New Stark Proposals in 2008 Physician Fee Schedule

On July 2, the Centers for Medicare and Medicaid Services ("CMS") released its proposed revisions to the Medicare Physician Fee Schedule for 2008. Included in the proposing release were a number of proposed revisions to the regulations under the Stark self-referral law, as well as the solicitation of comments on other potential revisions to the Stark regulations. While these proposals are, obviously, just proposals, they provide important guidance as to potential changes in the Stark regulations and provide healthcare entities and physicians with an important opportunity to comment on these prospective changes before they become law. Set forth below a brief summary of the proposed Stark Law changes and requests for comment below. Of course, this is just a summary, and does not reflect all information in the CMS proposal, which is available (all 924 pages of it) at http://www.cms.hhs.gov/physicianfeesched/downloads/CMS-1385-P.pdf?agree=yes&next=Accept and will be published in final form in the Federal Register later this month.

Changes to Reassignment and Physician Self-Referral Rules Relating to Diagnostic Tests (Anti-Markup Provision):

Current Medicare rules prohibit the markup of the technical component of certain diagnostic tests that are performed by third-party suppliers and billed to Medicare by a different provider, and restrict who may bill for the professional component of such tests. CMS has expressed concern that the anti-markup and purchased interpretation requirements have led to confusion where a reassignment of payment has occurred under a contractual arrangement, and has also expressed concern that certain arrangements that permit physician groups to bill for services provided by a contractor in a centralized building are inconsistent with the intended purpose of the Stark regulations and may lead to program abuse and overutilization. To address these issues, CMS proposes to impose an anti-markup provision on the technical component and professional component of diagnostic tests whether they are "purchased interpretations" or provided under a reassignment of rights, unless the performing supplier is a full-time employee of the billing entity. As part of the proposed changes, CMS proposes to exclude from the "net charge" that can be passed through to Medicare any amount attributable to rent or similar charges paid by the supplier to the billing entity for space or equipment relating to the provision of the tests. In order to address the concern that "centralized building" arrangements are being used in a manner inconsistent with the intent of the Stark regulations, CMS proposes to apply an anti-markup provision to the technical component of diagnostic services performed in a centralized building and is seeking comment on whether and how to effect such a provision. In addition, CMS is proposing that the professional component of a purchased test will be subject to an anti-markup provision unless the test involves a reassignment from a full-time employee of the billing entity. Neither anti-markup provision would apply to the professional component of services provided by an independent lab that has not ordered the technical component.

Burden of Proof Where a Claim Is Denied Based on a Prohibited Referral:

CMS is proposing to add a new section to the Stark regulations to clarify that, "consistent with [CMS] policy with respect to claim denials", the burden of proof will be on the billing provider in any appeal of a denial of payment for a designated health service where the denial was made on the basis that the service was furnished pursuant to a referral prohibited under Stark.

Solicitation of Comments on Potential Changes in the In-Office Ancillary Services ("IOAS") Exception:

The IOAS is one of the major exceptions in the Stark Law, allowing individual physicians in solo practice and physician group practices to self-refer for the provision of most designated health services ("DHS") where those services are provided ancillary to medical services provided by the physician or group and meet certain additional requirements. The IOAS exception has allowed physicians and physician groups to provide a wide variety of therapy services, diagnostic services, lab services, etc. through facilities owned by their practices, even where such physicians would not be permitted to own interests in freestanding facilities providing such services. CMS has expressed concern that the IOAS exception is increasingly being used as a vehicle for physician self-referral for services that are not closely connected to the physician practice. In particular, CMS has expressed concern over the marketing of "turnkey" lab, imaging, etc. operations that are marketed to physicians as a way to profit from providing in-office DHS without significant physician involvement. CMS is not at this time making a specific proposal to amend or limit the IOAS exception, but is soliciting comments on whether changes are necessary and how they should be implemented.

Clarification of Exception for Obstetrical Malpractice Insurance Subsidies:

CMS continues to be concerned by reports that obstetrical care is difficult to obtain in some communities because of high OB malpractice insurance rates, and is concerned that the existing Stark exception relating to the provision of malpractice insurance subsidies by hospitals is "unnecessarily restrictive". (The existing exception, among other things, requires that a physician receiving a subsidy practice in a primary care Health Professional Shortage Area.) Accordingly, CMS is soliciting comments on revisions to the exception that would increase beneficiary access to OB care without creating a greater risk of program abuse. The proposal details several new requirements that CMS is considering and on which it is seeking comment.

