS entities and referring physicians by making | | | | fide malpractice insurance policy or program and the |
| exceptions to rules or exceptions within existing | | | | premium, if any, is calculated based on a bona fide |
| exceptions simply in response to complaints or | | | | assessment of the liability risk covered under the |
| concerns in the industry.” CMS also declined to | | | | insurance; (8) for each coverage period (not to |
| finalize its earlier proposal regarding compensation | | | | exceed one year), at least 75% of the physician’s |
| arrangements between physician organizations and | | | | obstetrical patients treated under the coverage of the |
| AMC components for the provision of services | | | | malpractice insurance during the prior year (not to |
| required to satisfy the AMC’s obligations under the | | | | exceed one year) (a) resided in a rural area, HPSA, |
| Medicare graduate medical education rules, as CMS | | | | MUA, or an area with a demonstrated need for the |
| believes that existing exceptions (e.g., bona fide | | | | physician’s obstetrical services as determined by |
| employment, personal service arrangements, and fair | | | | the Secretary in an advisory opinion or (b) were part |
| market value) provide adequate protection for | | | | of a medically underserved population; and (9) the |
| arrangements between physician organizations and | | | | arrangement does not violate the anti-kickback statute, |
| AMCs for GME-related services. | | | | or any Federal or State law or regulation governing |
| CMS also continues the grandfathering of certain | | | | billing or claims submission. |
| indirect compensation arrangements and allows those | | | | With respect to physicians with a part-time obstetrical |
| arrangements to continue to avoid SITS until the | | | | practice, the new alternative exception also allows |
| expiration of their current term (if such term has been | | | | payment of the obstetrical portion of malpractice |
| in effect since the publication of Stark II Phase III | | | | insurance that is related exclusively to services |
| (September 5, 2007)). Arrangements that were | | | | provided in a rural area, primary care HPSA, or an |
| grandfathered that are up for renewal prior to October | | | | area with demonstrated need for the physician’s |
| 1, 2008, will need to comply with the current (Phase III) | | | | obstetrical services, or in any area if at least 75% of |
| SITS rules, in which all physicians (owners and | | | | the physician’s obstetrical patients treated in the |
| non-owners) in a physician organization stand in the | | | | coverage period resided in a rural area or MUA or |
| shoes of the physician organization, but agreements | | | | were part of a MUP. |
| that are up for renewal after October 1, 2008 will need | | | | DHS entities and physicians who rely upon this new |
| to comply with the new more flexible SITS provisions. | | | | alternative exception will not be protected under the |
| Overall, the final SITS provisions are more flexible and | | | | anti-kickback safe harbor. |
| should provide relief for certain industry stakeholders, | | | | Ownership or Investment Interest in Retirement Plans- |
| such as AMCs, IDSs, and physician organizations that | | | | Loophole Closed |
| are not owned by referring physicians. | | | | Under current Stark regulations, ownership and |
| Entity SITS not Finalized | | | | investment interests do not include an interest in a |
| Last, CMS did not finalize the entity version of SITS | | | | retirement plan. In response to concerns that some |
| that would have considered a DHS entity to stand in | | | | physicians were using retirement plans to purchase or |
| the shoes of an organization in which it had a 100 | | | | invest in other entities (other than the one that is |
| percent ownership interest. CMS cautions, however, | | | | sponsoring the retirement plan), CMS finalizes its earlier |
| that “arrangements that attempt to evade | | | | proposal to make clear that the exclusion from the |
| restrictions on payments for referrals by using | | | | definition of “ownership or investment interest” |
| interposed organizations are highly suspect under the | | | | of an interest in a retirement plan pertains only to an |
| fraud and abuse laws and will be subject to close | | | | interest in an entity arising from a retirement plan |
| scrutiny.” | | | | offered by that entity to the physician (or his or her |
| “Set in Advance” and Amendments to | | | | immediate family member) through the physician’s |
| Agreements- CMS Changes its Position | | | | (or immediate family member’s) employment with |
| In response to comments in the preamble discussion, | | | | that entity. |
