• Home
• |
• Professionals
  • Attorneys
  • Management
• |
• Practice Areas
• |
• News
  • Firm News
  • Recent Cases
  • Upcoming Events
• |
• Resources
  • Publications
  • HIPAA Resources
  • Practice Technology
• |
• Diversity
• |
• Contact
  • Offices
  • Directions
• |
• Search

Publications

Print

• Publications
• Health Care Updates
• HIPAA Resources
• Practice Technology

The Centers for Medicare and Medicaid Services ("CMS") recently published the 2009 Medicare Inpatient Prospective Payment System Final Rule ("Final Rule"), which included significant changes to the Stark Law exceptions. The changes will go into effect on October 1, 2008 except where otherwise noted. Most notably, CMS revised physician "Stand in the Shoes" indirect compensation provisions, and restricts and/or prohibits many "under arrangements" transactions, per-click leases, and certain percentage of revenues based compensation arrangements.

Under the Stark Law, physicians are prohibited from referring Medicare and Medi-Cal patients for the provision of designated health services ("DHS") to entities with which the physician (or an immediate family member) has a financial relationship, unless the financial relationship fits within an exception to the law.

Many of the recent changes will require hospitals and physicians to unwind or restructure joint ventures, leasing arrangements and other contracts or arrangements for designated health care services. Health care organizations should inventory their arrangements implicated by these new revisions to the Stark Law exceptions and examine alternatives for compliance.

"Stand in the Shoes" – Physician Organization Compensation Arrangements

Under the "stand in the shoes" rules, referring physicians are treated as standing in the shoes of their physician organizations for purposes of applying the rules that describe direct and indirect compensation arrangements. The existence or absence of a direct or indirect compensation arrangement could affect whether a financial relationship exists. Only a physician who has an ownership or investment interest in a physician organization will be deemed to "stand in the shoes" of the organization. If a physician has a compensation arrangement, but not an ownership or investment interest (e.g. employees or independent contractors), he or she will not be required to "stand in the shoes" of his or her physician organization. However, non-owner physicians and those with only a titular ownership interest (without the ability or right to receive financial benefits of ownership or investment) are permitted to "stand in the shoes" of their physician organizations at their own choosing if they desire to rely on the Stark direct compensation exception. Further, physicians will not be required to "stand in the shoes" of their physician organization if the arrangement satisfies all of the requirements of the academic medical center exception, or the current or renewal term of the arrangement satisfied the requirements of the indirect compensation exception as of September 5, 2007.

Under the revised "stand in the shoes" rules, a physician who is deemed, or opts, to "stand in the shoes" of his or her physician organization is considered to have the same compensation arrangements as the physician organization,, with the same parties, including DHS entities, and on the same terms. Accordingly, in order for a physician organization's compensation arrangements with a DHS provider to comply with an exception, referrals by the member physicians (unless they are exempt as described above) must also comply with the exception. Thus, when structuring arrangements with physician organizations, DHS entities should determine whether the physician organization has physician owners which trigger the physician "stand in the shoes" rules. If the physician organization indicates that is does not have physician owners, the DHS entity should incorporate contractual provisions under which the physician organization represents and warrants that it does not have physician owners and that further obligate the physician organization to notify the DHS entity immediately if the physician organization becomes physician owned.

"Set in Advance" and Amendments to Agreements

In the preamble to the new, "stand in the shoes" rules, CMS states that it is reversing its prior position and permitting multi-year agreements to be amended after the first year of their terms in certain circumstances without violating the Stark Law's "set in advance" requirement. According to CMS, the "set in advance" requirement permits an agreement to be amended as long as the following criteria are met:

• All of the requirements of an applicable exception are satisfied
• The amended rental charges or compensation (or the compensation formula) is determined before the amendment is implemented, and the formula is sufficiently detailed that it can be verified objectively
• The formula for amended rental charges does not take into account the volume or value of referrals or other business generated by the referring physician
• The amended rental charges or compensation (or the compensation formula) remain in place for at least one year from the date of the amendment

CMS further clarified that the rule regarding the amendment of compensation terms applies to all of the compensation arrangement exceptions that are required to be in effect for at least one year.

Period of Disallowance

The period of disallowance is the period during which a physician may not refer DHS to an entity and during which the entity may not bill Medicare because the financial relationship between the referring physician and the entity fails to satisfy all of the requirements of a Stark Law exception. The Final Rule clarifies that the period of disallowance ends no later than 1) when the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all the requirements of an applicable exception; 2) when the noncompliance is due to the payment of excess compensation, the date when the excess compensation is returned and the financial relationship satisfies all the requirements of an applicable exception; or 3) when noncompliance is due to the payment of compensation in an amount insufficient to satisfy the requirements of an applicable exception, the date when the additional compensation is paid.

CMS stated that a physician could repay all excess compensation or pay all insufficient compensation by obtaining a loan from the DHS entity, evidenced by a promissory note, as long as the loan is commercially reasonable and meets another Stark Law exception.

Alternative Method for Compliance

If a financial arrangement meets all requirements of an applicable exception, except for a signature on a written agreement, the arrangement will qualify for the exception as long as new limited signature requirements are met. If the failure to obtain the signature was inadvertent, the entity must obtain the signature within 90 days after the commencement of the financial relationship. If the failure to obtain the signature was not inadvertent, the entity must obtain the signature within 30 days after the commencement of the financial relationship. An entity can use the signature exception only once every three years with respect to the same referring physician.