Restrictions on Unit-of-Service ("Per-Click") Payments in Space and Equipment Leases:

CMS has gone 'round and 'round about how per-click and time-based space and equipment lease arrangements should be treated under the Stark Law, since a per-click lease with a referring physician by definition takes into account the volume of referrals by that physician. The current Stark regulations allow time-based or per-click leases so long as the payment at the beginning of the lease term is at fair market value and does not change during the term in a manner that takes into account the volume or value of DHS referrals by the physician/lessor (or physician/lessee). However, at least in cases where the physician is the lessor, CMS has backtracked, and is now proposing that space and equipment leases between a physician/lessor and billing entity/lessee may not include per-click payments to the physician/lessor for services referred by the physician to the billing entity. In addition, CMS is soliciting comments on whether it should prohibit time-based or per-click payments to an entity/lessor by a physician/lessee to the extent that such payments reflect referrals from the entity to the physician. A reversal of CMS's position, as proposed, could affect many per-click leases that have been put in place based on the existing regulations.

Period of Disallowance for Noncompliant Financial Relationships:

CMS is soliciting comments on how to establish the period during which a physician could not make DHS referrals to an entity and the entity could not bill for services pursuant to such referrals where a financial arrangement between the parties was covered by Stark but failed to satisfy the requirements of a Stark exception. Where it is clear when the relationship begins and ends, CMS takes the position that the period of disallowance begins and ends on those same dates. Where it is not clear -- where, for example, a below-market lease may be perceived as being consideration for future referrals after the lease term -- CMS is soliciting comment on whether particular rules establishing the period of disallowance should or can be established. In addition, CMS is seeking comment as to whether the parties could shorten the period of disallowance by unwinding the deal and returning prohibited compensation, and whether the parties should be barred for a period of time from relying on an exception, even after the period of disallowance, where the parties have relied on an exception but have not satisfied it.

Ownership or Investment Interest in Retirement Plans:

CMS is proposing to revise the existing Stark Regulations to provide that "ownership and investment interests" in an entity do not include an interest in a retirement plan offered to a physician or his or her immediate family member as a result of the physician's (or family member's) employment by the entity.

Set-in-Advance and Percentage-Based Compensation Arrangements:

Many of the compensation exceptions under the Stark Law require that the compensation be set (or "fixed") in advance. The existing Stark regulations provide that percentage compensation arrangements with physicians would meet this requirement so long as the specific percentage formula was set forth in sufficient detail before any items or services were provided, and that formula could not be modified within the term of the arrangement in any manner that reflected the volume or value of referrals or other business between the parties. CMS has become concerned that percentage arrangements are being used not only as compensation for physician services, but also in space and equipment leases and perhaps in other arrangements. Accordingly, CMS proposes to clarify that percentage compensation arrangements may be used only for paying for personally performed physician services and must be based on the revenues directly resulting from those services and not on some other factor, such as a percentage of the savings by a hospital department unrelated to the physician services provided.

"Stand in the Shoes" Relationships:

CMS proposes to provide that, where a DHS entity owns or controls an entity to which a physician refers patients for DHS, the controlling entity will stand in the shoes of the entity to which the referrals are made and will be deemed to have the same compensation arrangements with the physician as the controlled entity. Thus, for example, where a hospital owns or controls a separate entity that contracts with physicians, the hospital will stand in the shoes of that entity and have direct compensation relationships with the contracting docs. CMS has indicated that it may, in separate rulemaking, address the issue of whether individual physicians stand in the shoes of their group practices.