| CMS indicates that it has reconsidered its earlier Stark | | | | Accordingly, under the Final Rule, a referring physician, |
| II Phase III Final Rule position, that a multi-year | | | | for example, that is employed by a practice, and |
| agreement for rental of office space or a personal | | | | through his employment which such practice, has an |
| service arrangement may not be amended during its | | | | interest in the practice’s retirement plan, and the |
| term without violating the Stark exceptions’ | | | | practice’s retirement plan then invests in a home |
| requirements that the compensation under the | | | | health agency, will need to rely upon an ownership |
| arrangement be “set in advance” for the term | | | | exception for his investment in the home health |
| of the agreement. This earlier position was widely | | | | agency, just as if he or she had invested directly in the |
| criticized as imposing additional transaction costs on | | | | home health agency. As a practical matter, unless |
| the parties to these agreements by requiring them to | | | | the rural provider exception applies, there likely is no |
| terminate an existing agreement and enter into a new | | | | applicable ownership exception for which the referring |
| agreement with modified terms rather than simply | | | | physician can rely. CMS views this regulatory |
| amending the agreement. | | | | clarification as closing a loophole that otherwise would |
| CMS now states that in light of the new final revisions | | | | have allowed physicians and group practices to skirt |
| with respect to percentage-based and | | | | the general prohibition under Stark. |
| “per-click” compensation formulae, an | | | | Burden of Proof- Not on CMS |
| agreement is permitted to be amended as long as the | | | | The Final Rule clarifies, by modifying regulatory text, |
| following criteria are met: (1) All of the requirements of | | | | that when a DHS entity appeals a claim for payment |
| an applicable exception are satisfied; (2) The amended | | | | that was denied on the basis that it was furnished |
| rental charges or compensation (or compensation | | | | pursuant to a prohibited referral under Stark, the DHS |
| formula) is determined before the amendment is | | | | entity has the burden of proof at each level of the |
| implemented, and the formula is sufficiently detailed | | | | appeals process to establish that the service was not |
| that it can be verified objectively; (3) The formula for | | | | provided pursuant to such a prohibited Stark referral. |
| amended rental charges does not take into account | | | | CMS states that this approach is consistent with the |
| the volume or value of referrals or other business | | | | current Medicare claims appeals process. |
| generated by the referring physician; and (4) The | | | | Further, CMS clarifies that the burden of production, at |
| amended rental charges or compensation (or | | | | each level of appeal, is on the claimant initially, but the |
| compensation formula) remain in place for at least one | | | | burden may shift to CMS or its contractors during the |
| year for the date of amendment. CMS also clarifies | | | | course of the proceeding depending upon the |
| that this rule regarding amendment of arrangements | | | | sufficiency of the evidence presented by the claimant. |
| between DHS entities and physicians applies to all | | | | Although CMS insists that it is appropriate to require a |
| compensation exceptions that include a one-year term | | | | provider or supplier to demonstrate that its financial |
| requirement. This change in position represents | | | | relationship with a referring physician does, in fact, |
| CMS’ current interpretation of “set in | | | | satisfy an exception and that the claim at issue should |
| advance” and is not a change in regulation. | | | | be paid, it is notable that Medicare’s Recovery |
| Period of Disallowance for Non-Compliant | | | | Audit Contractors (“RACs”) who are paid on a |
| Relationships Defined | | | | contingency fee basis and who will be auditing |
| Under Stark, the period of time for which a physician | | | | providers nationwide in the near future, have in their |
| cannot refer DHS to an entity and for which the entity | | | | arsenal a new Stark payment denial code. |
| cannot bill Medicare because the financial relationship | | | | Specifically, CMS issued a transmittal to contractors, |
| between the referring physician and the entity failed to | | | | which instructs such contractors to use new claim |
| satisfy all of the requirements of an exception is | | | | adjustment reason code No. 213 when denying claims |
| referred to as the “period of disallowance.” In | | | | based on noncompliance with Stark. Interestingly, in |