Percentage Based Compensation Arrangements

In the Final Rule, CMS stated that compensation is not "set in advance," if a percentage-based formula (a percentage of the revenue raised, earned, billed, collected or otherwise attributable to the services performed or business generated) is used to determine the rent paid. This change impacts the rental of office space and rental of equipment exceptions, as well as the fair market value compensation and indirect compensation arrangement exceptions (to the extent that they relate to the lease of office space or equipment). This prohibition will become final on October 1,2009. Hospitals and physicians should review all current leases that will continue beyond October 1, 2009 and restructure all arrangements that utilize percentage-based formulae to determine rental charges.

Per-Click Lease Arrangements

Per-click lease arrangements are lease arrangements in which the lessor receives unit-of-service payments from the lessee. These are also known as per-use lease arrangements. The Final Rule prohibits per-click payments from a lessee (1) to a physician lessor for services rendered to patients who were referred by the physician lessor, and (2) to a lessor that provides DHS and receives a per-click payment from a physician lessee for space or equipment used by the physician in the provision of services to patients who were referred by the lessor to the physician lessee. CMS feels such arrangements are inherently susceptible to abuse because in each instance the lessor has an incentive to profit from referring a higher volume of patients to the lessee.

In its commentary regarding these changes, CMS notes that time-based rental arrangements that permit payment for the use of leased space or equipment "on demand" is essentially a per-use or per click type of arrangement, and is covered by CMS's revisions in the Final Rule. CMS additionally stated that it was taking the opportunity to remind parties to per-use leasing arrangements that the existing exceptions include the requirements that the leasing arrangement be at fair market value, and that it be commercially reasonable even if no referrals were made between the parties.

The Final Rule revises the space lease exception, the equipment lease exception, the fair market value exception and the exception for indirect compensation arrangements, and provides that per unit-of-service rental charges are not allowed to the extent that such charges reflect services provided to patients referred by the lessor to the lessee. The effective date of the amendments to the space lease exception and the equipment lease exception is October 1, 2009, in order to give parties adequate time to restructure arrangements. Hospitals and physicians should review all current leases that will continue past October 1, 2009, and restructure any that use "on demand" or "per use" time schedules.

Services Provided "Under Arrangements"

In the Final Rule, CMS stated that it is concerned about the risk of overutilization with respect to services provided "under arrangements" to hospitals and other providers, particularly with respect to hospital outpatient services for which Medicare pays on a per-service basis. Services that are provided "under arrangements" are services that are provided by an entity other than the entity that submits the claim

CMS addresses its concerns regarding services that are provided "under arrangements" by amending the definition of "entity" under the Stark Law to clarify that a person or entity is considered to be furnishing DHS if it is the person or entity that has performed the DHS (notwithstanding that another person or entity actually billed the services as DHS) or presented a claim for Medicare benefits for the DHS. When one entity performs a service that is billed by another entity, both entities are DHS entities with respect to that service.

Prior to this change, an "entity" included only the person or entity that bills Medicare for the DHS, and not the person or entity that performs the DHS where the person or entity performing the DHS is not the person or entity billing for it. Prior arrangements generally were structured to fit within a direct or indirect compensation arrangement, however future "under arrangements" transactions will now need to comply with a different Stark Law exception. The change in the definition of "entity" will have a significant impact on physician owned entities that currently provide services to hospitals "under arrangement," and will generally eliminate referring physician's ability to own interests in "under arrangements" providers. The change becomes effective on October 1, 2009, in order to give parties an opportunity to re-structure their arrangements. Hospitals should evaluate all of their contractual arrangements with physician-owned service providers for potential restructuring and amendment, or termination.

Exception for Obstetrical Malpractice Insurance Subsidies

The OB malpractice subsidy exception has been revised to include an alternative set of requirements under which hospitals, federally qualified health centers, and rural health clinics may provide obstetrical malpractice insurance subsidies to physicians who regularly engage in obstetrical practice as a routine part of a medical practice that is 1) located in a primary care HPSA, rural area, or area with a demonstrated need for physician obstetrical services as determined by the Secretary of the Department of Health and Human Services in an advisory opinion; or 2) comprised of patients at least 75 percent of whom reside in a medically underserved area or are part of a medically underserved population.

Ownership or Investment in Retirement Plans

Physicians will not be deemed to have an ownership or investment interest in their employer if such interest is owned through a retirement plan offered by the employer. If the retirement plan has ownership interests in other DHS entities to which the physician refers, the physician will be deemed to have an ownership or investment interest in those other entities.

Burden of Proof

When a DHS entity appeals a claim for payment that was denied on the basis that it was furnished pursuant to a prohibited referral, the DHS entity has the burden of proving that the service was not furnished pursuant to a prohibited referral. In the Final Rule, CMS stated that the burden of proof rules relate only to the administrative appeals of Medicare claims denials. Appeals of civil monetary penalties, exclusions or other remedies based on a determination that a DHS entity or a physician knowingly violated the Stark Law are not subject to this burden of proof rule.

Conclusion

A number of the changes in the Stark Law regulations will require modifications to existing contractual arrangements. In order to ensure compliance with the Stark Law, Hospitals and other DHS entities should audit and review all contractual and other relationships with physicians and consult qualified legal counsel prior to entering into any new relationships. Physicians should also take steps to identify which arrangements need to be modified so that they can begin the process of bringing such arrangements into compliance. Unless otherwise noted, provisions in the Final Rule are effective October 1, 2008 and non-compliant arrangements will need to be modified promptly.

If you require our assistance or have any questions about Stark Law compliance please contact Michael Dowell at mdowell@tocounsel.com or the lawyer in the firm who generally handles your health care legal matters.