Alternative Criteria for Satisfying Certain Exceptions (or, "We Almost Complied"):

A key recurring issue under Stark is the circumstance where a physician and a DHS entity have entered into a Stark-covered arrangement that is substantively in compliance with a Stark exception but not in full compliance with the technical requirements of that section -- e.g., where there is a missing signature on a lease or personal services agreement that otherwise complies with Stark. CMS asserts that it has no statutory authority to waive violations of the Stark Law, which is a strict liability statute. However, it is considering whether to amend the Stark regulations to provide an alternative method of satisfying the requirements of an exception where there has been an inadvertent violation of a procedural or "form" requirement of the exception. CMS has indicated that, if such an amendment were adopted, a number of requirements would be imposed, including (a) the parties self-disclose the violation to CMS, (b) CMS determines that the arrangement otherwise satisfied all the relevant requirements, (c) the violation was inadvertent, (d) the parties did not have knowledge of the violation at the time of the referral or the resulting claim, (e) the arrangement did not pose a risk of program or patient abuse, (f) no more than a set amount of time had passed since the time of the original noncompliance, and (g) the arrangement at issue is not the subject of an ongoing federal investigation, enforcement action or other proceeding. CMS further cautions that there would be no appeal or review of a decision to allow the alternative method of compliance, and that CMS would have sole discretion as to whether to make such a determination in the first place (i.e., the parties have no right to receive a determination, and there is no time limit on CMS's response). CMS is soliciting comments on whether such a policy should be adopted and as to various aspects of such a policy. It should be noted that, if a rule were adopted that generally followed the thinking espoused by CMS as laid out in the solicitation of comments, pursuing a determination by CMS would appear to be of limited utility, since the parties would basically be giving up any defenses they might have to a claimed violation and throwing themselves on the mercy of CMS, which might or might not be forthcoming. Further, it would appear on first blush to be somewhat difficult for a party to demonstrate convincingly that it did not know, for example, that a contract had not been signed.

Services Furnished "Under Arrangements":

CMS has expressed concern that under-arrangements relationships between physicians and hospitals have created risks of overutilization and other program abuse by creating "a method to share hospital revenues with referring physicians" by allowing physicians or physician/hospital joint ventures to provide services that had previously been and could continue to be provided directly by the hospital, and also by allowing services to be performed in a less medically-intensive setting than the hospital, but at a higher cost to Medicare because of higher outpatient PPS rates applicable in the under-arrangements setting. CMS is also concerned that these arrangements provide incentives for overutilization and "corrupt[] medical decision-making". Accordingly, CMS is proposing to revise the definition of an "entity" under the Stark Law so that the definition not only covers the person or entity that bills Medicare for DHS (as in the current definition), but also covers the person or entity that provides the DHS. CMS is also soliciting comments on whether it should adopt a recommendation from the Medicare Payment Advisory Commission that would prohibit physician ownership of any entity "that derives a substantial proportion of its revenue from a provider of [DHS]", thereby effectively prohibiting physician ownership of entities that provide equipment or services to hospitals under arrangements. Given the rise in under-arrangements relationships that has occurred since the adoption of the current Stark regulations, action by CMS in this area could substantially affect a large number of physician-hospital relationships.

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In reviewing these proposals, physicians, hospitals and other providers should be mindful of a number of factors:

1. Historically, there has been a fairly long gap between the proposal of regulations under the Stark Law and the adoption of final regulations, and the final regulations have frequently differed quite a bit from the original proposals. Accordingly, it may be awhile before we know what all of this really means.
2. On a number of the matters discussed above, CMS has not even actually issued proposed regulations, but has simply solicited comments on "conceptual" regulations. Again, there may be numerous changes before the adoption of final rules.
3. As sweeping, and in some cases potentially unsettling, as these proposals may be, they are not the full story. The much-discussed "Stark III" regulations are still to come from CMS, and it is widely rumored that they will be out sooner rather than later. A full assessment of a provider's Stark situation must take into account those regulations as well, whenever they are released.
4. Stark continues to be a strict liability statute, and it is the position of CMS that providers are responsible for complying with the statute irrespective of the status of proposed regulations. Accordingly, providers should not rely on statements contained in proposed regulations or CMS commentary concerning them to "save" a noncompliant arrangement or relationship that is covered by Stark.

Nonetheless, these proposals and comment solicitations are significant. Further, they demonstrate real concern at CMS with some common practices -- e.g., per-click leases and under-arrangements joint venture -- that have become more prominent since the last round of Stark regulations. Accordingly, providers should review these proposals carefully.

Comments on the proposals are due by August 31, 2007.

Submitted by William W. Horton, Haskell Slaughter Young & Rediker, Birmingham, Alabama

 

 

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