| the Final Rule, CMS finalizes its earlier period of | | | | the transmittal, CMS attempts to educate such |
| disallowance proposals which were intended to place | | | | contractors regarding Stark and then states, in part, |
| an outside limit on the period of disallowance in certain | | | | “please note that the statute enumerates various |
| circumstances. Specifically, the period of | | | | exceptions, … You can read these exceptions in |
| disallowance begins at the time the financial relationship | | | | Section 1877 of the Social Security Act Sec. |
| fails to satisfy the requirements of an applicable | | | | 1877…” Given the complexity of the Stark |
| exception and ends no later than: (1) where the | | | | prohibition and related regulations, arming CMS |
| noncompliance is unrelated to compensation, the date | | | | contractors, including RACs, with a Stark denial code |
| that the financial relationship satisfies all of the | | | | may have unforeseen results for healthcare providers. |
| requirements of an applicable exception; (2) Where the | | | | Disclosure of Financial Relationships Report |
| noncompliance is due to payment of excess | | | | (“DFRR”)- It’s Coming |
| compensation, the date which all excess compensation | | | | In order to assist in enforcement of Stark, CMS |
| is returned, and the financial relationship satisfies all of | | | | created an information collection instrument, referred to |
| the requirements of an applicable exception; or (3) | | | | as the Disclosure of Financial Relationships Report |
| Where the noncompliance is due to payment of | | | | (“DFRR”). The DFRR is designed to collect |
| compensation that is insufficient to satisfy the | | | | information concerning the ownership and investment |
| requirements of an applicable exception, the date on | | | | interests and compensation arrangements between |
| which all additional required compensation is paid, and | | | | physicians and hospitals. In the Final Rule, CMS |
| the financial relationship satisfies all of the requirements | | | | announces that it is proceeding with its proposal to |
| of an applicable exception. | | | | send the DFRR to 500hospitals, both general acute |
| In the preamble, CMS notes that this new rule creates | | | | care hospitals and specialty hospitals. Notably, CMS |
| only an outside limit and is not intended to prevent | | | | states that to the extent that it does not find a |
| parties from arguing that the period of disallowance | | | | physician self-referral violation based upon the results |
| ended sooner on the theory that the financial | | | | of the DFRR, this should not be taken as an |
| relationship ended sooner. CMS does caution, | | | | affirmative statement that the financial relationships are |
| however, that the beginning and end dates of a | | | | in compliance, and the government will not be |
| financial relationship for purposes of the disallowance | | | | estopped from determining that there is such a |
| period do not necessarily correspond with the term of | | | | violation. |
| the parties’ written agreement. CMS also notes | | | | In the Final Rule, CMS announced that the DFRR |
| that taking action to fix the outside date of the period | | | | would only be used as a one-time information |
| of disallowance does not vitiate a DHS entity’s | | | | collection effort, and at this time, CMS is not instituting a |
| overpayment for any claims submitted during the | | | | regular ongoing reporting or disclosure process for |
| period of disallowance as a result of the prohibited | | | | hospitals. Depending upon the information received, |
| referrals. | | | | however, CMS may propose future rulemaking to use |
| CMS provides a practical example of how the period | | | | the DFRR or some other instrument as a periodic or |
| of disallowance rules apply in a situation in which a | | | | regular collection instrument. |
| physician is paid excess compensation under a | | | | Under the DFRR collection effort, hospitals will have 60 |
| personal services agreement for months 1-6 and, near | | | | days to complete the DFRR, and although a hospital |
| the end of month 6, the parties discover the error, with | | | | may be subject to civil monetary penalties of up to |
| the result that, on July 1, the physician repays the | | | | $10,000 per day for each day beyond the deadline for |
| excess compensation for months 1-6 and the | | | | disclosure of such information, CMS states that it |
| arrangement otherwise complies with all of the | | | | would not impose a civil monetary penalty in any |
| requirements of an applicable exception. Under the | | | | amount before issuing a letter to a hospital. A hospital |
| Final Rule, in the example, the period of disallowance | | | | may also, upon a demonstration of good cause, obtain |
| will end no later than the date the party repays the | | | | an extension for submitting the DFRR. |
| excess compensation which is July 1. | | | | In response to commenters’ concerns regarding |
| In discussing the period of disallowance rules, CMS | | | | confidentiality of the information collected under the |
| makes clear its view that simply correcting a financial | | | | DFRR, CMS states that it has “…established |
| relationship that falls outside of an applicable Stark | | | | numerous safeguards to physically house the data… |
| exception due to technical noncompliance is not | | | | In addition, we will release such information, where |
| adequate. CMS believes “that the statute does | | | | appropriate, to federal law enforcement agencies such |
| not contemplate that parties have a right to back-date | | | | as the HHS’s Office of the Inspector General (OIG) |
| arrangements, return compensation, or otherwise | | | | and the Department of Justice (DOJ).” CMS does |
| attempt to turn back the clock so as to bring | | | | state, however, that it will not release the information |
| arrangements into compliance retroactively.” | | | | collected as a matter of course to such agencies, but |
| Alternative Method for Compliance- CMS Provides | | | | will do so only where a specific referral is warranted. |
| Some Flexibility for Technical Defects Due to Missing | | | | Notably, the preamble language is silent on whether |
| Signatures | | | | CMS will share the information collected under the |
| A host of Stark compensation exceptions include a | | | | DFRR with its own contractors to meet their stated |
| signature requirement. This has created some | | | | purpose “[t]o assist in enforcement of the physician |
| exposure for certain DHS entities, such as hospitals, | | | | self-referral statute”. |
| because they may have many agreements with | | | | What’s Next? |
| physicians that, if not signed, will fall outside of a Stark | | | | Without a doubt, many of the changes to Stark |
| exception. CMS provides some relief in the Final Rule | | | | contained in the Final Rule will require modification, |
| by adopting a limited amendment that applies to | | | | restructuring, or unwinding of numerous existing |
| existing compensation exceptions, which permits | | | | common healthcare arrangements. Healthcare |
| payments to an entity that fully complied with an | | | | providers will have some additional time to comply with |
| applicable Stark exception, except with respect to a | | | | many of the significant aspects of the Final Rule, but |
| signature requirement, if: (1) the failure to comply with | | | | providers should begin identifying arrangements that will |
| the signature requirement was inadvertent and the | | | | need to be changed in some manner to ensure that |
| entity rectifies the failure to comply within 90 days | | | | the arrangement comes into compliance before the |
| after the commencement of the financial relationship | | | | effective date. |
| (with regard to whether the referrals have occurred or | | | | Healthcare providers, in particular physicians and group |
| compensation paid), or (2) the failure to comply with | | | | practices, must also stay tuned for future Stark and |
| the signature requirement was not inadvertent | | | | Stark-related changes, as CMS is expected to |
| (knowing) and the entity rectifies the failure within 30 | | | | continue to focus on areas it believes are vulnerable to |
| days after the commencement of the financial | | | | patient and program abuse. Specifically, there are |
| relationship. This accommodation for temporary | | | | many additional Stark and Medicare payment rules |
| noncompliance with a signature requirement, however, | | | | which are expected to be published in some form later |
| may only be used once every three years with | | | | this year as part of the 2009 Medicare Final Physician |
| respect to a particular referring physician. | | | | Fee Schedule and in future rulemakings. For |
| Percentage-Based Compensation Formulae- The | | | | example, as part of the 2009 Medicare Proposed |
| Demise of Percentage-Based Compensation for | | | | Physician Fee Schedule (“2009 MPPS”), CMS is |
| Rental of Office Space and Equipment | | | | proposing to require all physicians to enroll as an IDTF |
| In an earlier proposal, due to its concerns regarding | | | | for each practice location furnishing diagnostic testing |
| heightened risk of program and patient abuse, CMS | | | | services (except diagnostic mammography). If |
| planned on eliminating percentage-based compensation | | | | adopted, this rule will eliminate the ability of physician |
| arrangements except in the context of physician | | | | practices to share diagnostic imaging equipment and |
| personally performed service agreements. In this | | | | facilities, even if the equipment or facility is located in |
| Final Rule, CMS adopts a more targeted approach and | | | | the “same building” as the term is defined under |
| declines to limit percentage arrangements to only | | | | the Stark law in connection with the location |
| personally performed physician services. Rather, | | | | requirements of the in-office ancillary services |
| CMS targets percentage-based compensation only in | | | | exception. |
| the context of space and equipment leases. | | | | Further, physicians providing and billing for diagnostic |
| Specifically, the Final Rule amends the current Stark | | | | testing services must also stay apprised of changes |
| exceptions for the rental of office space, the rental of | | | | related to the purchased diagnostic testing rule (or |
| equipment, fair market value compensation | | | | anti-markup rule). CMS is revisiting changes it had |
| arrangements, and indirect compensation | | | | enacted to the anti-markup rule, which are currently |
| arrangements to prohibit the use of compensation | | | | slated to go into effect on January 1, 2009. With |
| formulae for space and equipment leases based upon | | | | respect to the anti-markup final rule, CMS is now |
| a percentage of the revenue raised, earned, billed, | | | | proposing two alternative approaches for application |
| collected, or otherwise attributable to the services | | | | of this rule. One proposal would apply the |
| performed or business generated in the office space | | | | anti-markup rule in all cases in which the professional |
| lease or to the services performed on or business | | | | or technical component of a diagnostic testing service |
| generated by the use of leased equipment. | | | | is either: (1) purchased from an outside supplier, or (2) |
| Effectively, by implementing these changes, CMS ends | | | | performed or supervised by a physician who does not |
| most percentage-based arrangements for the lease | | | | share a practice with the billing physician or group. |
| of space or equipment (direct or indirect) between | | | | For purposes of this rule, a physician will “share a |
| DHS entities and referring physicians. Current | | | | practice” if he or she is employed or contracts with |
| percentage-based leasing arrangements for office | | | | only one physician or group practice. The second |
| space or equipment that run afoul of these new rules | | | | alternative approach would maintain the current final |
| will need to be restructured prior to October 1, 2009, | | | | rule which looks to the location (billing physician’s |
| the effective date. | | | | office) of the test, but the proposal would expand the |
| Further, of particular significance, although CMS did not | | | | definition of such location to include testing services |
| extend this new percentage-based prohibition outside | | | | performed within the same building in which the billing |
| of the space and equipment lease context (e.g., | | | | physician regularly furnishes patient care (as opposed |
| management services), CMS warns that it intends to | | | | to the earlier approach of same office suite). |
| “continue to monitor compensation formulae in | | | | Last, CMS has also promised future proposals, which |
| arrangements between DHS entities and referring | | | | may narrow the in-office ancillary services exception, |
| physicians and, if appropriate, may further restrict | | | | an exception that is crucial to many physicians and |
| percentage-based formulae in a future rulemaking.” | | | | group practices providing ancillary services (e.g., |
| “Per-Click” Leasing Arrangements Prohibited- | | | | physical therapy, imaging services, lab) through their |
| Block Time Leases Survive for Now | | | | offices. |
| Although unit-of-service (“per-click”) payments | | | | Healthcare attorneys need to analyze the application |
| were generally permitted under the Stark law, due to | | | | of these final Stark rules to existing and future financial |
| concerns that this type of compensation methodology | | | | relationships between referring physicians and entities |
| was inherently susceptible to abuse, CMS introduced a | | | | that provide designated health services, and stay |
| proposal in the 2008 Proposed Physician Fee | | | | apprised of future developments in order to assist |
| Schedule which prohibited the use of per-click | | | | clients in making business decisions in this continually |
| payments involving space and/or equipment leases in | | | | changing healthcare arena. |
| those situations where a physician (or entity owned by | | | | |